Van Schaik v McHenry
[2020] NZHC 3538
•30 November 2020
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2019-441-099
[2020] NZHC 3538
IN THE MATTER OF a Claim under a Constructive Trust BETWEEN
RONALD GERARD VAN SCHAIK
Plaintiff
AND
DZIDRA KATHRYN McHENRY
First Defendant
DZIDRA KATHRYN McHENRY and GROSSMAN TRUSTEES LIMITED as
Trustees of the McHENRY FAMILY TRUST Second Defendant
Hearing: 30 November 2020 Appearances:
M Casey and M Inwood for the Plaintiff
J Bates for the First and Second Defendants
Judgment:
30 November 2020
JUDGMENT OF GRICE J
(Security for Costs)
[1] This is an application by the second defendant for security as to costs. It is opposed by the plaintiff. The security sought is in the sum of $40,000.1
[2] I take the details of the claim from the statement of claim filed on 20 December 2019.
1 This decision was delivered orally. The written version has been edited for grammar and flow, with the insertion of footnotes. The application was initially brought by both the first and second defendants, but the proceedings have been discontinued against Ms McHenry, the first defendant.
VAN SCHAIK v McHENRY [2020] NZHC 3538 [30 November 2020]
[3] Mr Van Schaik was in a relationship with Ms McHenry from about February 2009 until they separated on 28 January 2018. Initially this was in the nature of a de facto relationship. They married on 31 December 2010.
[4] During the relationship they lived and worked on a property in Stafford Street, Clive. That property is the subject of the present proceedings. Before the relationship commenced, Ms McHenry lived on the property with her two children. It was owned by Ms McHenry’s Family Trust (Trust) at the time the parties entered the relationship. It remains owned by the Trust although the trustees have changed. The property comprises 2.0557 hectares and includes a main dwelling, a cottage and a workshop area. According to the statement of claim it has an estimated value, as at 1 November 2019, of $845,000.
[5] Mr Van Schaik says he was led to believe that he would have an interest in the property. This was because he and Ms McHenry lived in it and treated it as the family home. He assumed his contributions, by way of work on the property, as well as amounts paid for items for the property (which he estimates at $30,000) should be recognised. The causes of action are equitable claims. Mr Van Schaik alleges the contributions he made were to his ultimate detriment; that he reasonably expected an interest in the property because it was treated as the joint matrimonial home; and he is entitled to an interest, or compensation, in lieu of his contributions. He seeks a declaration that a portion of the property is held on his behalf. In the alternative, he seeks a half share of the property.
[6] In an affidavit in support of the application by Ms McHenry, she says that she had consistently told Mr Van Schaik that the Trust assets were separate, and were for the benefit of the beneficiaries of the Trust. She said that when Mr Van Schaik suggested to her that he be added as a beneficiary she did not agree and she responded that the ownership was in the family Trust for protection. She told Mr Van Schaik that he would have no interest in it.
[7] Ms McHenry says their arrangement was that Mr Van Schaik would live on the property rent-free and in return he would do some limited work. For his work on the
business that they had set up together, and his management efforts in that regard, he received remuneration through their company, Stables Limited.
[8] Mr Van Schaik has also filed proceedings in the Family Court seeking a share of relationship property. That includes chattels and interests in the company known as Stables Limited, which is now in interim liquidation. Ms McHenry says that Stables Limited was originally set up by her. Mr Van Schaik later acquired an interest. The business was largely managed by Mr Van Schaik in the latter years of their relationship. It was put into interim liquidation by consent. The final liquidation application is due to be heard by the Court in March 2021. Ms McHenry says that the company was in dire financial straits due to Mr Van Schaik’s management and that he diverted funds that should have been paid into the company accounts into his own personal accounts.
[9] The interim liquidator has provided an interim report including a summary of the financial position. Issues in contention between the parties arise in relation to two unsecured debts. The first is to the McHenry Family Trust for $49,092. The second is a loan of $426,479 to Ms McHenry. That debt was apparently recorded in a deed of acknowledgement of debt dating back to 30 June 2006 when the company was set up.
[10] The notes to the interim liquidator’s financial report indicates that on the formation of the company $311,400 was lent to the company by Ms McHenry as an on-demand loan with an agreement to pay interest on the principal sum at the BNZ floating rate for mortgages on residential property, accruing annually on the anniversary date of the advance.
[11] The loan was, according to the interim liquidator, incorrectly recorded in the annual financial accounts of the company as a shareholder current advance, when it should have been recorded as a current liability. There is a dispute about whether the amount recorded in the deed of acknowledgement of debt, together with interest, is now payable or cannot now be recovered due to expiry of the limitation period.
[12] The liquidator says that it has taken legal advice on whether interest is payable. As a result, the interim liquidator understands that interest is payable on demand, along with the principal sum, and that there is no limitation issue.
[13] There are various other debts owed by the company, including a yet to be quantified amount owing to the Inland Revenue Department.
[14] The upshot is that the interim liquidator has indicated that there is a total shortfall to creditors of $44,719.
[15] Mr Van Schaik says that he was not aware of the existence of the advance by Ms McHenry of $311,400 until after they had separated. Mr Casey, for Mr Van Schaik, says that until the receipt of the interim liquidator’s report, he was under the impression that the company would have a surplus for distribution to the two shareholders.
Basis of application for Security for Costs
[16] The second defendant says first, the plaintiff will be unable to pay costs in the event that the second defendant is successful, and secondly, or alternatively, the plaintiff now resides in Australia.
[17] There are other proceedings, either in train or contemplated, between the parties. These are the Family Court proceedings to which I have referred. In addition, Ms McHenry says that she will be initiating proceedings in relation to her allegations that funds were diverted from Stables Limited by Mr Van Schaik.
The principles
[18] The principles for security for costs are well-known. They may be ordered where a resident is out of New Zealand, or where there is reason to believe that a plaintiff will be unable to pay the cost to a defendant if the plaintiff is unsuccessful in the plaintiff’s proceedings. It is governed by r 5.45 which provides:2
2 High Court Rules 2016, r 5.45.
5.45 Order 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.
(4)A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.
(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.
[19] As the Court in McLachlan v MEL Network Ltd said, previous decisions may be of assistance when considering security for costs, however, they “cannot substitute for a careful assessment of the circumstances of the particular case”.3
[20] The commentary in McGechan on Procedure summarises the Courts’ approach to the exercise of its discretion.4 The factors that are considered in making the assessment include:
3 McLachlan v MEL Network Ltd [2002] 16 PRNZ 747 (CA) at [14].
4 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR5.45.03].
(a)a balancing of the interests of the plaintiff and the defendants;5
(b)the merits and prospects of success of the claim albeit assessed at a preliminary stage;6
(c)whether the plaintiffs’ impecuniosity has been caused by the defendants,7 with care to be taken to avoid the circular argument that because the defendants do not accede to the claim and pay damages, the plaintiffs’ impecuniosity is therefore the fault of the defendants;
(d)any aspect of delay when applying for security for costs;8 and
(e)other relevant factors including whether the plaintiff has access to third party funding, the conduct of the parties and any public interest overtones.
[21] If the Court considers an order for security for costs is just, then the consequent order must direct that the plaintiff pay that sum into Court or otherwise give security for that sum in a manner satisfactory to the Court.9 The Court may also order that the proceeding be stayed pending payment or provision of the security ordered.10
Amount of security required
[22] The second defendant seeks a similar amount of security to that set in LHL Leasing Solutions Ltd v Pinto Ltd.11 In that case $43,000 was set as security. This represented 80 per cent of an estimate based on the costs and disbursements of a three-day trial and preparation. The security was ordered to be paid in two tranches. The first 60 per cent to be paid immediately and the second 40 per cent at the close of
5 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [24](c); and
McLachlan v MEL Network Ltd, above n 3, at [15]–[16].
6 Ambrose v Pickard [2009] NZCA 502 at [32].
7 Bell-Booth Group Ltd v Attorney-General & BCNZ (1986) 1 PRNZ 457 (HC).
8 Jo v Johnston [2013] NZHC 552 at [18].
9 High Court Rules 2016, r 5.45(3)(a).
10 Rule 5.45(3)(b).
11 LHL Leasing Solutions Ltd v Pinto Ltd [2014] NZHC 2397.
the pleadings. That was based on the estimates of relative time that would be expended to progress the proceedings.
[23]I now turn to consider the strength of the case.
Strength of case
[24] I have reviewed the statement of claim. As it is pleaded at the present time, on its face it does not show a strong case for the plaintiff. It is difficult to ascertain the merits at this preliminary stage, nevertheless, even as presently pleaded, it would be difficult to establish an interest giving rise to a constructive trust or a right to equitable compensation based on unjust enrichment.
[25] The statement of claim presently alleges the plaintiff was led to believe he had an interest in the property because the parties lived in the property as the family home and he assumed that his contributions would be recognised.12 The contributions are the work on the property and the work in the company business. Mr Van Schaik estimates he paid about $30,000 in funds but it is not clear exactly what those funds referred to, although the payments appear to relate to maintenance and renovation of the properties, as well as the marketing and management carried out in relation to Stables Limited.
[26] The plaintiff pleads that he was not paid for his efforts. He says he reasonably expected an interest in the home, which was treated as the joint matrimonial home, and he should have a beneficial interest in the property or compensation in lieu of his contributions.
[27] Ms McHenry, in her affidavit, says he was paid for his work in the business by the company. The other work claimed as work on the property and maintenance which is pleaded, she says was in lieu of rent. She says she never made any promise of an interest in the property, in fact quite the reverse. I note that it is not claimed that she did make such a promise.
12 In the statement of claim, the contributions are referred to as the defendant’s contributions, but Mr Casey clarified that as meaning the plaintiff’s contributions.
[28] Mr Bates, for Ms McHenry, says it is difficult to see a claim based on the present proceedings. If it was to be a claim for a constructive trust or unjust enrichment it would need to conform with the principles that have been established to successfully make such a claim. Mr Bates pointed to the recent decision in Hawke’s Bay Trustee Company Ltd v Judd,13 a 2016 decision in which the Court of Appeal upheld a decision to pay equitable damages based on basically unjust enrichment, in favour of the plaintiff, Ms Judd, the respondent in the Court of Appeal. Ms Judd had sold her property and paid $50,000 to her husband when they married, at the outset of the relationship. The Judge found that this was a capital contribution to the property in question. The Court of Appeal confirmed the money was held and used that way.14 In addition, Ms Judd had given up her employment, or her business, largely to carry out the housekeeping and day-to-day running of the household, and gardening, which had saved her husband costs of a gardener and a housekeeper. The Court in that case was satisfied on the basis of the principles set out in Lankow v Rose,15 that a contribution that should be recognised had been established. It made an order, in that case, of payment of $65,000 by way of equitable compensation.
[29] In this case there are a number of difficulties, including the express indication by Ms McHenry that Mr Van Schaik was not going to be receiving an interest in the property. However, this is at a preliminary stage, there are other proceedings involved, and no doubt the pleadings will be amended in due course.
[30]I now turn to look at the ability of Mr Van Schaik to pay costs.
The ability to pay costs
[31] Ms McHenry says that Mr Van Schaik will be unable to pay costs. She said he has no assets in New Zealand. She bases those assertions on Mr Van Schaik’s financial position taken from information before the Family Court. She also points
13 Hawke's Bay Trustee Company Ltd v Judd [2016] NZCA 397, (2016) 4 NZTR 26-019.
14 At [23].
15 Lankow v Rose [1995] 1 NZLR 277 (CA).
out that, when she entered the relationship with Mr Van Schaik, he was an undischarged bankrupt,16 and that he had no assets in his name then.
[32] That there are other proceedings between the parties is relevant. As I have indicated, there is a dispute concerning the financial position of their business, Stables Limited. Mr Van Schaik had anticipated he would have an entitlement to funds which he could have recourse to for the purposes of paying costs in these proceedings if he was unsuccessful. Mr Van Schaik otherwise has filed no reliable information in support of his financial position. Through counsel, he indicated he had travelled to Australia for business opportunities with his present partner and intends to stay there to take up those opportunities. He says he has family here and intends to do business in New Zealand. Therefore, COVID-19- restrictions permitting, he may be travelling backwards and forwards. Nevertheless, it appears that Mr Van Schaik is not in a strong financial position and at present is resident in Australia. His asset position in New Zealand is dependent on the outcome of the liquidation, which is not due to be finalised until March 2021. A key issue is whether there is a surplus and whether the deed of acknowledgement of debt is time-barred.
[33] Ms Inwood, on behalf of Mr Van Schaik said, in response to Mr Bates’ argument, that the debt had been acknowledged by the company and the creditor by virtue of its entry in the financial accounts of Stables Limited prepared, signed and filed annually. The argument is that the material in the financial accounts was not received by Ms McHenry in her capacity as creditor but rather as a director. Ms McHenry as a director would have been privy to those financial accounts annually, therefore, Mr Van Schaik’s argument in relation to the effect of the acknowledgement may be difficult to sustain. In that regard Ms Inwood referred to the decision in Reynolds v Calvert.17 There, the argument turned on whether the relevant parties had seen the records at all, rather than whether they had seen them in a particular capacity. In any event, it was not a key issue in that case as the creditor, or their agent, had not
16 He is now a discharged bankrupt.
17 Reynolds v Calvert [2015] NZHC 400. The Court of Appeal dismissed the appeal but allowed the cross-appeal in Calvert v Reynolds [2016] NZCA 151. The argument relied upon by the plaintiff was not affected.
seen the accounts until after the limitation period had expired.18 That is not the case here.
[34] Mr Van Schaik’s financial position is dependent on the outcome of various court proceedings filed in connection with his relationship with Ms McHenry. I am not in a position to consider the merits of those matters in detail. However, for present purposes I note the interim liquidator has produced an interim report based on the information and understandings available to them which shows the company is unlikely to have funds to distribute to shareholders.
[35]I turn to Mr Van Schaik’s residence outside New Zealand.
Resident out of New Zealand
[36] It is common ground that Mr Van Schaik is now in Australia. His plans are to reside there in the immediate future. There is no issue but that he is an overseas resident. That is a ground for the Court to make an order subject to its discretion. The Court’s discretion to award security for costs, or to make an order for security for costs, may be exercised if it is just, in all the circumstances
[37] In Jalfox Property Ltd v Motel Association of New Zealand Inc,19 the High Court noted there was no inflexible principle that a plaintiff residing outside New Zealand with no assets within the jurisdiction should normally be ordered to give security for costs. The object of security for costs is that a successful defendant is able to recover costs without incurring undue additional expenditure and enforcing a judgment for costs. In that case Ongley J indicated that, in the circumstances, he was persuaded, on balance, the considerations favoured the defendant being granted security for costs. The plaintiff was a resident in Australia and the costs of enforcing the judgment in Australia would be in the vicinity (at that stage) of $1,000. The risk of incurring that additional expenditure was sufficient in the circumstances for the Court to award security for costs. His Honour noted that the security required must bear some proper relation to the costs that may be awarded. He also noted that on the
18 Reynolds, above n 17, at [76].
19 Jalfox Pty Ltd v Motel Association of New Zealand Inc [1984] 2 NZLR 647 (HC).
information before him the plaintiff did not appear to have any substantial assets in New Zealand, but there was nothing to indicate that it could not satisfy them from its own resources.20
[38] I am satisfied that Mr Van Schaik is resident outside New Zealand. I bear in mind he has proceedings underway with a view to obtaining assets in New Zealand, but he has none presently available. I have indicated that at least in relation to these proceedings in their present form, the merits do not appear strong.
[39] A successful defendant would likely need to enforce a judgment in Australia and there is nothing to indicate what Mr Van Schaik’s assets are in Australia. It is likely that they are not substantial.
[40] I have a discretion as to whether an order is made. The two grounds have been made out, which give me jurisdiction to make an order. An important point here is that Mr Van Schaik’s right to access to justice must be considered. I must also consider whether it is Ms McHenry’s actions, which have caused the plaintiff’s impecuniosity. That is not a decisive factor, particularly when the plaintiff’s case is not strong.
[41] Mr Casey made a strong submission that Mr Van Schaik should not be prevented from pursuing his claim over here because of an order for security for costs. The Court must have concern for a genuine plaintiff who may be denied access to justice as a result of not meeting a security order. However, Mr Van Schaik does not assert in his grounds of opposition that the imposition of security would prevent his claim going to trial. He has made no present disclosure of his current financial position. He has managed to bring the proceedings to date, both in this Court and the Family Court. There is no information before me indicating that he is not in a position to maintain this proceeding through to trial, or that he cannot provide a modest measure of security.
[42] Balancing the factors I conclude that, in the circumstances, it is appropriate to make an order for security for costs in this case. I have set out my reasons above. I
20 Jalfox Pty Ltd v Motel Association of New Zealand Inc, above n 19 (649).
also consider it appropriate in these proceedings, given their early stage, that a total amount of $30,000 be awarded as security. It is a reasonable contribution toward costs in the circumstances of this case based on a category 2B costs calculation which is the appropriate categorisation and not contested by the parties.
[43] However, a high barrier should not be erected to Mr Van Schaik being able to continue his claims. Therefore, the security should be paid in two tranches of $15,000 each. The first tranche of security of $15,000 is to be paid at the end of April 2021, being Friday 30 April 2021. By this time the liquidation should have been finalised, and there should have been some resolution concerning the nature of the surplus or deficit in the liquidated company. The second tranche of security for costs is to be paid at the close of pleadings. I do not consider it is appropriate to make a stay in advance in relation to either payment as they have both been deferred.
[44] Leave is reserved to the defendants to make an application at a later date if necessary.
[45]Therefore, I make the following orders:
(a)Payment of security of costs in the total sum of $30,000 in favour of the defendants. This is to be paid into a solicitor’s trust account to be agreed between the parties and nominated for that purpose, or failing agreement, the payments are to be made into Court, to be held until further order of the Court.
(b)The payment is to be made in two tranches of $15,000 each. The first tranche is payable on or before 30 April 2021, or such later time as is agreed between the parties. The second tranche is payable at the close of pleadings.
Costs
[46] Counsel have agreed that costs on this matter should follow the event on a 1A basis. Accordingly, I make that order and I also note for future purposes that the categorisation of the proceedings is agreed at a 2B categorisation.
[47]I make that order for costs accordingly.
Grice J
Solicitors:
Carlile Dowling, Napier for the Plaintiff.
Brown & Bates, Napier for the First and Second Defendants.
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