Wall v Wall

[2022] NZHC 331

IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE

CIV-2020-435-000011

[2022] NZHC 331

UNDER

Part 18 of the High Court Rules 2016

IN THE MATTER

of Riverside Trust

BETWEEN

MARY PATRICIA WALL

Plaintiff

AND

JOHN GARY WALL and PHILIPPA JANE

BROOM as trustees of Riverside Trust Defendants

AND

ALEXANDER CHARLES FRANCIS WALL

Interested Party

Hearing:	23 February 2022 (by VMR)
Appearances:	N Levy QC and A Jeremich for Plaintiff N J Newbery for Defendants
Judgment:	1 March 2022

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 1 March 2022 pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

WALL v WALL [2022] NZHC 331 [1 March 2022]

[1]This is an opposed application by the defendants for security for costs.

[2]        The plaintiff is married to Jonathan Wall (Mr Wall) but they have separated and there are proceedings between them in the Family Court for division of relationship property. Those proceedings are not being progressed pending the determination of this proceeding.

[3]        The defendants are the trustees of the Riverside Trust, of which Mr Wall is a discretionary beneficiary. The plaintiff has brought this proceeding against the defendants, alleging that they hold a farm property on a constructive trust for Mr Wall. Ultimately, the plaintiff intends to claim against any entitlement Mr Wall has in the assets of the Riverside Trust on the basis it is relationship property.

[4]        This proceeding was commenced on 12 June 2020, but this application for security for costs was not filed until 22 October 2021. The case is well advanced and is set down for a three day trial commencing 21 March 2022, less than one month away. I am told all the evidence is filed, and that a common bundle has been compiled. Ms Levy QC is only awaiting input from the defendants’ lawyers to complete it.

[5]The defendants’ application for security for costs is made on the grounds that:

(a)there is reason to believe the plaintiff will be unable to pay the costs of the defendants if the plaintiff is unsuccessful in this proceeding; and

(b)it is just in all the circumstances that security for costs be given.

[6]        The plaintiff’s opposition to the application is made on the ground there is no reason to believe she will be unable to pay the costs of the defendants if she is unsuccessful.

The High Court Rules

[7]        Relevantly to this application, under r 5.45 of the High Court Rules 2016 the Court may, on the application of a defendant, order a plaintiff to give security for costs if there is reason to believe the plaintiff “will be unable to pay the costs of the

defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding”1 and it is just in all the circumstances to order security for costs.2

[8]        When considering a plaintiff’s ability (or inability) to pay costs, it is sufficient to adduce evidence of surrounding circumstances from which an inference of inability to pay can reasonably be drawn.3

[9]        However, in Highgate on Broadway Ltd v Devine, Kós J held that the words “will be unable” to pay the defendant’s costs are concerned with the ability to pay costs and not with “financially capable, but constitutionally unwilling persons – where a stone must be squeezed hard to produce blood”.4

[10]      Here, it is only if the defendants can satisfy the threshold question that there is reason to believe the plaintiff will be unable to pay costs if unsuccessful, that the Court need consider whether it should exercise its discretion to order security for costs.

[11]      The general approach to the exercise of the Court’s discretion towards security for costs was described by the Court of Appeal in AS McLachan v MEL Network Ltd in these terms:5

[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.

[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

1      High Court Rules 2016 r 5.45(1)(b).

2      Rule 5.45(2).

3      Totara Investments Ltd v Abooth Ltd HC Auckland CIV-2007-404-990, 4 March 2009 at [28] cited in Yao v Shen [2022] NZHC 221 at [18].

4      Highgate on Broadway Ltd v Devine [2012] NZHC 2298, [2013] NZAR 1017 at [8].

5      AS McLachan v MEL Network Ltd  (2002) 16 PRNZ 747 (CA).  This case  concerned what was  r 60(1)(b) of the High Court Rules 1986 that were, for present purposes, in materially similar terms as r 5.45.

treated as a requirement for the making or refusing of an order, in quite different circumstances.

[15]     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.

[12]The issues are:

(a)Is there reason to believe the plaintiff will be unable to meet an award of costs against her if unsuccessful in her claim (the threshold requirement)?

(b)If the answer to (a) is yes, is it appropriate for an order for security for costs to be made?

(c)How much security is appropriate?

Some context

[13]      To understand why the application was made at all, some reference needs to be made to correspondence between the parties’ lawyers.

[14]      On 1 September 2021, the defendants’ solicitor, Ms Batt, wrote to the plaintiff’s counsel, Ms Levy, asking that she provide information that would assure the defendants the plaintiff was in a position to satisfy a costs award if she was unsuccessful in the proceeding.

[15]      Ms Levy replied on 8 September 2021, stating that she had seen bank statements showing the plaintiff had a little less than $10,000 remaining in her bank account and intended to apply for legal aid to continue the proceeding.

[16]      However, on 16 September 2021, Ms Levy advised Ms Batt by email she would have an update in a day or two concerning the plaintiff’s financial position.

[17]      On 20 September 2021, Ms Levy sent an email to Ms Batt advising that the plaintiff had funds totalling £125,000 in the United Kingdom which was an inheritance. Ms Levy said that while some of that money would be spent on her own legal costs, this was an available source of funds for costs if the plaintiff was unsuccessful on her claim.

[18]      Ms Batt wrote to Ms Levy on 22 September 2021 with some queries. She referred to a redacted copy of an affidavit filed by the plaintiff in the Family Court proceeding which indicated she had left her marriage with little money. Ms Batt enquired whether the affidavit of assets and liabilities recorded the plaintiff’s inheritance and, if not, why not. She also noted that, in an affidavit dated 11 March 2021, sworn in this proceeding, the plaintiff had not mentioned the funds available to her. Ms Batt provided a schedule of 2B scale costs and asked if the plaintiff was prepared to deposit $40,000 into Court as security for costs or “will an application be required?”

[19]      On 24 September 2021, Ms Levy responded that the £125,000 had not been listed in the plaintiff’s affidavit of assets and liabilities in the Family Court because she had been advised by her then lawyer that it was not relevant to a relationship property settlement and it was for that reason Ms Levy had not previously been aware of it. She said she would provide evidence of funds being held in the plaintiff’s solicitor’s trust account that would address any concerns about security for costs.

[20]      On 1 October 2021, Ms Batt emailed Ms Levy asking for an undertaking that the sum deposited in the solicitor’s trust account would not be disbursed without “our consent or an order of the Court”.

[21]      On 13 October 2021, Ms Levy provided evidence that $80,000 had been deposited into the trust account of the plaintiff’s solicitors, Ord Legal. Ms Levy advised the plaintiff had brought half of her money from the United Kingdom and that the other half remained available to her. She advised there was no basis for a Court to find there was reason to believe the plaintiff would be unable to pay costs if unsuccessful, and so no undertaking would be given to avoid an application for security for costs. She also referred to a sum of $85,000 the plaintiff had received at

the end of her marriage in 2017 and that she had made that last to pay mainly legal fees.

[22]      I am advised by Ms Jeremich that presently Ord Legal are holding $71,000 in trust for the plaintiff and that she has $154,000 in her own bank account.

The defendants’ position

[23]      It was not disputed before me that the plaintiff has funds in the trust account of Ord Legal, and in her own bank account, in the amounts claimed. The defendants’ position is, despite that, there is reason to believe the plaintiff will not be able to pay any costs award made against her because:

(a)she has offered just a snapshot of her financial position at the present time and there is nothing to prevent the funds being withdrawn and used for other purposes;

(b)she hid the fact that she had an inheritance in the United Kingdom in the Family Court proceeding and this proceeding and when the defendants first enquired as to her ability to pay costs;

(c)her refusal to provide an undertaking that the funds would not be disbursed means the defendants have no protection for the payment of costs; and

(d)she will incur substantial legal fees in this proceeding and she may also have a liability to her husband in respect of the $85,000 that she retained upon separation.

[24]      The defendants rely on the commentary in McGechan on Procedure at [HR5.45.02] as follows:

The r 5.45(1)(b) question of whether there is reason to believe that a plaintiff will be unable to pay the costs of a defendant if unsuccessful in its claim requires the court to consider not just the plaintiff’s solvency in terms of a “snapshot” but requires the court to also take account of any liabilities falling due in the proximate future: Keez Ltd v Waikato District Health Board [2020]

NZHC 2330 at [38], citing Sanguineo Holdings Pty Ltd v Merisant Company Inc [2019] NZHC 2891 at [14].

[25]      As to the exercise of the Court’s discretion to order security, the defendants contend it is relevant the plaintiff says she can afford to provide security but is unwilling to protect the fund from which payment will be made by giving them an undertaking.

[26]      Mr Newbery submits that the merits of the parties’ respective cases is a relevant factor although, while the defendants consider the plaintiff’s claim lacks merit, he accepted it was difficult for me to make an assessment of that with what is before me.

[27]      Mr Newbery also submits there can be no issue that any delay in making this application has prejudiced the plaintiff, given her position that she is good for any costs award.

The plaintiff’s position

[28]      The plaintiff submits that the threshold test, which requires the defendants to adduce evidence of her impecuniosity and/or reasons to support a belief she will be unable to pay costs, is not met.

[29]      It is accepted that Ms Levy’s email of 8 September 2021 put the plaintiff’s ability to pay costs in issue, but it is said the correspondence that followed should have dispelled any concerns about that.

[30]      The plaintiff contends she did not hide the fact she had an inheritance and that she has provided evidence she has the means to pay not only a costs award in this proceeding, but also any liability she may have in the Family Court proceeding. In this regard, she says her husband has not made a claim in the Family Court to a half share of the $85,000 she retained upon separation.

[31]      She argues that nothing can be made of the fact she has declined to provide an undertaking because that does not bear on the issue of her ability to pay costs and she cannot be required to give such an undertaking.

[32]      The plaintiff’s primary position (and the only one relied upon in the notice of opposition) is that this application can only be successful if the threshold question has been met and it has not. However, in the event the Court considers otherwise, it was argued the Court should exercise its discretion not to order security for costs as the plaintiff’s case is not without merit, unjustifiably complicated or unnecessarily protracted and the application is made at a very late stage of the proceeding.

My assessment

[33]      The starting point is that the defendants do not dispute the fact that the plaintiff has funds standing to her credit in the trust account of Ord Legal and in her personal bank account, nor her entitlement to those funds.

[34]       Whilst Ms Levy’s email of 8 September 2021 would understandably cause the defendants concern about the plaintiff’s ability to pay costs, it was very quickly followed with advice that the plaintiff had a large fund available to her in the United Kingdom and, by 13 October 2021, evidence that $80,000 had been deposited into the trust account of Ord Legal. Since then, she has provided evidence of further funds having been transferred and paid into her personal bank account.

[35]      Notwithstanding that, the defendants made this application and seek to justify it on several bases. First, it is said the plaintiff hid the fact she had an inheritance in the United Kingdom. This is not accepted and at least as far as the defendants are concerned, I do not consider it to be correct. Far from hiding her entitlement to the funds, she voluntarily disclosed that fact very shortly after the issue of security for costs was raised.

[36]      It is then said the defendants are not protected for payment of costs, as money in the bank is easily transferred and the plaintiff will not give the requested undertaking. The underlying concern appears to be that the plaintiff may actively take steps to defeat the defendants’ entitlement to costs. I accept the plaintiff’s position that the defendants had no ability to require her to provide an undertaking and her refusal to do so in hostile litigation is not surprising. As noted above, I am concerned with whether the plaintiff has the ability to pay costs, not whether she will be unwilling to do so. Given the plaintiff has provided evidence of the amounts held in her bank

account (with account details) and with Ord Legal and that the hearing is imminent, I consider her ability to avoid a costs liability should not be exaggerated.

[37]      Then it is suggested the funds may not be sufficient to pay the plaintiff’s liabilities. Based on the information before me, the amount that the plaintiff has appears ample to pay her legal costs and any costs award made in the defendants’ favour. There is insufficient evidence before me to make any assessment that the plaintiff may have a further liability to her husband.

[38]      I consider the defendants have not shown there is reason to believe the plaintiff is unable to pay costs. This application cannot succeed.

[39]      I add, for completeness, that had I not reached this view, there are reasons why I may not have been minded to exercise my discretion and order security for costs in any event. First, Mr Newbery accepts that it is difficult for me to make any assessment of the merits of the parties’ respective cases. Second, this application was made at a very late stage. There was no evidence why the defendants waited until the case was ready to be set down for trial to make the enquiry of Ms Levy as to the plaintiff’s ability to pay costs. Further, orders for security for costs are usually forward looking and any award that I would have considered, would have been for a significantly smaller sum than the defendants have sought.

Result

[40]The defendant’s application is dismissed.

[41]      In relation to costs, the plaintiff has been successful and is entitled to costs. I consider that an award on a scale 2A basis, along with reasonable disbursements, is appropriate, and I so order. There was principally one issue of fact that required resolution on this application and this was reflected in the notice of opposition, the plaintiff’s evidence, and submissions, all of which were notably brief.

O G Paulsen Associate Judge

Solicitors:

Ord Legal, Wellington Batt Law, Masterton