Wyndham Contracting Limited v Webbline Agriculture Limited

[2023] NZHC 2340

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2018-419-316

[2023] NZHC 2340

UNDER

the Contract and Commercial Law Act 2017

BETWEEN

WYNDHAM CONTRACTING LIMITED

First Plaintiff

LINTLEY CONTRACTING
Second Plaintiff

WAIMEA CONTRACTING LIMITED
Third Plaintiff

AND

WEBBLINE AGRICULTURE LIMITED

Defendant

Hearing:	22 August 2023
Appearances:	G J Praat for Defendant/Applicant (via VMR) S N McKenzie for Plaintiffs/Respondents
Judgment:	25 August 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

WYNDHAM CONTRACTING LIMITED v WEBBLINE AGRICULTURE LIMITED [2023] NZHC 2340

[25 August 2023]

[1]    In 2015, each of the three plaintiffs without reference to each other, were interested in purchasing from Webbline Agriculture Limited (Webbline), a Goweil baler. Each of the plaintiffs say they experienced operational difficulties with the balers. In this proceeding, the plaintiffs’ claim against Webbline for pre-contractual misrepresentations as to the capabilities of the balers, for breach of the implied warranty of merchantable quality and the plaintiffs plead that the balers were not reasonably fit for purpose.

[2]    That brief introduction belies that there is an issue as to whether the first or third plaintiffs were the contracting parties. There is also the issue that the third plaintiff was named as a party in an amended statement of claim filed in October 2022 without first being added as a party.

[3]    The proceeding was commenced in 2018 and there is merit in Webbline’s complaint that the plaintiffs have not pursued this proceeding with any energy.

[4]    On 16 September 2022, Webbline applied for security for costs against the first and second plaintiffs, Wyndham Contracting Limited (Wyndham) and Lintley Contracting (Lintley). Counsel had previously expected that application could be resolved without the need for a hearing – that expectation proved to be not well founded.

[5]Security in the sum of $29,755.50 is sought against each Wyndham and Lintley.

[6]    I add here that Webbline counterclaims against Lintley based on a loan agreement made on 7 November 2016 under which Webbline lent to Lintley an alternative baler without charge. Webbline pleads it was a term of the loan agreement that Lintley would have the use of the baler in the event it experienced problems with the Goweil baler during the summer work season from November 2016 to April 2017.

[7]    Webbline says it demanded the return of the loan baler in May 2017. The counterclaim does not in fact plead a refusal by Lintley to return the loan baler. The cause of action is presumably in detinue given Lintley had possession with consent. As a  refusal to return the loan baler is an essential part of the counterclaim, it should

be pleaded. The counterclaim is for the value of the loan baler being $53,395.00 which was the asking price of the loan baler when it was on Webbline’s yard prior to the loan.

Security for costs jurisdiction

[8]    Rule 5.45 of the High Court Rules 2016 (the Rules) empowers the Court to order the giving of security for costs where there is reason to believe that a plaintiff will be unable to pay the defendant’s costs if the plaintiff does not succeed in the proceeding.

[9]    Accordingly, the first question in any application for security is whether the particular threshold relied on by an applicant has been met. Here, the question is has Webbline established there is reason to believe that Wyndham and Lintley will be unable to pay costs. If the threshold is met, the issue is whether or not the Court should make an order for security and if so, the quantum.

[10]McGechan on Procedure provides:1

What is contemplated is that “there should be credible (that is, believable) evidence of surrounding circumstances from which it may reasonably be inferred that the [party] will be unable to pay the costs. This does not, of course, amount to proof that the [party] will in fact, be unable to pay them”.

It is up to the applicant to show that the threshold has been satisfied.

An adverse inference might be made where the defendant has put a plaintiff’s inability to meet an award of costs sufficiently in issue to require more than  a bald assertion of ability to pay.

[11]What then is the evidence of the threshold being satisfied in this case?

(a)Wyndham

[12]   Wyndham was removed from the Companies Register on 17 March 2021 with the recorded grounds for removal being:

The company has ceased to carry on business, has discharged in full its liabilities to all its known creditors, and has distributed it’s surplus assets in accordance with its constitution and the Companies Act 1993 [318(2)(a)].

1      Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR 545.02].

[13]Wyndham was restored to the Register on 8 April 2022.

[14]   Webbline wrote to the solicitors for Wyndham on 10 May 2022, noting that in a practical sense, Wyndham had effectively been liquidated prior to its deregistration. Webbline’s solicitors raised concerns as to Wyndham’s ability to meet an adverse costs award and sought information as to Wyndham’s position. No reply was forthcoming.

[15]Wyndham has not filed a notice of opposition to this application.

[16]   I am satisfied the threshold has been met in respect of Wyndham given it diverted itself of all assets prior to being removed from the Register, its failure to reply to the 10 May 2022 letter and its absence of opposition.

(b)Lintley

[17]   The application for security for costs in respect of Wyndham, relied on its removal from the Companies Register to meet the threshold. In respect of Lintley, Webbline’s application relied only on having called for information as to Lintley’s financial position. In the 10 May 2022 letter, Webbline’s solicitors said in relation to Lintley: “…our client has no financial information in regards to the Second Plaintiff…” and requested financial disclosure.

[18]   Accordingly, other than the failure to make financial disclosure, no evidence that the threshold was satisfied in respect of Lintley was forthcoming.

[19]Lintley is a partnership of K A & J A Woolhouse (the partnership).

[20]   Mr Woolhouse gave evidence explaining that the partnership operated the contracting side of the business he runs with his wife alongside their farming operation. In May 2020, a company was incorporated by the Woolhouses which, since November 2020, took over the contracting business. However, Mr Woolhouse notes the partnership continues to operate the farming business and that the partnership owns farmland, stock, implements and contracting equipment.

[21]   Mr Woolhouse produces a letter dated 5 October 2022 from his accountant in respect of Lintley’s ability to meet a costs award at the level proposed by Webbline as security, albeit if there was an adverse costs award against the partnership, it would be for the full amount of the 2B costs. I have assumed the security sought from each of Wyndham and Lintley of $29,755.50 is half of a full costs award – split between Wyndham and Lintley.

[22]   Mr Woolhouse produces financial statements for the partnership for the year ended 30 June 2022. Those accounts show substantial equity.

[23]   Webbline submitted there is no evidence to verify the market value of the assets in the partnership and that the accounts show that it has made trading losses. Webbline submits the partnership’s assets are not liquid.

[24]   Finally, Webbline notes the partnership has not paid Webbline the costs of servicing and repairs of the Goweil baler, a claim of $12,283.00 nor accounted for the loan baler.

[25]   The starting point is that the onus is on Webbline to show there is reason to believe Lintley would be unable to meet an award of costs. Webbline brought this application on the strength of there being no reply for financial information about the partners. It seems Webbline did not make any independent enquiries about what assets the partners might own before filing this application. For example, a search of Land Information New Zealand records would have shown the partners own a farm.

[26]   I am satisfied that Webbline has not established there are grounds to believe that Lintley will be unable to meet an adverse costs award. Mr Praat, counsel for Webbline, noted the lack of diligence in pursuing this claim. I do not consider that is relevant to whether the threshold is satisfied, there being no evidence that the lack of progress was due to a lack of funding. Secondly, Mr Praat referred to Webbline having made what it considered to be a reasonable offer, which was declined. Again, I do not consider that goes to the question of threshold. As to the issue of the unpaid repair bill, Webbline has a lien for the repair work it has done on the baler, if it is held that it has a good claim for those costs.

[27]   Whether or not the partnership has a defence to the counterclaim is besides the point in respect of the issue of threshold. Even if the claim is successful, the equity in the partnership is more than ample to meet that claim. Webbline retains the Goweil baler owned by Lintley which is worth more than the loan baler – provided the partners were not bankrupted and Webbline could obtain a charging order against the Goweil baler.

[28]   The short point is that Webbline sought security solely on the strength that its enquiry as to Lintley’s means was not responded to. The financial accounts for the partnership show the partners can meet a costs award. At that stage it was for Webbline to show that despite what the accounts showed, there was still reason to believe Lintley could not meet a costs award. I accept Webbline’s ability to challenge the financial accounts was frustrated through Lintley’s very late filing of its papers in opposition. That reality is reflected in the costs outcome.

[29]Webbline’s application for security for costs against Lintley is dismissed.

(c)Should security be ordered against Wyndham

[30]   I am satisfied it is appropriate to order security against Wyndham. It appears that it is a bare shell of a company. It has not filed a notice of opposition. On the present state of the pleadings, it is unclear whether Wyndham or Waimea Contracting Limited (Waimea) was the contracting party. The quantum for security sought is not unreasonable, indeed, Ms McKenzie, counsel for all plaintiffs, advised $30,000.00 was held in her trust account to meet any costs order made.

[31]   Accordingly, there is an order that Wyndham is to provide security for costs in the sum of $30,000.00.  If that security is to be provided by way of the  funds held   in Ms McKenzie’s trust account, then Ms McKenzie is to provide an undertaking to Mr Praat that the funds will be held undisbursed as security for costs pending further order of the Court or agreement in writing between the parties.

Costs

[32]   Costs were discussed at the hearing. Webbline have had success against Wyndham and failed against Lintley. Counsel agree that costs should lie where they fall and I so order.

Future of the proceeding

[33]   Ms McKenzie recognised the  need  for  the  pleading  to  clarify  whether  the contracting party was Wyndham or Waimea. The difficulty arises because it was Wyndham that entered into a sale order form with Webbline, however, the pleading is that the baler was in fact purchased and paid for by Waimea and picked up by Waimea. The basis upon which Waimea interposed itself into the sale order commenced by Wyndham is unclear. That raises the question of whether Waimea should be a party to the proceeding. That issue and the amended pleading is to be addressed as follows.

[34]   Ms McKenzie will within 15 working days provide to Mr Praat, a further amended statement of claim in draft which shows Waimea as a party. If Mr Praat is satisfied that the pleading and supporting material provided shows that Waimea should be a party then counsel are to seek leave by way of consent memorandum that Waimea be added as a third plaintiff. If agreement in that regard cannot be reached then an application will be required.

[35]   The possibility of a Judicial Settlement Conference was raised. Counsel are to let me know if this is sought.

[36]   There will  be  a  telephone  conference  with  me  at  2:30pm  on  Tuesday  26 September 2023.

Associate Judge Lester

Solicitors:

PR Law, Invercargill (for Plaintiffs)

Core Legal Solutions Limited , Nelson (for Defendants)