Sentry Hill Winery (2006) Limited (in liquidation) v Parkes [2017] NZHC 1089 (24 May 2017)

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UNDER	the Companies Act 1993
BETWEEN	SENTRY HILL WINERY (2006) LIMITED (IN LIQUIDATION) First plaintiff VIVIAN JUDITH FATUPAITO and ANDREW JOHN HAWKES Second plaintiffs
AND	STEPHEN JOHN PARKES Defendant

Hearing:	17 May 2017
Appearances:	J C Caird for the plaintiffs F A King for the defendant
_Judgment:	_{24 May 2017}

[1] The defendant (Mr Parkes) applies for security for his costs in this proceeding.

[2] The first plaintiff (Sentry Hill) was put into liquidation by order made in this court on 26 April 2016. The second plaintiffs, Mrs Fatupaito and Mr Hawkes (the liquidators), were appointed liquidators.

[3] Mr Parkes was at all material times the sole director of, and sole shareholder in, Sentry Hill.

[4] In their statement of claim, the plaintiffs plead four separate causes of action. In the first cause of action, Sentry Hill seeks judgment against Mr Parkes on his current account with the company, in the sum of $35,383.43, together with interest and costs.

_{The other three causes of action are claims made by the two plaintiffs
jointly. In the}

SENTRY HILL WINERY (2006) LIMITED (IN LIQUIDATION) v PARKES [2017] NZHC 1089 [24 May 2017]

first of them, the plaintiffs plead that, in breach of his duty under s 135 of the Companies Act 1993 (the Act), Mr Parkes agreed to, caused, or allowed the business of Sentry Hill to be carried on in a manner likely to create a substantial risk of serious loss to Sentry Hill’s creditors. The plaintiffs claim judgment on this cause of action in the sum of $610,571.11, together with interest and costs.

[5] The second of the joint causes of action relies on alleged breach by Mr Parkes of his statutory duty under s 136 of the Act. The plaintiffs say that, from 31 March 2012, Mr Parkes breached his duty under s 136 by agreeing to Sentry Hill incurring obligations when he did not believe on reasonable grounds (or believed but on unreasonable grounds) that Sentry Hill would be able to perform those obligations when it was required to do so. The plaintiffs also claim $610,571.11, with interest and costs, on this cause of action.

[6] The last of the joint causes of action pleads breach by Mr Parkes of his duties under s 137 of the Act. Specifically, the plaintiffs allege that, from 31 March 2012, Mr Parkes breached his duty under that section in that he did not exercise the level of care, diligence and skill that a reasonable director would have exercised in the same circumstances, having regard to the Sentry Hill’s nature, the nature of the decisions, and the position and responsibilities undertaken by Mr Parkes. Again, the plaintiffs’ claim is for $610,571.11 plus interest and costs.

[7] In his statement of defence, Mr Parkes admits that his current account with Sentry Hill was overdrawn as at the date of liquidation in the sum of $35,383.43, and that he has not since paid that sum. However he says that he is entitled to an equitable set-off sufficient to extinguish that liability, because of cash injections and other contributions made by him to Sentry Hill in the period between November 2010 and the date of the liquidation order.

[8] Mr Parkes admits in his defence that Sentry Hill was insolvent on a balance sheet test from 31 March 2012, but says that Sentry Hill continued to record good turnover, and profit forecasts showed that the company could trade out of insolvency. In response to the plaintiffs’ allegations that Sentry Hill was unable to pay its debts as they became due in the normal course of business from at least July 2012 (and in

particular could not pay debts due to NZ Customs on 31 July 2012, 31 January 2014,

31 July 2014, 31 January 2015, 31 July 2015, and 31 January 2016), Mr Parkes says that he was aware of the duty due on 31 July 2012 but considered that Sentry Hill’s receivables due the following month would cover that debt, and that that would continue to be the position in ensuing months. He points to Sentry Hill’s “excellent compliance history” with NZ Customs from 2006–2012, when the company was required to submit excise duty returns on a monthly basis, saying that issues only arose when Sentry Hill was transferred to a six monthly payment basis. He admits that since September 2012

Sentry Hill only made four payments to NZ Customs, totalling $21,000, and that eventually Sentry Hill was unable to pay its debts to NZ Customs. He accepts that the total debt to NZ Customs was $281,858 when the liquidators were appointed. There was also a GST liability owed to the Commissioner of Inland Revenue, dating back to November 2014.

[9] In response to the three causes of action under ss 135, 136 and 137 of the Act, Mr Parkes acknowledges the statutory duties but says that he “did everything in his power to trade out of insolvency in the hope that more monies could be realised for [Sentry Hill’s] creditors”. He denies breaching any of the pleaded duties, and says that Sentry Hill’s accounts showed a forecast profit. He says that he believed the financial position of the company was improving.

[10] Mr Parkes asks for an order that the liquidators provide security for his costs of

and incidential to the plaintiffs’ claim, by depositing with the Registrar the sum of

$49,000 or such other sum as the court thinks fit. Mr Parkes asks for an order that the the plaintiffs’ claim be stayed until such security is given.

[11] The application is made on two substantial grounds. First, Mr Parkes says that there is reason to believe that Sentry Hill will be unable to pay his costs if the plaintiffs are unsuccessful in the proceeding. Secondly, he says that the plaintiffs’ claims are likely to be uneconomic, and not to the benefit of Sentry Hill’s creditors.

[12] In an affidavit filed in support of the application, Mr Parkes asserted that he has an equitable set-off defence to the claim on the overdrawn current account, on the basis

that he applied several thousands of hours of his time into Sentry Hill without drawing any salary or wages, and that he injected approximately $235,000 of his personal funds into Sentry Hill over the last five years of Sentry Hill’s operations. He said that he had put almost all of his assets into Sentry Hill, so that the company’s higher-interest loans could be quickly reduced and cash flow could be improved.

[13] Mr Parkes denied breaching any of his statutory obligations as a director of Sentry Hill. In respect of the s 135 allegation that he caused or allowed Sentry Hill to trade recklessly, he stated that he improved the performance of the company by monitoring performance and projected forecasts, which demonstrated an improvement in Sentry Hill’s financial position. He stated that he communicated with creditors, engaged in payment plans, and injected personal cash and liquidated assets into Sentry Hill in an attempt to trade out of insolvency. He also made several reasonable changes to the way in which Sentry Hill operated, one of which was paying suppliers of raw materials prior to delivery, to reduce the risk that invoices would become overdue and Sentry Hill would incur further liabilities. His evidence was that he believed on reasonable grounds that Sentry Hill’s financial position could and would improve.

[14] The 2015 financial year accounts for Sentry Hill showed a profit, supporting his view that the company would be able to return to solvency over time.

[15] Mr Parkes stated that after the liquidation he spent “hundreds of hours” assisting the liquidators by continuing to operate the business at their request, again for no wages.

[16] In support of his contention that the proceeding will be uneconomic, Mr Parkes produced a letter from the plaintiffs’ solicitors dated 26 August 2016, which confirmed that the plaintiffs were not receiving any litigation funding for the proceeding. He also referred to the liquidators’ six-monthly report dated 28 November 2016, which confirmed that Sentry Hill had limited funds (approximately $1,500.00).

[17] Mr Parkes then addressed his own financial position, stating that he has very few assets of value and little means to pay any judgment (and thus produce a benefit to Sentry Hill’s creditors). He attached a very short statement of his personal financial

position as at 24 January 2017. It showed a total sum of $60.22 in bank accounts, no vehicles, and no other assets.

[18] Mr Parkes deposed that his monthly after-tax income is approximately $6,000, and that all of that is required to meet living expenses and monthly payments of

$3,575.35 on loans from the ANZ Bank. He said that there would be no surplus funds to meet any judgment the plaintiffs might obtain.

[19] Mr Parkes’ expressed the view that his financial position would inevitably worsen as he incurred costs defending the plaintiffs’ claims. He produced a fees estimate from a firm of chartered accountants, indicating that he would need to pay approximately $20,000 plus GST for the accounting firm to conduct a preliminary review of Sentry Hill’s trading over the three year period before the liquidation. If the matter went past the point of preparing an opinion, there would be an additional

[20] The plaintiffs say that Mrs Fatupaito and Mr Hawkes are experienced insolvency practitioners, and that they would be able to pay any costs which might be awarded against them in the event of Mr Parkes successfully defending their claims. They say that the claims in the proceeding are both bona fide and meritorious, and that the proceeding has been commenced to maximise returns for the benefit of Sentry Hill’s unsecured creditors.

[21] The plaintiffs plead that Sentry Hill’s admitted impecuniosity was caused by Mr Parkes’ actions. Further, they say that he has hindered and interfered with the course of the liquidation, thereby increasing the liquidators’costs.

[22] They also say that any order for security for costs will likely prevent them from further pursuing the claims against Mr Parkes.

[23] Mrs Fatupaito provided an affidavit in support of the opposition. She is a director of the accounting firm KPMG. Mr Hawkes is a partner in the firm.

[24] Mrs Fatupaito’s evidence was that Sentry Hill does not have the funds to post security for Mr Parkes’ costs, and KPMG is unwilling to provide security (although if Mr Parkes successfully defends the claims, the firm will meet any costs award which might be made against Mrs Fatupaito and/or Mr Hawkes personally). Mrs Fatupaito and Mr Hawkes are proceeding with the claim on an unfunded basis for the time being. In the event that assets can be realised, invoices for the liquidators’ attendances and costs in relation to the proceeding will then be rendered to Sentry Hill.

[25] At the hearing, I enquired of Mr Caird whether KPMG’s willingness to meet any costs award which might be made against Mrs Fatupaito or Mr Hawkes extended to any costs award which might be made against Sentry Hill. The answer was no.

[26] Mrs Fatupaito provided the following details of the background to the liquidation.

[27] Sentry Hill operated a fruit winery from premises in Cross Road, New Plymouth (the premises). The premises are owned by Mr Parkes’ family trust, the S J Parkes Trust No. 1 (the Parkes Trust). Mr Parkes and his wife are the trustees of the Parkes Trust.

[28] The immediate cause of the liquidation was Sentry Hill’s failure to pay approximately $282,000 due to NZ Customs for unpaid excise duty.

[29] The total indebtedness to unsecured creditors is approximately $610,571.11, including approximately $243,300 owing to ANZ Bank.

[30] As far as Sentry Hill’s financial position is concerned, Mrs Fatupaito confirmed her opinion that Sentry Hill had been insolvent on a cash-flow basis since

[31] In response to Mr Parkes’ statement that he has no assets available to meet any judgment against him, Mrs Fatupaito stated that Mr Parkes has not provided sufficient evidence of his financial position. For example, he has not said if he is a beneficiary of the Parkes Trust, or if he can obtain funding from the Parkes Trust. (In his reply affidavit Mr Parkes stated that he had provided evidence demonstrating his

impecuniosity. He pointed out that the proceeding has been brought against him personally, not against the Parkes Trust, and confirmed that he had not transferred any personal money or assets into the Parkes Trust within the last five years.)

(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(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.

(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—

(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.

[33] Both counsel referred to the judgment of Brewer J in Retail Ready Logistics Ltd v Bank of New Zealand and others, where the judge helpfully summarised the court’s

¹Retail Ready Logistics Ltd v Bank of New Zealand [2015] NZHC 2682 at [17]–[23].

[34] Judges will usually follow a four-step approach. First, the judge must be satisfied on the threshold prescribed by r 5.45(1)(b). That threshold test will be met where the plaintiff is a company in liquidation.²

[35] If the threshold test has been met, the judge will move on to decide whether to exercise his or her discretion to order for security under r 5.45(2). The ordering of security is not an automatic consequence of a plaintiff’s impecuniosity, but depends on a broad overall assessment based on the interests of the parties. A balancing exercise is required, and that balancing exercise may include an assessment of the merits of the plaintiffs’ claim (although an assessment of the merits on a security for costs application will usually only give the court an impression — in most cases it will not be possible to

form a view of the merits³). An order for security for costs which may have the effect

of preventing a plaintiff from pursuing its claim will normally only be made 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.⁴

[36] In Retail Ready Logistics, Brewer J referred to the comprehensive discussion of security for costs contained in the judgment of Kós J in Highgate on Broadway v Devine.⁵Kós J listed a number of factors which may be relevant to the exercise of the court’s discretion on a security for costs application, including the following:⁶

(a) Where the plaintiff is “nominal”, so that it is in effect representing the interests of others who will thus be spared exposure to costs, it may be appropriate to make an order for security.

(b) While it is not appropriate that a Court predetermine the merits or form more than “an impression”, if a prima facie case can be established that the respondent’s claim is unmeritorious that will be a factor in favour of security for costs.

(c) Where allowing litigation to proceed without the checks and protection of security will be oppressive to the interests of other parties, particularly where the litigation is unjustified or unmeritorious, overcomplicated or unnecessarily protracted, then security may be ordered.

²_{At [17] citing Flat Bush Property Ltd (in liq) v
Polglase [2012] NZHC 332 at [23].}

³_{McLachlan v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA)
at [13]–[21].}

(d) Where it is reasonably probable that the defendant’s actions the subject of a cause of action caused the plaintiff’s impecuniousity, that is a strong consideration against awarding security.

(e) Where ordering security would deprive the plaintiff of the capacity to advance a prima facie meritorious claim, then that consideration should trump the right of a successful defendant to costs.

(f) The whole spectrum of each party’s conduct in relation to the litigation and its subject matter may be considered, of significance is behaviour by either party that is contemptuous or oppressive.

(g) The most important consideration is how the respective interests of the parties should best be balanced.

[37] Once the threshold test under r 5.45(1)(b) has been met, and the court has determined to exercise its discretion in favour of making an order for the security, the remaining steps in the four-step process are for the court to decide the amount of the security and how it is to be provided, and whether a stay of the claim should be ordered pending the posting of the security.

[38] In Retail Ready Logistics Brewer J referred to the court’s traditional aversion to requiring liquidators to provide security for costs where proceedings are brought by a company in liquidation. That traditional view was generally based on the premise that proceedings brought for the benefit of creditors should not be stifled by security for costs applications. But courts are less averse to requiring liquidators to provide security

This is because there is a distinction between claims brought by a company in liquidation alone, and a claim brought by a liquidator. The relevance of the distinction is that a company in liquidation may have only its own assets available to meet any claim for costs, whereas a liquidator may be personally liable for costs and may have to look to his own assets if the assets of the company are insufficient. The courts will be less inclined to require a liquidator personally to provide security for costs because his potential personal liability will provide better protection for a successful defendant than a costs order against a company in liquidation alone.

[39] Normally there will not be any question as to the ability of an insolvency practitioner to meet an order for costs if a claim brought by him as liquidator were

_{unsuccessful.}⁸_{And if a liquidator plaintiff
has provided affidavit evidence that his or}

her firm will meet any adverse costs award against the liquidators, the impecuniosity threshold in r 5.45(1)(b) will not have been crossed.⁹

[40] The position where the claim is made by more than one plaintiff, and one of the plaintiffs is not insolvent, was considered by the Court of Appeal in Ariadne Australia Ltd v Grayburn.¹⁰In giving the judgment of the Court, Somers J stated:¹¹

Where, as here, two parties are suing in the same interest with the same solicitors and counsel there will ordinarily be only one set of costs. In those circumstances if one of the two can pay the costs no security will be needed; otherwise security from the one who can best provide it will meet the case.

[41] I do not think there is any basis for ordering security on the causes of action which are brought jointly by Sentry Hill and the liquidators. These are the statutory causes of action under ss 135, 136 and 137 of the Act, and the claims are clearly brought by two parties suing in the same interest and using the same solicitors and counsel. If Mr Parkes succeeded at trial on these causes of action, it is reasonable to expect that only one set of costs would be awarded against the plaintiffs. As Somers J noted in

Ariadne, if one of the two plaintiffs can pay the costs no security will be needed.¹²

[42] Mr Caird acknowledged in his written submissions that the nature of the director’s duties claims in this proceeding are such that Sentry Hill and the liquidators will stand or fail together. If they fail, the liquidators will be personally liable for any adverse costs award which may be made against them. And Mrs Fatupaito has confirmed in her affidavit that her firm will meet any costs award made against the liquidators.

[43] I infer from Mr Caird’s submission that “Sentry Hill and the liquidators will stand or fail together” that any costs award which might be made against the plaintiffs at trial on their second, third and fourth causes of action, would be ordered jointly and

_{severally against Sentry Hill and the liquidators. In those
circumstances, I agree that the}

Ariadne principle applies, and the threshold test of impecuniosity is not met in respect of the second, third, and fourth causes of action.

[44] If there is to be an order for security, then, it must be in respect of the first cause of action, which is brought by Sentry Hill alone. It is clear that Sentry Hill is insolvent, and the r 5.45(1)(b) threshold test of impecuniosity is met in respect of this part of the claim. I accordingly turn to consider the matters affecting the exercise of my discretion, and the balancing of the parties’ interests.

[45] On the merits of the parties’ respective positions on the first cause of action, I note that Mr Parkes accepts in his statement of defence that his shareholder’s current account with Sentry Hill was overdrawn by $35,383.43 at the date of the liquidation, and that Sentry Hill has made demand on him for payment of that sum. He also admits in his statement of defence that he has not made any repayment. The only matter which is in issue on the first cause of action is Mr Parkes’ equitable set-off defence.

14.2 [Mr Parkes] also received additional income from other waged employment and injected approximately $235,000 of his personal monies into the business over the last five years of trade.

[47] No further particulars of the equitable set-off pleading have been provided, and no contemporary documents supporting it were included in Mr Parkes’ initial disclosure (the parties have not yet completed full discovery of documents) or provided with his affidavits.

[48] The question of whether Mr Parkes might have a claim for unpaid salary or wages from November 2010 will presumably depend on whether there existed an employer/employee relationship between Sentry Hill and himself over that period. There is no pleading that any such relationship existed, and if it did not, it is difficult to see how this claim could be sustained.

[49] While it is easy to understand Mr Parkes’ view that a decision by him to refrain from drawing salary or wages represented a substantial contribution to Sentry Hill, the question at trial will be whether that “contribution” provided any legal basis for a claim against Sentry Hill. Many shareholders make contributions to companies which are going through difficult financial times, and it by no means follows that those shareholders are entitled to recover their contributions at a later stage.

[50] The pleading (and Mr Parkes’ evidence) that he “injected” approximately

“injections” advances or capital contributions? Elsewhere in his statement of defence¹³

Mr Parkes does say that he applied “personal shareholder advances” to pay off Sentry Hill’s high-interest loans, so that cash flow could be improved down the line. But it is difficult on the material I have before me to understand why, if Mr Parkes did indeed lend approximately $235,000 to Sentry Hill, those advances were apparently not credited to his shareholder’s account with Sentry Hill, which was overdrawn by

$33,383.43 at the date of the liquidation. If the cash injections were advances and were credited to Mr Parkes’ shareholder’s account, there would be nothing owing to him (at least in respect of the “cash injections”), and thus no debt which could be the subject of a set-off. If the cash injections were not credited to Mr Parkes’ current account with Sentry Hill, there would be an obvious question as to why, if they were advances and not capital contributions, that did not happen.

[51] These will all be matters for trial, and the court can only form a limited impression of the merits at this stage. It is enough to find, as I do, that the lack of particularity in Mr Parkes’ pleading of the equitable set-off defence, and the absence of supporting documents, together suggest that the merits do not provide strong support for the making of an order for security.

[52] Turning to the other factors that the court may consider in the balancing exercise, it clearly cannot be said that Sentry Hill’s claim on the first cause of action is

_{prima facie unmeritorious. On the contrary, Mr Parkes has admitted the
overdrawn}

current account balance, and the onus will be on him to make out his equitable set-off defence.

[53] While Sentry Hill may be a “nominal” plaintiff in this case, in the sense that it might be said to be suing only in the interests of its creditors, I note and respectfully adopt the statement of Brewer J in Ready Retail Logistics that the fact that a plaintiff is “nominal” cannot be given much weight in a liquidation proceeding. A company in liquidation will always be bringing proceedings for the benefit of its creditors, and the general policy rule against requiring the company in liquidation to pay security for costs is to ensure that proceedings brought for the benefit of the creditors are not stifled by

[54] Other discretionary factors include whether the plaintiff has access to third party funding, and whether an order for security may have the effect of preventing a plaintiff from pursuing its claim. The answers in this case are that Sentry Hill does have access to third party funding (by Mrs Fatupaito’s firm), but that the third party funder is not prepared to post security for Mr Parkes’ costs. I do not think these factors, considered together, point in favour of an order for security. The first cause of action represents a small part of the total claim, and is likely to be less complex and time consuming. Preparing for the defence of this claim, and running the defence at trial, is likely to involve very substantial overlap with Mr Parkes’ defence to the second, third and fourth causes of action (where, for example, proof of the cash injections made by him is likely to be relevant to Sentry Hill’s financial position from time to time, and to Mr Parkes’ apparent belief that the company could trade its way out of insolvency).

[55] A further factor identified by Kós J in Highgate on Broadway is whether it is reasonably probable that the plaintiff’s impecuniousity was caused by the defendant. If that is the case, it will be a strong factor weighing against the making of an order.¹⁵In this case, there is evidence of both balance sheet and cash flow insolvency going back as far as 2012, and Mr Parkes appears to accept that Sentry Hill was insolvent — he says that his belief was that the company could trade its way out of insolvency.

_{Mr Parkes was the sole director of Sentry Hill, and it appears that all
of the significant}

decisions relating to the company’s operations and management would have been his. In those circumstances, I accept the submission of Mr Caird that the “cause of the plaintiff’s insolvency” factor points against an award of security. Mr Parkes was unsuccessful in his attempts to trade Sentry Hill out of insolvency, and Mrs Fatupaito’s evidence is that his attempts to do so caused the creditors to suffer unnecessary loss.

[56] Considering the matters discussed at paras [41] to [55] together, I am of the view that the evidence does not justify the making of an order for security.

[57] It remains only to consider Mr King’s submission that the proceeding is likely to

[58] The plaintiffs’ claims total approximately $645,000 plus interest and costs. Clearly if they are able to recover that sum, or any substantial part of it, there is likely to be a significant benefit for Sentry Hill’s creditors.

[59] Mr King relied on Retail Ready Logistics Ltd in support of his argument that security for costs should be awarded, effectively to prevent the plaintiffs pursuing wasteful and uneconomic litigation. In that case, the factor that tipped the balance in favour of an award of security was the uneconomic nature of the litigation. A relatively modest amount of money was at stake, and the judge could not see how the proceeding would be of real benefit to NZ Customs (the intended beneficiary) if the plaintiff won. His Honour noted that there was a real risk of there being nothing left over for Customs as creditor once the cost of the litigation was taken into account. On that basis, Brewer J was persuaded to depart from the general principle that liquidators should not be inhibited from performing their statutory obligations by orders for security for costs. The Judge considered that it would not be fair to require the defendants to spend a substantial amount of money to conduct a defence with no prospect of recovering costs

[60] I think the last point is sufficient to distinguish Retail Ready Logistics. This is

not a case where Mr Parkes will be obliged to spend a substantial amount of money to conduct a defence with no prospect of recovering costs if he is successful. The

liquidators’ firm has said that it will stand behind the liquidators if costs are awarded against them on the three causes of action which make up the most significant part of the claim, and evidence on those causes of action is likely to cover a substantial part of the evidence likely to be addressed on the other cause of action.

[61] Nor do I think this is a case where it can safely be said that success in the proceeding would be likely to produce no real benefit to the creditors. It may be that Mr Parkes has or can obtain assistance from the Parkes Trust (or elsewhere), to meet any liability he may ultimately be found to have. I note that Mr Parkes is not on legal aid in this proceeding and his apparent intention is to continue to instruct solicitors to defend the claims, and to retain a chartered accountant to provide expert evidence.

[62] The creditors’ position will not be worsened if the plaintiffs are allowed to proceed to trial. If what Mr Parkes says is correct, and a substantial judgment against him would not produce any cash for the creditors, the only loser would appear to be the party who funded the litigation for the plaintiffs, namely the liquidators’ firm.

[63] I would be cautious in any event to make an order on a defendant’s security for costs application which would or might have the effect of precluding the liquidators from pursuing a particular piece of litigation. In this case, the facts that Mrs Fatupaito’s firm will stand behind her and Mr Hawkes if Mr Parkes obtains a costs order against them, and that Sentry Hill’s creditors will be no worse off if the litigation turns out to be unsuccessful, persuade me that this is not a case where any impecuniosity of Mr Parkes would trump the factors discussed above, which together point against the making of an order for security.

[64] Mr Parkes has failed to make out a case for security for costs. In respect of the second, third, and fourth cases of action, in which the claimants are Sentry Hill and the liquidators jointly, that is because I have not been satisfied that Mr Parkes has met the impecuniosity threshold test set out in r 5.45(1)(b). In respect of the first cause of action, where the sole claimant is Sentry Hill, I exercise my discretion against the making of an order for security. The principal factors influencing that decision are the relative strength of the plaintiffs’ claim that Sentry Hill’s impecuniosity has been caused

by the decisions of Mr Parkes, and the absence of documents, and proper particulars, supporting Mr Parkes’ equitable set-off defence.

[65] The application for security for costs is accordingly dismissed. The plaintiffs are entitled to costs, which I fix on a 2B basis. There will also be an order for disbursements in favour of the plaintiffs, to be fixed by the Registrar.

[66] Before leaving the matter, I record that Mr Parkes contended that certain evidence given by Mrs Fatupaito to the effect that Mr Parkes wrongfully obstructed the conduct of the liquidation (which Mr Parkes denies) was irrelevant and inadmissible. In the event, it has not been necessary for me to consider that evidence in reaching my conclusion on the application. It is accordingly unnecessary for me to rule on the admissibility of this evidence.

High Court of New Zealand Decisions

Sentry Hill Winery (2006) Limited (in liquidation) v Parkes [2017] NZHC 1089 (24 May 2017)