Triastra Limited v Proprietors of Taharoa "C" Block
[2017] NZHC 1229
•7 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-419-318 [2017] NZHC 1229
BETWEEN TRIASTRA LIMITED
Plaintiff
AND
THE PROPRIETORS OF TAHAROA "C" BLOCK
Defendant
Hearing: 31 May 2017 Appearances:
Mr J Spring for Applicant/Defendant
Mr Dellow for Respondent/PlaintiffJudgment:
7 June 2017
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
07.05.17 at 3.30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
TRIASTRA LIMITED v THE PROPRIETORS OF TAHAROA "C" BLOCK [2017] NZHC 1229 [7 June 2017]
Background
[1] The plaintiff which is a consultancy company entered into arrangements with the defendant, which is an incorporated Maori-owned organisation which has business interests and land holdings on the West Coast of the North Island.
[2] In 2005 the defendant engaged the plaintiff to provide consultancy advice with regard to the possible establishment of a wind farm.
[3] The investigation of the wind farm proposal appears to have continued until at least September of 2013 at which point the board of the defendant recorded its intention not to further pursue such a project.
[4] The plaintiff has brought claims for damages against the defendant essentially alleging that the defendant did not give it sufficient notice to comply with the contractual notice period when it purported to terminate the arrangement between the parties by means of a letter which it sent to the plaintiff on or about the 18 July
2012. It is not clear from the pleadings exactly what the plaintiff is claiming in respect of this first cause of action but it would seem to be that the notice period was about a week short of three months. That would suggest that the plaintiff might have a claim for the period of one week for which it was not paid under this cause of action. However I understand that the plaintiff may be alleging that the effect of giving short notice was to vitiate the notice completely so that the contract was never terminated in accordance with the contractual provisions.
[5] I interpolate that after the notice had been given, it is the position of the defendant that it nonetheless continued to retain the consultancy services of the plaintiff but on a fortnightly basis which in turn came to an end mid-2013.
[6] The plaintiff by its second cause of action alleges that it has not been paid at the contractual rate in regard to invoices which it rendered to the defendant in the period June to December 2013. It further claims that a number of different agreements were entered into. It says that the third of these agreements, identified in the statement of claim as the “final agreement” (final agreement) on 25 February
2008 was breached by the defendant. It alleges that it was entitled to three months
notice with the notice period beginning on 3 December 2013. It would appear that the period of notice that the plaintiff alleges would have expired in February 2014. The plaintiff brings a claim for loss representing the project fees it would have earned in this period had it been able to continue with the contract. The position of the defendant, on the other hand is that after the 2006 consultancy services agreement was terminated in 2012 the only basis upon which the plaintiff was retained was on the fortnightly basis and that too came to an end mid-2013. Therefore, on the defendant’s view of matters, there was no entitlement to any payments during the period from mid-2013 to the end of the year.
[7] The plaintiff also asserts that under the consultancy services agreement it was entitled to a success fee which it estimates as the equivalent of $829,659 plus GST which the defendant would have been obliged to pay to the plaintiff. The success fee related to the expected development of a wind farm project which was the very matter about which the plaintiff was retained to provide advice. Linked to the success fee entitlement are implied terms. The first was that the defendant was to pay the fee to the plaintiff “on the date the wind farm project was reasonably capable
of reaching the completion point”.1 It also asserts an implied term that the defendant
would “take all reasonable steps to ensure that the wind farm project reached the completion point”. The plaintiff says that that point was reached in or about December 2012 to January 2013. It alleges that the defendant breached the contract by not taking reasonable steps to ensure that the wind farm project reached the completion point. The plaintiff alleges as well that the cause of the failure to reach the completion point with the wind farm project was the decision by the defendant not to proceed and to terminate the final agreement providing for consultancy services from the plaintiff on or about 3 December 2013. The plaintiff therefore claims to recover the value of the success fee.
[8] The plaintiff also pleads a fourth alternative cause of action which asserts that when it entered into the final agreement it agreed to accept hourly remuneration which is 50% of its usual hourly rates, so that the defendant would be required to pay
$125 per hour plus GST. It says that there was a further implied term in the farm
agreement that it would be “remunerated” for the under-charged fees, that is the 50%
1 Paragraph 36 statement of claim.
not charged, “when the wind farm project was reasonably capable of being taken to the completion point”. Because of the failure of the defendant to take the project to the completion point it is alleged that the plaintiff lost the ability to claim the success fee and it is entitled to be remunerated by an alternative mechanism that bound the defendant to pay to it the actual value of the lost fees which are alleged to have been
$1,662,986.2
[9] The defendants position, overall, is that it initially entered into a long term consultancy agreement with the defendant but that it was the term of such agreements that either party could terminate on three months’ notice. The defendant alleges that its solicitors, Minter Ellison Rudd Watts, “MERW”, wrote to the plaintiff on or about 3 December 2013 with the result that it sets out in its pleadings in the following terms:
It says further that the letter recorded that any agreements in place had been effectively terminated by 1 June 2013, as pleaded above.3
[10] It would appear that the actual notice which the defendant relies upon is in the form of a letter which the defendant wrote to the plaintiff dated 26 July 2012 in which the following statement, amongst others appeared:
As such, to initiate the next phase, please accept this is our formal written notice to conclude your current contract. Your services under the current arrangements shall cease on 18 October 2012, being the three month notice required.
[11] The plaintiff apparently does not accept that the letter of 26 July 2012 had the effect of terminating the arrangements. It may be that the point being taken is that the notice did not allegedly allow for a full three months notice but that is not clear from the pleadings which the plaintiff has filed.
[12] It would appear that from June 2013 to the end of the year the plaintiff continued to invoice the defendant for consultancy work which it alleges was carried out. The invoices were apparently not responded to, the defendant having stated its
position in the letter that it sent to the defendant on 21 May 2013.4 I should also
2 Paragraph 41 et and following of the statement of claim.
3 Paragraph 28 statement of defence.
mention that the response from the defendant to that letter was that there was no requirement to enter into a fresh agreement because the longstanding arrangements entered into in 2006 which it claimed were updated in 2008, continued to govern the position.
[13] The plaintiff in response commenced the current proceedings on 24
September 2015.
[14] On 14 September 2016 MERW wrote on behalf of the defendants seeking security for costs which it proposed to the addressee of the letter, the solicitors for the plaintiff, should be fixed in the sum of $70,000.5 It would appear that the amount claimed for security was based upon a calculation of costs on a category 2 basis through to the end of trial and including second counsel. The calculated total of those costs were $69,576. An application for security for costs dated 16
November 2016 followed. That application was supported by an affidavit of Mr Wayne Coffey who took up the position of replacement CEO of the defendant in or about September 2013.
[15] The grounds upon which the application was made included the following:
a) There is sufficient reason to believe that the plaintiff will be unable to pay the defendant’s costs if the plaintiff is unsuccessful in this proceeding:
i)The plaintiff has no known property and/or assets in New Zealand nor any other known means of meeting an award of costs in the defendant’s favour if the plaintiff is unsuccessful in this proceeding upon which the defendant could rely in enforcing a costs award;
ii)Evidence that the plaintiff can meet an order for costs has not been supplied despite request;
iii)The plaintiff, by its own admission, is capital constrained as its contractual relationship with the defendant was its exclusive source of income for the period of 8 years until that relationship was terminated in June 2013 and the defendant believes that the plaintiff has not earned any or any significant income since that date;
(b) the defendant has not caused the plaintiff’s impecuniosity;
(c) the plaintiff’s claims are without merit;
[16] The notice of opposition, in turn contained extensive grounds which can be summarised as follows:
a) There was an unjustified delay in applying for security for costs;
b)The defendant has failed to comply with Court directions in relation to discovery and discovery remained incomplete;
c) The defendant has materially contributed to inpecuniosity on the part of the plaintiff and that is a factor which weighed against granting security;
d) The plaintiff’s claims were meritorious;
e) The defendant’s application was intended to prejudice the plaintiff;
f) The plaintiff was able to meet any adverse costs order against it;
g) The amount of security sought was for various reasons excessive and linking the security to a possible scale costs order was not correct in principle;
h)The effect of the application would be to hinder the plaintiff’s prosecution of its claim and add to the delays which have already been caused by or contributed to on the part of the defendant;
i) The application is an abuse of process.
[17] I interpolate that the statement of the grounds of opposition seems to me to include make-weight provisions and is unnecessarily detailed. The question of whether the Court will order security for costs can be and should be decided on the basis of acknowledged principles which I will make reference to next.
Rules and Principles
[18] High Court Rules 5.45(1) and (2) provide:
(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.
[19] An application for security for costs generally requires answers to this series of questions see Busch v Zion Wildlife Gardens Limited (in rec and liq):6
(1) Has the applicant satisfied the court of the threshold under r 5.45(1)?
See [HR5.45.02] ("the threshold test").
(2) How should the court exercise its discretion under r 5.45(2)? See
[HR5.45.03].
(3) What amount should security for costs be fixed at? See [HR5.45.07]. (4) Should a stay be ordered? See [HR5.45.11].
[20] In A S McLachlan Ltd v MEL Network Ltd the Court dealt with an appeal against an order for security for costs. A joint venture partner alleged that the wrongful conduct of the other joint venture partner led to the failure of the joint venture. The actions were for misrepresentations and oppressive conduct towards shareholders. The appellants argued: (a) the High Court Judge had erred in assessing the strength of the claims; (b) that the effect of the granting of security in such a quantum would be to halt the litigation and (c) the plaintiffs’ impecuniosity had been caused by the defendants. The Court held that the merits of the case were difficult to assess at this early stage, and that it would be unduly harsh to make an order “so onerous” that it would likely prevent the matter going at least to the stage of inspection of documents. The order went further than necessary at the present time, especially as it took no account of the link between the alleged conduct and the plaintiffs’ impecuniosity. Because of this the appeal was allowed and the quantum of security reduced to a level that did not prevent the proceeding going further; however, the defendants were allowed to apply for further security after discovery
had been completed and the merits of the case more readily ascertainable.
6 Busch v Zion Wildlife Gardens Limited (in rec and liq) [2012] NZHC 17.
[21] The Court noted that 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. I interpolate that in this case the plaintiff does not assert that it will be unable to proceed with the case against the defendant if security for costs is ordered.
[22] The Court said it is open to the Court to order security for costs whether or not such a link exists between the defendant’s conduct and the plaintiffs’ impecuniosity. However, a link between defendant’s conduct and plaintiff’s impecuniosity is a relevant factor to be weighed in the exercise of the discretion.
[23] If a prima facie case can be established that the plaintiff’s claim is unmeritorious, that will be a factor in favour of ordering security. The less apparently meritorious, the more likely security is to be ordered.7
The threshold
[24] The first question that needs to be considered is whether there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful.8
[25] The starting point for this discussion is to consider what approximate costs would be likely to be ordered in the event that the plaintiff failed. While the figure put forward by the plaintiff cannot be regarded as accurate in detail, I would adopt for the purposes of this decision the likelihood that a party and party order for costs
is likely to lie somewhere between $50,000 and $70,000.
7 Highgate on Broadway Ltd v Devine [2012] NZHC 2288 at [22(c)].
8 HCR 5.5 (1)(b).
[26] It is necessary for the applicant/defendant to put forward some evidence which would justify the Court in coming to the view that there is reason for the belief that the plaintiff will not be able to meet the costs.
[27] The evidence of the defendant may be summarised as follows. It makes reference to the fact that internet and other searches have been carried out to assist in forming a view as to the financial position of the plaintiff company. It is said, and not contradicted by the plaintiff, that those searches have not revealed that the plaintiff owns any property.
[28] A company search has been obtained but that is uninformative about the financial position of the company.
[29] It is known that the company is a private, incorporated vehicle for a consulting business which is carried on by Mr Poulopoulos. The evidence of Mr Poulopoulos suggests that he is the sole person engaged in operating the business. Further, the defendant was the only client of the plaintiff, that the plaintiff has disclosed for a significant period of time from around about 2005 to 2013, which spans the trading relationship of the parties. A letter which a lawyer wrote on behalf of the company to the defendants lawyers on 5 December 2013 included the
following passage:9
6.As the demands of Taharoa C Projects meant that Mr Poulopoulos was effectively working full-time at Te Rapa, Triastra was not able to take on other work. It can come as little surprise that, until such time as the contractual dispute is involved, he has little choice but to continue billing at the contract rate to put Weetbix on the family table.
[30] Mr Poulopoulos in his affidavit explained these comments on the following basis:
(c) It is correct that Triastra had little choice in late 2013 but to continue working on the wind farm project for Taharoa so that I could “put Weetbix on the table”. This was because Triastra could not take on other work because I was committed to being available for 32 hours each week for the wind farm project. From the time Triastra accepted Taharoa’s 3 December 2013 notice of termination from
9 BD 40.
NERW, it became free to take on other work without that work interfering with the commitment to be available for wind farm work. Triastra has enjoyed successful consulting engagements with other parties since that date, and could have undertaken more work but for the need to deal with this litigation, which in a commercial sense is likely significant unremunerated major assignment.
[31] The affidavit continues:
17.Triastra is a long established consulting practice. It has an excellent credit history and is able to meet any likely costs awarded in this litigation. As its director and shareholder, I am willing to put its insolvency and good reputation at risk because it remains my family’s main source of income and continues to trade successfully to this day.
[32] The solicitors for the defendant have stressed the fact that the plaintiff has not responded to requests for information that would enable assessment of the financial standing of the plaintiff.
[33] In New Zealand Kiwi Fruit Marketing Board v Maheatataka Coolpak Limited.10 In that case Thomas J acknowledged that a defendant will often have difficulties obtaining information about the financial standing of a plaintiff which it can use in support of an application for security for costs. Thomas J concluded that in the circumstances of that particular case, there was no obligation on the part of the plaintiff/respondent to provide details of its financial situation.11 He accepted however there maybe circumstances where it would be reasonable to expect a response from the plaintiff so that failure to provide information could properly give rise to an inference:12
Which, perhaps added to other factors, would provide the Court with reason to believe that the party would be unable to pay costs in the event of it being unsuccessful.
[34] The Judge did not give any further indication upon the type of circumstances that would make it reasonable for such an inference to be drawn. The Judge did
however say that before an inference would arise in these circumstances:13
10 Kiwi Fruit Marketing Board v Maheatataka Coolpak Limited (1993) 7 PRNZ 209.
11 At page 211.
12 At 212.
13 At 213.
I believe that something more is required before it can be said that there is “reason to believe” that the plaintiff will be unable to pay the successful defendants court costs. The plaintiff must be outside the usual run of plaintiffs. It follows that it is not enough for the defendant to challenge the plaintiff’s ability to pay costs and then seek security for those costs relying upon the plaintiff’s refusal or failure to furnish details of his financial position.
[35] Thomas J elaborated on the remarks that he had made in the New Zealand Kiwi Fruit Marketing Board case in his later judgment of Arklow Investments v MacLean.14 He considered that the case under discussion could be distinguished from the New Zealand Kiwi Fruit Marketing Board. He said that that case decided that it was not enough for the defendant to challenge the plaintiff’s ability to pay costs and then seek security for those costs relying upon the plaintiff’s refusal or failure to furnish details of its financial position:
There must, I said, be some evidential foundation for the charge that there is reason to believe that the plaintiff will be unable to pay the costs before the Court is justified in drawing an adverse inference in the absence of a positive response from the plaintiff. Elsewhere I observe that whether or not it is appropriate to draw that inference is a question which can only be determined having regard to the material before the court in each case
[36] In Arklow the Judge concluded that evidence had been produced in the case before him which if answered would suggest that one of the persons standing behind the company could be in some difficulty in meeting the costs of the litigation should he prove unsuccessful. On closer examination, it would appear that the respondent in Arklow had provided information but it was subject to criticism from the opposing party concerning its lack of reliability.
[37] In this case the plaintiff has provided some information but it is of a bland unparticularised character which does not advance the enquiry into the question of whether the threshold issue should be determined in favour of the defendant.
[38] It is open to the Court to draw inferences from all of the circumstances in a particular case. In this case, the plaintiff is the incorporated entity by which Mr Poulopoulos carries on his practice as a consultant. It is inherently unlikely to
possess much in the way of assets. Indeed Mr Poulopoulos described the major
14 Arklow Investments v MacLean (1994) HPR NZ 188 at p 191.
assets of the company as being its “intellectual property” and its reputation. He did not specify what the intellectual property was of which he spoke.
[39] I observe that Mr Poulopoulos has not simply refrained from giving information about the financial status of his company. He has put forward affirmative material justifying why he says the company will be able to meet a costs order. That material is open to scrutiny. This is not therefore a case where the applicant has attempted to discharge the burden on it by questioning the respondent and thereafter inviting the Court to draw a negative inference from the failure of the respondent to reply.
[40] In this case the applicant has given evidence about its financial resources. It is to be inferred that the information is complete and that nothing material has been omitted.
[41] Mr Poulopoulos has pointed to the intellectual property of the company being a substantial asset which would presumably have to be liquidated in order to meet any costs order at the conclusion of the trial. His response is telling as much as for what it leaves out. He has attempted to show that there are assets but on closer examination they are not assets which are tradable, for which there is an obvious market or which could be offered as security for a loan. There are no real estate assets. There are no current debts that could be sold.
[42] Professional people of moderate sophistication often incorporate their professional practices in the current climate with a view to ensuring that such assets as they own are beyond the reach of any claims that might arise out of the operation of their practices.
[43] No doubt when lenders such as banks advance money to such companies they derive reassurance from having personal guarantees or securities from other parties to support their lending. This is common knowledge. Unlike a bank or other lender, the applicant in this case cannot protect its position by requiring that the company provide security or procure collateral security securing a potential costs order.
[44] Commonsense requires that the Court cannot ignore the existence of such characteristics in the case where the respondent company is a small incorporated professional practice.
[45] If there are no assets owned by the company of any value which the Court can be assured are not already secured, then recovery of any costs award must depend upon the continuing willingness of the proprietor to make him/herself available to earn income for the company and that the company will earn substantial profits that will be enough to provide a living for the proprietor with something left over to pay debts such as the litigation costs order that might be awarded.
[46] It may be that the practice generates a substantial level of income. Some professionals’ incomes are such that a requirement to meet a costs order of $50,000 would be regarded as being quite straightforward. However there are the usual risks that exist with a professional persons business including age, state of health, reputation, competition in the area and other matters.
[47] I have to conclude that the overall factual context in which this application is made provides reason to believe that the respondent will not be able to meet a costs order.
The discretion to make an order
[48] The discretion reposed in the Court is to be exercised in such a way that it balances the interests of the plaintiff and the defendant.
[49] There is no basis in the evidence for supposing that if the plaintiff is required to put aside part of the amount of the costs by way of security that such will prevent it from pursuing its claim. In such a case it will only be where a case is altogether without merit that the Court will make an order for costs which is almost certain to have the effect of bringing the claim to a dead holt.
[50] But consideration of the merits of a case is not limited only to those circumstances where such will be the outcome. In his judgment in Highgate on
Broadway Limited v Arthur Devine15 Kos J stated the position as being that in “New Zealand the prima facie lack of merit will be weighed in the balance; the less apparently meritorious, then the more likely security is”.16
[51] It is necessary to make brief reference to the merits of this case.
Unpaid fees claim - notice
[52] The plaintiff’s case in part is that the defendant has not paid invoices rendered to it pursuant to a continuing contractual obligation. On the other hand, the defendant has produced documentary evidence which suggests that the contract was in fact terminated and no long term replacement contract was put in place prior to the period in 2013 when the plaintiff rendered the invoices that are the subject of the first cause of action.
[53] The position that the defendants take is that in July 2012 they gave three months notice to terminate the current arrangements and invited the plaintiff to enter into discussions about a new contract. The plaintiff apparently continued to provide services.
[54] The contractual terms upon which that was occurring are not clear.
[55] The plaintiff says that a short term arrangement running from fortnight to fortnight was entered into in 2013. The defendant says in May 2013 it terminated that arrangement as well, seemingly on approximately a fortnight’s notice. Throughout this period, and since though, the plaintiff insisted that the arrangements that the parties entered into in 2006 stood and that they continued to govern its retainer.
[56] The 2006 contractual arrangement is, of course, the one that the defendant says that it terminated by giving three months notice. The defendant’s position as to that notice, which I have already set out, is that the date specified as to when the
contract would come to an end was about a week short of three months.
15 Highgate on Broadway Limited v Arthur Devine [2012] NZHC 2288, Kos J.
16 At [22].
[57] The important point is that it would appear that the plaintiff alleges that because of the shortfall of one week the notice as a whole was vitiated and the contract continued in existence. Therefore after October 2012 (which was when the three months notice would have expired) the plaintiff says that terms of that agreement no longer applied.
[58] If the defendant’s case is correct in this regard, the three months notice entitlement was abrogated for future employment and would be governed by the express terms of any fresh employment arrangements. The defendant says, in fact, that an express period of two weeks’ notice was required from the trading period after the 2006 agreement had terminated.
[59] In this case the defendant, as I have noted, has produced a letter giving notice of termination dated 26 July 2012. If that notification was valid, then as I have already concluded the notice arrangements must have been left on an implied basis and are likely to be less than three months duration. But the key point is that there is not a strong argument available to the plaintiff that the defendant acted unlawfully in giving notice. It was entitled to do that by the provisions of the contract. It may be that the period of notice actually specified in the notice of termination understated the period of notice to which the plaintiff is entitled by one week. I have not been referred to any authority as to the consequences of such an understatement (if it occurred). The shortage of notice it would seem to me would only have the effect of entitling the plaintiff to compensation for any earnings for which it ought to have been compensated for the whole period of the notice not the period notice less one week. Beyond that the shortage of the notice period in the notice which the defendant gave is not material.
[60] It may be that if the notice was understated by the period of one week, that the Court would have difficulty in concluding that the defendant had repudiated its contract with the plaintiff because the alleged non-compliance with the contract lacked the necessary substantiality. The question may be seen as whether the defendant was in such substantial breach of its own obligations that it could not take advantage of the contractual right to discontinue the engagement on notice.
[61] There are doubts whether there has been any breach of contract by the defendant and, if so, the extent of harm caused to the plaintiff. It is not established that the defendant has caused the impecuniosity of the plaintiff. As a consulting business on a retainer contract it was always at risk of finding that a key source of income was going to be closed off. There are indications that that is what occurred in this case when the defendant gave notice ending the arrangement. If there was a shortcoming in the period of notice which the defendant provided that is of minor importance and may not have had the effect of completely invalidating the notice. It may be that if the notice period did not comply with what the contract required, then it would entitle the plaintiff to damages in a small amount because of the understated period of the notice, or looking at it another way, the shortly premature end to the payment stream which the plaintiff received.
[62] It is not possible at the present stage to come to a clear view on what the effect of any decision notice might be. Tested in the context of contractual intention, it is difficult to say whether the parties expected that if the notice inadvertently understated the period of notice (so that it was one twelfth shorter than it ought to
have been)17 the result would be that the notice was wholly invalid.
[63] In the absence of argument from the parties in detail concerning these points it is impossible to come to anything approaching a clear view about the matter.
[64] It cannot therefore be said that the claim is likely to succeed or likely to fail in regard to the claims that the defendant has failed to pay for a number of weeks for which services were rendered pursuant to the contract.
Quantum meruit
[65] Another part of the claim is the claim linking the foregoing by the plaintiff of its usual hourly rate and the acceptance of a discounted hourly charge in its place. This, the plaintiff says it agreed to, as being the price of its entitlement to obtain a
success fee if the wind farm was completed. Because the wind farm was not
17 One week is of course a twelfth of three months.
completed the success fee is not going to be forthcoming, the plaintiff says it has uncompensated losses equivalent to the 50% discount on the hourly rates that it charged.
[66] The availability of quantum meruit typically arises in circumstances where there is no contractual entitlement which secures to a person carrying out work or providing goods. The type of case in which a quantum meruit claim of this kind is available was illustrated in the decision of Rodney Hansen J in MacKenzie v Thompson18 where the Judge referred to and followed the decision of Robert Goff J in British Steel Corporation v Cleveland Bridge and Engineering Company Limited:19
… if contrary to[the expectations of the parties] no contract was entered into, then the performance of the work is not preferable to any contract the terms of which can be ascertained, and the law simply imposes an obligation on the party who made the request to pay a reasonable sum for such work as had been done pursuant to that request, such an obligation sounding in quasi contract, or as we now say, in restitution.
[67] The fact is that in this case the plaintiff explicitly agreed what rates of payment it should be paid under a contract with the defendant. In addition to its entitlement to payment for its hourly charges it also secured the right to a success fee in certain limited circumstances. The contract did not, as it could have, provided that if the success fee did not materialise then the hourly rate would be deemed to be doubled, thus reversing the 50% discount. The basis upon which the plaintiff is making this claim is not that the contract did not make provision for the usual remuneration that the plaintiff would expect to be paid; that the plaintiff was motivated to charge less because it hoped, vainly as it turned out, that any reduction in hourly charges would be off-set by the success fee it hoped to earn.
[68] The fact that the plaintiff had such a private motive or intention does not in my view provide a proper basis for claiming quantum meruit.
[69] I would consider the plaintiff’s claim under this heading to be weak.
18 MacKenzie v Thompson [2005] 3 NZLR 285 at 287.
19 British Steel Corporation v Cleveland Bridge and Engineering Company Limited [1984] 1ALL ER 504 at 511.
Success fee claim
[70] A further part of the case concerns the claim that the defendant is liable to the plaintiff for failing to progress matters with respect to the wind farm to the point where the plaintiff would have been able to make a valid claim for a success fee. I consider that point next.
[71] At paragraph 10 of the statement of claim it is alleged that the material terms of the final agreement were that:
10.2 The parties agreed a contingency fee arrangement where:
10.2.1 Triastra was to an invoice Taharoa C 50% of Triastra’s
normal rate.
10.2.2 Triastra would receive a share in a success fee when it had completed its plant in the project, specifically it would receive 0.72% of the all-inclusive capital cost of the windfarm project.
10.2.3 The success fee was payable to Triastra when the wind farm project was handed over to the EPC contractor as defined in the agreement.
[72] In the relevant part of the statement of claim it is pleaded:
36.The final agreement contained two implied terms (implied as a matter of law, fact ought to give business efficacy) that:
36.1The success fee became due to Triastra on the date the windfarm project was reasonably capable of reaching the completion point by the actions of Taharoa C; and
36.2Taharoa C would take all reasonable steps to ensure that the windfarm project reached the completion point.
[73] It would appear that the only reference in the agreement between the parties concerning a success fee is in the following part at page 5:
Note
Should a success fee payable to Triastra for the raising of capital then this will be split on a 50-50 basis with Taharoa C less any direct expenses which may arise as a result of the payment of such fee.
[74] While the pleading in the statement of claim asserts that a success fee would be payable to Triastra that is not explicitly referred to in the original agreement. The provision in the preceding paragraph governs what is to happen if a success fee is actually earned but does not actually give rise to the success fee entitlement in the first place. There is no particularised pleading of when the success fee was entered into or what is involved. As it turned out the event on which the alleged success fee was contingent, never occurred. That is because the wind farm business was never established.
[75] The circumstances in which the defendant appears to have given up on the wind farm proposal deserves brief mention.
[76] There had been a long period of gestation for the wind farm project. It would appear that in or about 2013 it reached a turning point when the proposed manufacturers of the wind farm pylons were not able to provide an acceptable standard or warranty relating to the componentry of the machines. The defendant claims that its financier wanted an assurance about the quality of the installations which was not forthcoming. It is inherently believable that such a requirement would be imposed, in my view. The fact that the necessary warrant was not forthcoming ended the immediate practical prospects of the defendant proceeding with a wind farm and negotiating a successful on sale arrangement to a power distribution company. That appears to have resulted in the defendant terminating arrangements that it had been making to that point with a Chinese company, Gold Wind. At some later point the defendant determined that it would not pursue a wind farm.
[77] On the assumption that it is entitled to a success fee, the plaintiff presumably relies upon implied terms being incorporated into the contract. In particular, the plaintiff’s case would seem to involve the proposition that the defendant was prevented from completely ignoring the entitlement of the plaintiff to make, based on its business judgement, the commercial decisions about whether or not to proceed with the wind farm project. Given that the plaintiff has been critical of the failure of the defendant to continue investigating alternative cooperative parties for the wind farm project after the exit of Gold Wind, it would seem that its position is that it has
an entitlement to call into question decisions made by the defendant about whether or not to continue with the wind farm. Whether going ahead with such a project was in the best interests of the defendant is a matter that the plaintiff apparently considers should be looked into by the Court to determine whether or not the decision not to proceed was defensible. The apparent objective of this enquiry would be that the Court could conclude that the defendant ought to have proceeded with the project and that its failure to do so breached implied obligations owed to the plaintiff.
[78] The type of implied arrangement which the plaintiff contends for must satisfy the tests imposed by cases such as BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings.20 It would seem unlikely to me that such an approach would succeed given my current approach to the implication of terms which is reflected in judgments such as that of the Court of Appeal in Hickman v Turn and Wave Limited.21 As part of that discussion reference was made to Attorney-General of Belize v Belize Telecom Ltd.22 In his speech in the Belize case Lord Hoffmann made reference to BP Refinery and went on to say, in a key
passage:
The Board considers that this list is best regarded, not as a series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means or in which they have explained why they did not think that it did so. The Board has already discussed the significance of ―necessary to give business efficacy‖ and ―goes without saying‖. As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.
[79] While there are limits about the extent to which the Court can, in the context of determining a security for costs application, evaluate the prospects of success of a case, I think it is correct to acknowledge the submission by Mr Spring for the
defendant that in the end the issue is not going to come down to “who has the best
20 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of
Hastings (1977) 16 A.L.R. 363 (PC).
21 Hickman v Turn and Wave Limited [2011] NZCA 100 at [241] and following.
22 Attorney-General of Belize v Belize Telecom Ltd [2009] UK PC10 at [27].
evidence” (to quote his words) but to the meaning to be given to the contractual
arrangements between the parties.
[80] On the other hand, given the requirements that implied terms be not unreasonable23 there would be real problems in persuading the Court that the defendant had to pursue an agreement, even at its own commercial disadvantage, if necessary, in order to ensure that a wind farm agreement was concluded and the plaintiff would thereby earn its success fee.
[81] It might be reasonably arguable that any implied term would include a requirement that the defendant not act for the purposes of damaging the interests of the plaintiff rather than acting bona fide to protect its own commercial interests in the matter. Whether such a term could be propounded and, still more critically, whether the plaintiff would be able to prove a breach are both moot. It would seem inherently unlikely that the defendant would deprive itself of a genuine commercial opportunity simply for the reason of circumventing the entitlement of the plaintiff to a success fee.
[82] On the cursory examination which I have been able to undertake in the present context, it must be said that there are real problems in the path of this part of the claim. The first is that the plaintiff has not even pleaded a particularised basis upon which the Court could be asked to consider whether or not a success fee arrangement was actually entered into. There are also problems with proposed implied arrangements for which the plaintiff contends.
[83] A substantial part of the time that this case will take for trial, which would seem to be probably not less than five days, will be taken up with exploring the existence of the agreement for a success fee and the general background which would inform the interpretation of that agreement and the process of identifying any additional implied terms that the Court ought to give effect to. If there is any doubt
about the strength of the plaintiff’s case in this area then the Court ought to take that
23 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of
Hastings (1977) 16 A.L.R. 363 (PC).
into account. It is to be acknowledged that some parts of the plaintiff’s claim24 may not suffer from the deficiencies and uncertainties of the claim about the success fee. But that does not prevent the Court from taking a realistic view of what the greater part of the case will be concerned with. On my view, the preponderance of the issues that the Court will be concerned with will be the plaintiff’s success fee claim and it is going to be that issue that takes most of the time for the hearing. It is also in regard to that part of the claim that real weaknesses can be identified.
Impecuniosity caused by the defendant?
[84] In circumstances where it is the actions of the defendant which have caused the inpecuniosity of the plaintiff, it will be unjust for the defendant to be able to rely upon the resulting inability to pay costs in order to obtain an order for security for costs.
[85] It has been observed that if it is reasonably probable that the defendant’s actions which are the subject of the cause of action caused the plaintiff’s impecuniosity, that is a strong consideration against awarding security.25 Because of the doubts that I have about the validity of the claim which the plaintiff brings and which I discussed elsewhere, I do not consider that it is reasonably probable that actionable conduct or omissions on the part of the defendant caused the plaintiff’s
financial embarrassment.
[86] I note that in any event, it is paradoxical for the plaintiff to claim, on the one hand, that it is in good financial heart and able to pay the costs of the action, and on the other to complain that the defendant has caused its impecuniosity.
[87] Impecuniosity caused by the defendant is not, in my judgment, a factor that is relevant to the decision whether or not to grant security.
24 For example the question of whether the full term of notice was given to which the plaintiff was entitled.
25 Highgate on Broadway at [23] (a).
Delay
Alleged delays on the part of the defendant
[88] The defendant contends that the Court ought to decline to make an order for security for costs on the ground that the applicant has delayed in applying for that order. The proceedings were commenced in 2015 but it was not until November
2016 that the present application was made. The defendant says that part of the reason that an application for security was not made until November 2016 was that the parties had been informally discussing the matter. The plaintiff, on the other hand, says that the effect of the delay in making the application is that in the meantime the plaintiff has been involved in a prolonged and expensive process of completing discovery.
[89] I asked Mr Dellow for the plaintiff why the question of discovery was relevant. I asked that question because it seemed to be the case that discovery would be as onerous or as easy irrespective of what stage of the proceedings the application was made.
[90] In the end I do not accept that even if there have been delays on the part of the defendant in providing discovery that that is relevant to the question of whether security for costs ought to be ordered. I do not consider, if this is what this suggestion is, that an otherwise merited application for security for costs should be disallowed in order to discipline the applicant for lack of expedition in dealing with interlocutory stages of the case including discovery.
Delay in applying for security
[91] In some cases the Court in its discretion has disallowed an application for security for costs because of delays in bringing it.
[92] One case that is relevant to this Gillette v Wylie.26 The application for security for costs was made on 4 July 2014 in circumstances where the substantive
fixture was scheduled to commence on 20 October 2014. From the intituling of the
26 Gillette v Wylie [2014] NZHC 1691.
case, it is obvious that the proceeding had commenced in 2013. It is not difficult to understand why in those circumstances the Court considered that the filing of the security for costs was very late. The Judge concluded in that case that the applicant must become aware of the financial position of the respondent early on in 2014. He does not say exactly when he concluded that the applicant acquired the relevant knowledge. The Judge agreed with counsel that to file an application for security for costs the close of pleadings date (at which time the proceeding is ready for trial) was too late and the application was declined.
[93] Very late applications for security for costs are to be deprecated for various reasons. If the application is made too late it may imperil the start date of the substantive hearing. That is not the case here. Even if the application is made at an earlier stage but at a time when the parties are preparing for trial, criticism could be made that the late filing of the application would amount to a serious distraction for the parties at a point where trial preparation will have begun in earnest.
[94] There must also be a suspicion in some cases where a late application for security for costs is made that it is not genuinely being made to protect the party from the costs of the proceeding. If it were, one would expect an application to have been made at a point where substantial costs began to be incurred. Depending upon the circumstances, it may be inferred that the applicant has acted in the knowledge that requiring a party to come up with costs at a late stage means that the result will be to impose strain on the party’s financial resources as its funding commitments begin to rise steeply as it finds itself at the commencement of trial date.
[95] However in the circumstances of this case the foregoing considerations are not relevant because a trial date has yet to be allocated and the parties are still some distance away from preparing evidence for trial.
[96] Where there has been a late application made, the question may arise as to whether the party has deliberately stood by while the opposite party expended money on the preliminary stages of the case only to intervene once that expenditure has been carried out with an application for an order to stop the case proceeding further. In that situation, the costs expended up to the point of the application by the
respondent would have been outlaid futilely and may be regarded as having been thrown away in a case where the claimant is unable to provide it27 I should add that if that was alleged to be behind the deferred filing in this case it has not had the desired effect because the plaintiff says that it would, with difficulty, be able to provide security for costs. I acknowledge though that late filing of security applications is to be deprecated. But in this case the delay in filing does not appear
to have caused the potential problems that sometimes arise.
[97] I am not satisfied that in the present case there is any reason in principle why the court should exercise its discretion against allowing the application because of delays on the part of the defendant.
The position of the defendant
[98] In some situations to allow litigation to proceed without the checks and protection of security will be oppressive to the interests of other parties, particularly where a litigation is unjustified or unmeritorious, over-complicated or unnecessarily protracted.28 Understandably the defendant here, like any other litigant, does not wish to hold an order for costs that is hollow and will never be satisfied. However there is nothing in the overall circumstances of the case that would suggest that the
way that the litigation has been managed by the plaintiff has given rise to oppression of the interests of the defendant.
[99] There is nothing extraordinary or unusual about the position of the defendant which points to the need for a security for costs order to be made. Of course, it would be disadvantageous for the defendant to be placed in the position where it was unable to recover the costs order. The defendant has that in common with all of the
defendants.
27 Halsbury's Laws of England, Vol Civil Procedure, at [618].
28 McLachlan at [16].
Conclusion
[100] The conclusion I have come to is that the defendant has satisfied the threshold requirement of the Rules in this case and has demonstrated that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant.
[101] On the other hand, security for costs is not ordered on a run of the mill basis. There must be some exceptional aspect to the case which justifies the ordering of security for costs.29
[102] In the present case, I have concerns about the strength of the plaintiff’s case. As the case has been pleaded and explained to me, it does not appear to constitute a substantial case which has a basis in the realities of the circumstances in which the parties found themselves.
[103] There is not present in this case the risk that making an order for security for costs would bring the case of the plaintiff to a halt. The application does not therefore involve questions of access to justice. It is restricted to considerations of allocating the risk of financial hardship between one party or the other.
[104] In the overall circumstances balancing matters up overall I am persuaded that an order for costs ought to be made in this case. For the purposes of this application I would assess the likely costs are as being in the region of $50-$70,000. However, the prospective costs are what the application for security is concerned with as Mr Dellow pointed out.
[105] Further, as he points out, discovery has been substantially attended to without the need for verified lists of documents. Including the cost of discovery as an expense yet to be incurred is not therefore justified. I agree.
[106] On the other hand, I do not consider that some of the deductions that
Mr Dellow proposed should be made to the overall 2B cost calculation of the applicant, are reasonable. It is likely that there will from this point be at least one
29 Highgate on Broadway at [23] (a).
additional conference and it is likely that there will be one or more interlocutory applications. As well, the costs of the present application which will follow this judgment will need to be paid and, because the order is going to be in favour of the defendant, that is a matter that needs to be factored into the overall amount of security. Taking these matters overall, my assessment would be that the 2B costs viewed prospectively will be in the region of $30-$35,000, including trial costs based on an estimated trial duration of five days.
[107] No submissions were made to me concerning a principled basis upon which the Court should make a decision about what part, if not the entirety, of the estimated future costs should be paid. In my estimation, there is a risk that if the defendant reached the point where it was attempting to enforce a costs order which includes the
$30-$35,000 estimated above, that none of the amount payable would be recoverable from the plaintiff company.
[108] There is no basis for considering that making an order for payment on that approximate sum would cause such hardship to the plaintiff that some reduction is called for.
[109] From that starting point, and in the absence of any contrary contentions, in principle it seems to me that the plaintiff should be entitled to security for $32,500. The greater part of the costs in this case will begin to be incurred during the pre-trial programme at which stage briefs of evidence are being prepared. The security should be given on an incremental basis weighted to reflect that fact. The order I therefore make is that the first tranche of the costs is to be $15,000. That sum is to be paid not later than 30 June 2017. The balance is to be paid on the setting down date. The security is to be paid to the Registrar on the usual terms.
Costs
[110] The parties are in agreement that costs should follow the event and there will therefore be an order for costs on a 2B basis and disbursements in favour of the defendant in regard to this application.
J.P. Doogue
Associate Judge
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