Yarrow v Finnigan
[2015] NZHC 1468
•29 June 2015
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV-2011-443-000330 [2015] NZHC 1468
BETWEEN PAUL STEVEN YARROW
Plaintiff
AND
MICHAEL CHANEL FINNIGAN Defendant
Hearing: 25 February 2015 Appearances:
D Wu for the Plaintiff
J B Orpin for the DefendantJudgment:
29 June 2015
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 29 June 2015 at 3.50 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Dukesons Business Law, Auckland
Reeves Middleton Young Lawyers, New PlymouthL Taylor, Wellington
PAUL STEVEN YARROW v MICHAEL CHANEL FINNIGAN [2015] NZHC 1468 [29 June 2015]
[1] In a reserved judgment delivered on 6 September 2012, Associate Judge Christiansen ordered the plaintiff, Mr Yarrow, to provide security for costs in two tranches. In terms of His Honour’s judgment:
(a) The first tranche of $25,000 was to provide security for the legal costs of the defendant, Mr Finnigan, to the point where a date for trial was fixed. It was paid shortly before the case management conference that was held on 4 December 2012.
(b)The second tranche is called for, and is for the purpose of providing security for Mr Finnigan’s costs of trial and trial preparation. Judge Christiansen indicated that it should be fixed “once the estimated trial length becomes clearer”.1
[2] The issue now before the Court is: what amount should Mr Yarrow be required to provide for the second tranche? The proceeding has reached the point where a reasonable assessment can be made of trial duration. It is appropriate therefore to fix the quantum of the second tranche.2
[3] The estimate of trial duration must be made in the light of the significantly expanded claim in the amended statement of claim that Mr Yarrow has filed, and the submissions that counsel for the parties have made on the following matters: the number of witnesses each party will call, the nature of the evidence each witness is
to give, and counsel’s own revised estimates of trial duration.3 Counsel for both sides
have helpfully contributed to the discussion on these matters, resulting in a significant degree of agreement between them.
[4] I begin with the amended claim.
1 Yarrow v Finnigan [2012] NZHC 2281 at [48].
2 In that regard there was a helpful discussion with counsel at the telephone hearing held on
25 February 2015. about the likely duration, having regard to the issues raised in the amended statement of claim and the number and nature of witnesses that each side intends to call
3 (That hearing took place by telephone with the agreement of counsel to avoid the cost to the parties of having counsel travel to New Plymouth).
[5] The amended claim is a significantly expanded claim. It contains wide-ranging factual allegations that are highly contentious.4 In its amended form it:
(a) Extends the causes of action from four to ten and expands the scope of issues of fact and law in the proceeding significantly. It comprises some 43 pages (up from 17) and spans events over an 11 year period;
(b) Substantially increases the quantum of the claim from
$11 million to $91 million; and
(c) Repeats the original claims of dishonesty and fraud. These are, as Judge Christiansen earlier noted, serious charges for which the Court will require an appropriately high level of proof in due course.5
[6] At the heart of the amended claim is Mr Yarrow’s belief that Mr Finnigan negligently or fraudulently valued the worth of a company in the Yarrow Group of companies in the course of acting as professional adviser to Mr Yarrow over a lengthy period. The overarching premise is that Mr Yarrow’s business interests are currently worth next to nothing, and that but for Mr Finnigan’s negligence and dishonesty they would be worth over $90 million.
[7] As Judge Christiansen observed the Court “cannot ignore the nature of the claims or the magnitude of consequences claimed” in this case, and is “some considerable distance from being in a position to accept appropriate proof [of the plaintiff’s allegations] exists” (at [30]). Those comments remain apposite. However the expanded factual allegations now pleaded span a much longer period - 11 years. It is common ground that they are highly contentious, and that Mr Yarrow will be put to the proof with respect to the factual basis of both the new and original causes of
action.
4 The amended claim was filed on 3 December 2014 in the face of an “unless” order which I made on 19 November. At that time counsel for the plaintiff accepted he would be hard pressed to resist such an order, which was made because of delay on the plaintiff ’s part.
5 Yarrow v Finnigan [2012] NZHC 2281 at [48].
[8] The first to third causes of action warrant particular mention. They are new. They seek damages in excess of $43 million: the first for an alleged failure to exercise an option that expired in November 2008; and the second and third for damages in connection with recommendations that Mr Finnigan is said to have made at least 9 years ago. They raise contentious issues not only of fact, but of law. Contentious limitation issues arise.
Witnesses and trial duration
[9] It is not in dispute that Mr Yarrow’s case will require a large amount of hearing time, and rather more than was anticipated when the first tranche of security was paid or was ordered. During the course of discussion with me, counsel reached a common position that a 5 week allocation for trial would be prudent, based on three weeks for the plaintiff’s case and two weeks for the defendant’s case. Counsel say this is based on a conservative estimate of the number of witnesses that each party is likely to call, and the nature of their evidence. At this stage counsel for Mr Yarrow anticipates calling three witnesses in support, whose evidence he estimates could take a full ten days and possibly more (excluding cross-examination):
(a) Mr Yarrow, whose evidence will cover the extensive factual foundation for his 10 causes of action, spanning some 11 years. Counsel estimates 7 days will be required.
(b)An accounting expert who will give evidence on five causes of action relating to the insolvency of one of the Yarrow companies; the way in which Mr Finnigan prepared accounts in the years 2005 and 2006; and the consequences of employing a particular method of accounting. The primary allegation is that the accounting was done by non- consolidation of accounts. The evidence will also deal with Mr Finnigan’s reliance on certain valuations of properties in Perth, Sydney and New Plymouth, and the inadequacy of those valuations. Counsel estimates one to two days will be required for the accountant’s evidence.
(c) A valuation expert who will give evidence on the same causes of action as the accountant on the inadequacy of the valuations and the defects in the method of valuation. Counsel estimates one to two days for the valuer’s evidence.
[10] Counsel for Mr Finnigan questions whether the estimate of 7 days for Mr Yarrow’s own evidence is light, given that Mr Yarrow will be put to the proof and that he will presumably have to cover events over an 11 year period alleged in the statement of claim. When pressed, counsel for Mr Yarrow agreed, on reflection, that his estimate of 7 days would be a minimum.
[11] Present estimates are that 4 to 6 days could be required for the cross-examination of the plaintiff’s witnesses.
[12] I turn then to the defendant’s case. As was the case with counsel for Mr Yarrow, counsel for Mr Finnigan provided varying estimates of time for evidence for the defence case. He says a key allegation that will have to be covered relates to whether a particular company in the Yarrow Group was insolvent, and that the related evidence will take some time. He advises that he will call Mr Pettigrew, the CEO of the company (and later a director) at the time of transactions that are in issue, whose evidence will deal with a number of significant matters including:
(a) The Minto transaction in the fourth cause of action; (b) The Westpac transaction in the fifth cause of action; (c) The Volumex transaction in the sixth cause of action.
[13] Allowing for cross-examination, counsel estimate for Mr Pettigrew’s evidence is up to 4 days on the same basis. He also estimates that 5 days should be allowed (and possibly more) for the evidence of Mr Finnigan, who like Mr Yarrow will have to give lengthy evidence that covers events over a significant period, and Mr Henry, who was legal advisor to Mr Yarrow. Mr Henry’s evidence is to be confined to events over a shorter period between Mr Yarrow and his brother, and is
likely to take one of the 5 days. Additionally there will be experts who will deal with accounting and valuation issues. If there is a meeting of experts (which he anticipates), the time required for their evidence could be reduced. At this stage counsel estimates two full days may be required for these experts.
[14] On the basis of these indications I suggested to counsel that, allowing for the possibility that there will be agreement on at least some of the factual background, and that meetings of the relevant experts may well reduce the scope of the matters in issue between them, their estimates of time required for trial could be reduced. Counsel agree that the parties should cooperate in these ways, but that nonetheless it would be appropriate to allow 3 weeks for the plaintiff ’s case and
2 weeks for the defendant’s, making an overall allocation of 5 weeks.
[15] This is the estimate of time that, with counsel’s concurrence, I now take into
account for the purpose of determining quantum of the second tranche.
Other factors material to quantum
[16] It is common ground that this proceeding is appropriately classified as a Category 2 proceeding, but counsel for Mr Finnigan contends that it can properly be assumed that given the expanded scope of the amended claim and the 11 year time period involved, at least some steps are likely to attract a Band C time allowance. He refers in particular to the need to prepare an amended statement of defence in respect of ten causes of action, the preparation of extensive briefs of evidence, and the various steps required to prepare for hearing (preparation of statement of issues, authorities, common bundle and submissions) as tasks that will likely require comparatively large amounts of time, and thus may well attract a Band C time allowance. On that basis scale costs are likely to be based on a 50 day time allowance for the remaining allowable steps to trial under the High Court scale (including a 25 day trial), and an allowance (in accordance with the scale) for second counsel at trial. This equates to an award of approximately $100,000.
[17] Counsel for Mr Finnigan also points out that the quantum of disbursements and estimated legal and expert fees will be considerable. He estimates the costs for expert witnesses will be around $200,000. He points to the likely need for accommodation for trial for two counsel, and says this is likely to be around
$14,000. He also submits that there should also be an allowance for an uplift in scale costs and an allowance for second counsel. He proposes an overall award of
$364,000 to provide what he submits would be a reasonable measure of security for both legal fees and disbursements.
[18] Counsel for Mr Yarrow submits that an award of this magnitude would be excessive, and that it would stop the proceeding in its tracks. Mr Yarrow, he says, simply could not proceed. He submits that there are additionally a number of relevant factors that warrant a more modest approach to quantum. Principally among them are that:
(a) Though the claim alleges dishonesty, such allegations are not unusual and do not make the proceeding a vexatious one. Moreover, that expanded proceeding and the increased amount claimed by way of damages is on the back of discovery.
(b)Mr Yarrow has already paid $25,000 by way of security and that this should be deducted of any new assessment of quantum.
(c) If the claim is as lacking in merit as the defendant claims, then the defendant should seek a strike-out or particulars.
[19] I do not accept that these factors support the case for reduced quantum. As earlier noted by Judge Christiansen, the claims of dishonesty and fraud are serious changes for which the Court will record a high level of proof in due course. It is trite law that where allegations of dishonesty and fraud are involved, full particulars are called for. The onus cannot be on the defendant to seek strike-out where such particulars are not provided (which counsel for Mr Yarrow appears to accept is the case here). I also do not accept that I should reduce the amount of the second
tranche by making a deduction for the $25,000 that Mr Yarrow has already paid, as the second tranche is intended to cover quite separate steps.
[20] I do however agree with counsel for Mr Yarrow that some of the defendant’s estimates seem excessive (for example the overall cost of experts), and that there is no proper basis for making an allowance for an uplift at this stage. It is true that there has been an unless order against Mr Yarrow, but as counsel for Mr Yarrow points out, Mr Yarrow does not have a monopoly on delay in this proceeding. I also accept that I should take into account that an order for security should not be so large as to “cripple Mr Yarrow”. It may yet be proved to be the case, as Mr Yarrow’s contends, that he has lost everything because of Mr Finnigan’s conduct.
The approach the Court should take
[21] It is common to order the provision of security in stages or tranches, as Judge Christiansen has ordered in this case. That is a matter that is not to be revisited on this occasion. It has already been decided.
[22] The amount of security is in the Court’s discretion. It is to be set having regard to what the Court considers appropriate in all the circumstances pursuant to r 5.45(2).
[23] Where a proceeding changes in character, the quantum of security for costs previously ordered may be increased. For example, in Cargill New Zealand Ltd v Palmerston Wool Co Ltd6 this Court ordered that the quantum of security be doubled in response to an amended counterclaim that increased the quantum claimed from
$530,000 to $1.3 million.
[24] This is a case where the proceeding has expanded quite markedly, and the character has in that sense changed. It is not however a case of increasing security already ordered, but of deciding what level of security is now appropriate for the
second tranche.
6 Cargill NZ Ltd v Palmerston Wool Co Ltd (1997) 11 PRNZ 52 (HC)
[25] The approach I propose to take is what amount of security is required in order to provide Mr Finnigan with a reasonable measure of compensation for his costs should he succeed in his defence, without imposing an oppressive burden on Mr Yarrow. Viewed in this way the issue is essentially one of impression involving a balancing exercise in the exercise of the Court’s discretion.
[26] I accept that most of the remaining allowable steps are likely to be assessed on a Band B basis, but that some are more likely to be assessed on a Band C basis. I therefore proceed on the basis of a likely time allowance under the High Court scale of 50 days for bringing the matter to trial. This represents scale costs for a Category 2 proceeding for the remaining allowable steps. The allowance includes provision for second counsel at trial, which seems warranted.
Decision
[27] Weighing all these factors, I do not accept the submission of counsel for the defendant that security in the amount of $364,000 to cover both legal fees and disbursements would be appropriate. Although the quantum claimed is very substantial, the issues are not overly complex.
[28] I consider a more modest award would adequately protect Mr Finnigan’s position in the event that he is the successful party, without imposing a disproportionate burden on Mr Yarrow.
[29] I make orders as follows:
(a) The plaintiff is to pay a second tranche of security for costs in the amount of $80,000 plus $80,000 for disbursements. Such security is to be provided in a form satisfactory to the Registrar within
21 working days.
(b)Unless such security for costs is paid within that time, the plaintiff has leave to seek an “unless” order by way of a memorandum on two days’ notice.
(c) The defendant need not file his statement of defence to the second amended statement of claim until 25 working days after security for costs is paid.
[30] Costs are reserved. If either side seeks cost, a brief memorandum is to be filed and served within 10 working days with any memorandum in response to be
filed and served within a further 10 working days.
Associate Judge Sargisson