Tyre Collection Services Limited v Le Roy
[2016] NZHC 1268
•13 June 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000060 [2016] NZHC 1268
BETWEEN TYRE COLLECTION SERVICES
LIMITED Plaintiff
AND
MICHAEL BENNY LE ROY First Defendant
JAMISON INVESTMENTS LIMITED Second Defendant
TYRE RECYCLING SERVICES NEW ZEALAND LIMITED
Third Defendant
Hearing: 30 May 2016 Appearances:
G A Biggs for Plaintiff
D J Ballantyne for First, Second and Third DefendantsJudgment:
13 June 2016
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Tyre Collection Services Limited (TCSL) is a tyre collection and recycling company based in Rolleston, Canterbury.
[2] Michael Le Roy is the sole director and shareholder of Jamison Investments Ltd (Mr Le Roy and JIL) which was engaged by TCSL to collect used tyres on its behalf. Tyre Recycling Services New Zealand Limited (TRS) is also engaged in the business of collecting used tyres, and its sole director and shareholder is Mr Le Roy’s stepdaughter.
[3] TCSL collects “end of life” tyres from various suppliers throughout the South
Island. It arranges for them to be brought to a processing and storage yard in
Rolleston from which they are then exported or sold to other end users.
TYRE COLLECTION SERVICES LTD v LE ROY & ORS [2016] NZHC 1268 [13 June 2016]
[4] In early 2014 TCSL entered a short term contract with JIL by which the latter would collect tyres on behalf of TCSL and bring them to Rolleston, or take them direct to purchasers in the Canterbury area. The arrangement was JIL would lease TCSL’s truck, but would have an option to buy it for a certain price and if it did so a new three year contract would be entered. JIL did subsequently buy TCSL’s truck and a new contract was entered on 26 July 2014. Both contracts were drafted by Mr Shackleton, director of TCSL, without legal advice or assistance.
[5] Later in 2015 Mr Le Roy arranged for a new business to be set up in competition with TCSL, and for TRS to be incorporated. This led to TCSL terminating its contract with JIL and issuing this proceeding. It applied for an interim injunction to prevent JIL and Mr Le Roy carrying on business as they had,
which was granted after a defended hearing before Dunningham J.1
[6] The facts put before the Court on the application for an interim injunction are comprehensively summarised by Dunningham J in paragraphs [4] – [30] of her Honour’s judgment, and need not be repeated here. On 16 March 2016 all the defendants filed a statement of defence, and JIL filed a counterclaim. After pleading to the allegations in the statement of claim, Mr Le Roy and JIL plead five positive defences. Unusually, at the conclusion of each pleading of a positive defence, they set out a prayer for relief.
[7] TCSL applies for an order directing both Mr Le Roy and JIL to give security for costs under r 5.45 of the High Court Rules. Although the portion of the statement of defence and counterclaim which is described as a counterclaim is brought only by JIL, TCSL says that all the positive defences amount to counterclaims because in relation to each, both Mr Le Roy and JIL seek specific relief.
[8] Rule 5.45 of the High Court Rules provides, to the extent relevant:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant, -
1 Tyre Collection Services Limited v Le Roy [2016] NZHC 403.
(a) ...
(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding.
(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
(3) An order under subclause (2) –
(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient –
(i) by paying that sum into court; or
(ii) by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and
(b) may stay the proceeding until the sum is paid or the security given.
(4) ... (5) ...
(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.
[9] In the course of argument Mr Ballantyne accepted that as a matter of correct pleading none of the positive defences should be followed by a prayer for relief. He undertook to file an amended statement of claim and indicated that this would be in largely the same form as the present statement of defence and counterclaim, but with the prayers for relief following each of the five positive defences deleted.
[10] As a result this application is to be considered on the basis that the plaintiff faces one counterclaim by JIL. Ms Biggs accepted that if the prayers for relief were deleted the positive defences cannot be construed as counterclaims.
[11] The issues to be decided are:
(a) Is there reason to believe that JIL will be unable to pay the costs of
TCSL if unsuccessful in its claim?
(b)If the answer to the first issue is yes, is it just in all the circumstances to order the giving of security for costs?
(c) If so, what sum should be required to be given?
First issue: Is there reason to believe that JIL will be unable to pay the costs of
TCSL if unsuccessful in its claim?
[12] There is extensive evidence before the Court not only on the application by TCSL for an interim injunction, but also on the application by Mr Le Roy and JIL to stay the injunction pending an appeal against the granting of it to the Court of Appeal.2
[13] In his affidavit dated 1 March 2016 Mr Le Roy says that if the injunction were granted neither JIL nor he, nor the third defendant, would have any source of income. By that time JIL had obtained another truck, and both its trucks were leased to TRS and set up as tyre collection trucks. Mr Le Roy said that if the injunction were granted the employees JIL had taken on to service its contract with the third defendant would need to be made redundant, JIL would not be able to service its asset finance loans and would likely be placed in liquidation, and he would be subject to claims in his personal capacity as guarantor of those loans. He also said it was likely that JIL would be unable to afford to pursue its counterclaims against TCSL.
[14] In an affidavit sworn on 8 April he states that neither he nor JIL has the financial capacity to pursue the appeal filed with the Court of Appeal or to recover financially from the effects of the interim injunction unless it were stayed. He also confirms that JIL would not be in a position to pursue its counterclaim against TCSL if a stay were not granted. He says that he has only been able to earn minimal income since the injunction was granted and the main source of income in his household is his wife’s remuneration for looking after foster children. JIL has been unable to find alternative sources of income for its branded tyre collection trucks, and has not received income for tyre collections since December 2015 as invoices
sent to TCSL remain unpaid. He refers again to a security for a loan over the trucks
2 The stay was declined, and the appeal has been abandoned.
and the fact that the financier would no doubt exercise its powers under the loan agreements to repossess and sell the trucks if a regular source of income could not be found. He also refers again to his personal guarantee.
[15] In a third affidavit, sworn on 19 April, Mr Le Roy says that JIL has had to borrow monies to fund this proceeding. He also says, however, that if necessary JIL could sell the trucks which have a combined worth of around $120,000. He does not disclose whether this figure represents the net equity JIL has in the vehicles, despite referring to loans secured against them.
[16] In addition to relying on this evidence from Mr Le Roy, counsel for TCSL also submits that Mr Le Roy has a poor financial history, having been made bankrupt in 2010. She points out that a company he formerly owned, Le Roy Investments Limited, was placed into liquidation in 2009 and another of his companies Always Bin Reliable Limited was also placed into liquidation. As well, costs awarded against the defendants on the interim injunction application amounting to $11,575.50 remain unpaid.
[17] Mr Ballantyne says that TCSL admits JIL’s counterclaim for breach of contract as it admits that it has not paid the sum of $14,820.71, the total of two invoices rendered by JIL to TCSL prior to this dispute arising. He says that JIL’s application for summary judgment claims judgment only in relation to this debt. As a result he says there is likely to be judgment and an award of costs in favour of JIL on this application for summary judgment. I infer that counsel implies this may offset the unpaid costs.
[18] After reviewing the evidence to which I have referred, and taking into account the submissions made by counsel, I am satisfied that the threshold test in r 5.45(1)(b) is met. There is, in my view, ample reason to believe that JIL will be unable to pay the costs of TCSL if it is unsuccessful in its counterclaim.
[19] Issues arising from the counterclaim for unpaid invoices, which is the subject of the summary judgment application, are not relevant to establishment of the
threshold test. They are relevant, however, to the second issue and are referred to again, below.
Second issue: If the answer to the first issue is yes, is it just in all the circumstances to order the giving of security for costs?
[20] When Ms Biggs was preparing her written submissions in support of her client’s application she was faced with a pleading in which both Mr Le Roy and JIL sought specific relief on five bases which they described as positive defences, and four causes of action by JIL described as counterclaims. Understandably her stance was that in assessing whether security for costs should be awarded, and if so in arriving at an appropriate quantum of security, the so-called positive defences should
be treated as counterclaims.3 On that basis, in her written submissions Ms Biggs
assessed, after analysis of what she saw as causes of action against TCSL, that approximately half the attendances on pre-trial matters, and half the trial time, would be taken up in relation to the counterclaims of the first and second defendants.
[21] After this issue was raised with Mr Ballantyne and he accepted that specific relief should not be sought as a consequence of the positive defences, Ms Biggs responsibly accepts that this would not be the case. After considering how the amended statement of defence and counterclaim might look, as best she could under the circumstances, Ms Biggs says that the Court should conclude, on the information available to it at present, that approximately 20 to 25 per cent of pre-trial attendances and trial time would relate to the counterclaims by JIL.
[22] On the basis of the statement of defence and counterclaim as it stands, Ms Biggs presented an assessment of prospective attendances, and estimated a likely trial time of five days. This led her to produce an estimate of a likely adverse costs award against Mr Le Roy and JIL on their counterclaims of some $21,185. This was half of the total estimated scale fees for pre-trial issues and trial of $42,370. Applying her amended assessment of 20 to 25 per cent, the estimated proportion of costs which might relate to the counterclaim by JIL is in the region of $8,500 to
$10,500.
3 Mr Le Roy and JIL were in the position of plaintiffs in terms of r 5.25(6).
[23] Mr Ballantyne devoted a good deal of his argument to analysis of TCSL’s claim and the difficulties, as he sees them, facing TCSL at trial. He also carefully explained JIL’s counterclaim which is based on alleged breaches of the contract by TCSL in effectively setting up in opposition to JIL and collecting tyres, which JIL was entitled to collect under the contract, from tyre suppliers close to Christchurch and Rolleston. These could be collected at lower expense than tyres from more distant locations, and therefore contributed more significantly to the profitability of the business TCSL was running.
[24] Although extensive evidence was presented by affidavit on the injunction application and the subsequent application for a stay, and is before the Court on this application, I do not find it necessary to canvass it in detail. I accept, for present purposes, that the counterclaim is arguable. It is not necessary on this application to re-analyse the strength of the claim by TCSL, because it is not relevant to an assessment of whether to require security for costs on a counterclaim. In any event, the strength of TCSL’s claim has already been assessed by the Court and nothing would be gained by repeating that exercise.
[25] The second principal argument presented by Mr Ballantyne was that ordering security for costs would be oppressive to JIL and may deprive it of the ability to advance its counterclaim. He says its present financial position is a direct result of the Court granting an interim injunction against it, Mr Le Roy and TRS. Although that is a view repeatedly stated by Mr Le Roy in passages in evidence which I have already referred to, the evidence also discloses other facts which appear to be of relevance. First, JIL does own trucks and, although they are apparently subject to finance, Mr Le Roy himself says that if necessary they could be sold, and have a
combined worth of around $120,000.4 Secondly the evidence also shows that the
portion of the counterclaim for which summary judgment is sought relates to two invoices on which liability is admitted. JIL’s counterclaim on this point appears to be at least arguable.5 If it succeeds on its application for summary judgment JIL will receive payment of a sum which will exceed the amount owing to JIL on the interim
injunction costs award ($11,575.50), and costs, and this will result in several
4 See paragraph [15] above.
5 A defence based on estoppel is raised.
thousand dollars being available towards a sum which might be ordered to be given by way of security.
[26] In Bell-Booth Group Ltd v Attorney-General, Davison CJ set out a list of principles applying to an application for security for costs.6 His Honour noted that the ordering of security for costs is discretionary, there is no burden or predisposition one way or the other, and the interests of both the plaintiff and the defendant are to be considered. An application for security for costs may not be used oppressively to shut out a genuine claim by a plaintiff of limited means, but on the other hand an
impecunious plaintiff must not be allowed to use its inability to pay costs as a means of putting undue pressure on a defendant. For all that, the Court does have power to order a plaintiff (here, counter-claimant) to do what it is likely to find difficulty in doing, namely, providing security for costs which ex hypothesi it is unable to pay.
[27] His Honour then set out a number of factors which might be taken into account in the exercise of the Court’s discretion.7 These factors have been referred to in judgments of this Court on numerous occasions. They provide a checklist of factors that may or may not be present in any given case, but are no more than that.
[28] In Nikau Holdings Ltd v Bank of New Zealand, Master Williams also set out a list of principles to be applied.8
[29] The Court is not, however, to resolve an application for security for costs by application of a rigid set of principles. As the Court of Appeal said in McLachlan v MEL Network Ltd:9
[13] Rule 60(1)(b) High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.
6 Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457 (HC) at 460-462.
7 At 461.
8 Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430 (HC).
9 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA).
[14] While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a check list of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.
[30] In my judgment JIL should be directed to give security for costs on its counterclaim. Two principal factors have directed me to this conclusion. First, although JIL claims that it is impoverished, and there are reasons to think that its present financial position has been brought about at least in part by the actions of TCSL, there are at the same time factors which strongly suggest that an order at a level appropriate to its counterclaim will not deprive it of the right to bring that counterclaim to the Court. The evidence given on its financial position by JIL is ambiguous, as can readily be seen from the passages to which I have referred. It is also unclear whether JIL maintains that its present financial position has been caused by TCSL’s actions in relation to tyre collection and termination of its contract, or by the injunction and subsequent stay ordered by this Court.
[31] Secondly, I am not satisfied that this application is brought to put pressure on JIL, as JIL maintains. The approach taken by the parties to this case to date has been combative and unless there is a change of tack by both parties this case appears highly likely to go to trial with every possible point being taken. Whether that is a wise way for either party to expend its resources, given the substantial conflicts on the evidence and the difficulties inherent in reliance by either side on a contract drawn without legal advice and plainly deficient in some ways, is for the directors of TCSL and JIL to decide, but the evidence does not persuade me that this application for security for costs is tactical or oppressive.
Quantum
[32] The amount to be ordered by way of security for costs is not intended to be a pre-estimate of the actual sum that might be awarded against a party if
unsuccessful.10 The Court should award security in an amount which is appropriate in the interests of justice taking into account all relevant factors.
[33] I have indicated a range within which an adverse award of costs against JIL might lie. That assessment is relevant to the extent that it provides an upper limit. Taking that into account, and drawing such conclusions as I can from the limited and ambiguous evidence put before the Court on JIL’s financial circumstances, I assess that an appropriate sum to award by way of security for costs is $6,500.
[34] In my opinion it is appropriate to stage the requirement for payment of this sum, partly because any obligation to pay costs on the substantive proceeding (as distinct from on any interlocutory application) will not arise until this case has been tried some months hence, and partly because there is a prospect of a costs award in JIL’s favour on its application for summary judgment. I direct that the security is to be paid as follows:
(a) within 10 working days, the sum of $2,500;
(b) within 10 days of the entry of judgment on JIL’s summary judgment
application, the sum of $2,000; and
(c) on the close of pleading date, the sum of $2,000.
[35] TCSL has succeeded on this application and is entitled to costs against JIL
accordingly.
[36] In my view TCSL is also entitled to costs against Mr Le Roy. TCSL was entitled to apply for security for costs against him given that he had pleaded his positive defences with remedies, as though they were counterclaims, which was inappropriate. Mr Ballantyne opposed an award of costs against Mr Le Roy, stating that his concession during the course of argument that the positive defences would be amended by removing the claims for relief arising from them was only made for the purposes of this hearing, and not because he considered that it was necessarily
correct for him to do so. With respect, this view appears to reflect a lack of
10 National Bank of New Zealand Ltd v Donald Export Trading Ltd [1980] 1 NZLR 97 (CA) at
102.
understanding of the fundamental difference between a defence and a cause of action. Positive defences are not to be accompanied by claims for relief said to arise from them, and by doing so Mr Le Roy opened himself up to the possibility of a claim for security for costs on the basis that he was, in substance, a counter-claimant.
[37] There will be an award of costs to TCSL against JIL and Mr Le Roy, on a 2B basis together with such disbursements as are approved by the Registrar, this being an order for payment of one set of costs though the order lies against both the first
and the second defendants.
J G Matthews
Associate Judge
Solicitors:
Corcoran French, Christchurch. Canterbury Legal, Christchurch.
0
2
0