Savill v AMFL Limited [2020] NZHC 3061 (19 November 2020)

Last Updated: 6 January 2021

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-143 [2020] NZHC 3061

BETWEEN	SIMON LYDALL SAVILL Plaintiff (Respondent)
AND	AMFL LIMITED Defendant (Applicant)

Hearing:	16 November 2020
Appearances:	S Austin for plaintiff/respondent M Hammer for defendant/applicant
Judgment:	19 November 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

• [1] This is an application pursuant to r 5.45 of the High Court Rules 2016 for an order for security for costs made by the defendant, AMFL Limited, and opposed by the plaintiff, Mr Simon Savill.

• [2] The proceeding was originally commenced by Mr Savill in March 2020, at which point Mr Savill applied ex parte for injunctive relief preventing AMFL from pursuing a mortgagee sale of his property in Queen Charlotte Sound. Dunningham J dealt with the ex parte application on the papers and on 25 March 2020 issued a short judgment granting such relief.¹ AMFL then applied for an order rescinding the injunction. That application was heard on 13 August 2020. In a results judgment that day Dunningham J made an order rescinding her earlier order. Her Honour delivered a reasons judgment on 20 August 2020.²

¹ Savill v AMFL Limited [2020] NZHC 655.

² Savill v AMFL Limited [2020] NZHC 655.

SAVILL v AMFL LIMITED [2020] NZHC 3061 [19 November 2020]

• [3] I respectfully adopt Dunningham J’s description of the background to the dispute:³

Paras [7]-[14]

• [7] Mr Savill approached AMFL to borrow money to settle the purchase of a beachfront property in Kumutoto Bay in the Marlborough Sounds. The property was previously owned by his son-in-law. The property is legally described as Lot 1 DP 8221, MB4D/1116, Kumutoto Bay, Queen Charlotte Sound, Marlborough, comprised in Certificate of Title MB4D/1116 (the property).

• [8] Mr Savill, together with his wife, in their [capacities] as trustees of the Shaw Savill Family Trust No. 2, also own the adjacent beachfront property in Kumutoto Bay (the Trust property).

• [9] Mr Savill also owns a boatshed, fixed jetty and slipway and floating jetty which are all located on the waterfront, not on the property. He holds resource consent U15110.1 which is a coastal permit permitting these structures to be erected “fronting Lot 1 DP 8221 in Kumutoto Bay”. Condition 10 of this permit states:

The land to which the approved structures relate is presently known as Lot 1 DP 8221 (the Land). This coastal permit must not be transferred to any person other than an owner of the Land. In the event that the Land is sold or otherwise transferred to a new owner, this coastal permit must within three months be transferred to a new owner of the Land, failing which the consent must be surrendered to the consent authority.

• [10] Mr Savill also owns a swing mooring (M714) located in Kumutoto Bay, pursuant to resource consent U15110.2. Resource consent U15110.2 contains a condition in the same terms as condition 10 for resource consent U15110.1, saying that the approved mooring relates to Lot 1, DP 8221, and in the event the land is sold or otherwise transferred to a new owner, the permit must be transferred to the new owner or surrendered.

• [11] I refer to these structures which are authorised by the two coastal permits, as “the water assets”.

• [12] On 20 December 2018, AMFL and Mr Savill entered into a loan facility agreement. Under it AMFL agreed to advance Mr Savill the amount of $850,000 and the term of the loan was for five months. The facility agreement granted AMFL a mortgage over the property being purchased. In applying for the loan, Mr Savill provided AMFL with a valuation of the property dated 23 November 2018. The valuation contained a property description which included the water assets. The valuation specified a market value of $1,250,000 (inclusive of GST, if any). It also recorded that the purpose of the valuation was “market value for mortgage lending”.

• [13] AMFL’s credit policy at the time was that the loan had to be no more than 80 per cent of the value of the security. Mr Justin Cunningham, the sole

³ Savill v AMFL Limited [2020] NZHC 655.

director of AMFL, says in his affidavit that if the water assets were not included as part of the security, he would not have approved the loan, as non- inclusion of these assets would have substantially diminished the value of the security.

• [14] However, Mr Savill points out that in responding to the letter offering him a commercial loan facility, he deleted the term of the offer which required a “Registered first charge General Security Agreement over all present and after acquired property of the Borrower”. He said this change was accepted by AMFL before it allowed the facility to be drawn upon. As the facility agreement defines “security property” and “security document” to mean the mortgage, he asserts the loan is only secured by the property, and not by the water assets.

• [4] In October 2019 AMFL purported to cancel the loan agreement and foreclose on the mortgage. It alleged that Mr Saville had misrepresented his financial position to the company in pre-contractual communications and was in breach of the agreement. It was this, of course, that precipitated Mr Saville’s claim. In his claim Mr Saville made various allegations of breach of contract against AMFL. There was, and still is, an allegation of conversion.

• [5] Having assessed the apparent merits of Mr Savill’s claim for the purposes of determining whether or not there was a serious question to be tried and where the balance of convenience lay in the injunction proceeding, Dunningham J concluded:

[49] Accordingly, I have found that Mr Savill has some arguable, but distinctively unpromising claims.

• [6] Everything that I have seen in dealing with the current application before the Court leads me to a similar conclusion, and Ms Austin for Mr Savill did not attempt to persuade me otherwise.

• [7] Rule 5.45 of the High Court Rules provides:

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.

• [8] Accordingly, the issues that the Court generally needs to deal with in applications such as this are:

(a) Is the threshold test in r 5.45(1) satisfied?

(b) If so, in terms of r 5.45(2) is it just in all the circumstances to order the giving of security for costs?

(c) If so, what form should any order take – in particular what should the quantum of security be, when should it become payable, should there be a stay pending the provision of security and what if any sanction should apply if the proceeding remains stayed for a long period of time?

• [9] In this case, the issues are somewhat narrower. This is because Ms Austin responsibly accepts that the threshold test is met (essentially as a result of Mr Savill’s impecuniosity) and that it would be appropriate for the Court to make an order for security for costs. Thus, only the third issue arises for determination.

• [10] Contextually, it is important to mention that the terms of the loan arrangement between AMFL and Mr Savill entitle the former to seek costs on an indemnity basis if it were to be successful. The relevant clause in the loan documentation is cl 16.1, which provides:

• 16.1 Costs and expenses: The Borrower shall pay to the Lender upon demand an amount equal to all costs, losses, expenses and other liabilities on a full indemnity basis (including legal expenses on a full indemnity basis and goods and services and similar taxes thereon) incurred or sustained by the Lender in connection with:

1. ...

2. the exercise, enforcement or preservation, or the attempted exercise, enforcement or preservation, of any right under any Finance Document, or in suing for or recovering any sum due under any Finance Document;

• [11] On that basis, Ms Hammer for AMFL submits that the Court must make an assessment of the likely costs of trial and that that figure should not merely inform but should translate directly into the order sought, which she submits should be payable immediately in full.

• [12] As Ms Austin contends, that analysis is somewhat crude as it fails to take proper account of the Court’s discretion when it comes to security for costs.

• [13] Ms Hammer contended that the Court should approach AMFL’s application as she suggested because “... AMFL has a right not to be subjected to an unmeritorious claim by Mr Savill in the absence of protection for its actual costs”. In my judgment, that overstates AMFL’s case. Every application for security for costs requires the Court to carry out a balancing exercise.⁴ Both parties have rights. Mr Savill, for his part, is entitled to bring his claim before the Court and have it determined. AMFL, for its part, is entitled to a measure of protection given that the threshold test is really

⁴ See A S McLachlan Limited & Ors v MEL Network Limited [2002] NZCA 215; (2002) 16 PRNZ 747 at [15]- [16].

intended to ensure that security for costs is only ordered where the applicant for the order faces a particular costs risk.

• [14] Ms Hammer was on more solid ground in submitting that in a case such as this, where the Court has had a greater opportunity than is normally the case to assess the underlying merits of the plaintiff’s claim, and where it has been concluded – as it has here – that the claim is not a strong one, then that suggests that there may be grounds for a somewhat greater level of protection for the defendant than might ordinarily be available.

• [15] Ms Austin submitted that a helpful starting point is an assessment of scale costs on a 2B basis, multiplied by one-third to reflect AMFL’s entitlement to indemnity costs. The logic behind this analysis is that scale costs are designed to reflect two-thirds of the likely actual costs that the parties will incur, so that multiplying them by one-third should arrive at an assessment of the likely actual costs. There is considerable force in that submission.

• [16] It is not obvious to me that AMFL’s assessment of its likely costs down to the end of the trial - $150,000 – is especially robust.

• [17] On the other hand, Ms Austin’s assessment of scale costs on a 2B basis appears to me to be overly optimistic. Most importantly she assesses the likely duration of the hearing at two days. My own assessment, given the hard-fought nature of this litigation to date, and the factual and legal issues canvassed by Dunningham J in her 20 August 2020 judgment leads me to the view that this case is likely to occupy at least three and perhaps four days.

• [18] Putting aside other peripheral issues - and bearing in mind that I am exercising a discretion, rather than engaging in a mathematical exercise⁵ - my own assessment is that the defendant’s scale costs on a 2B basis are likely to be in the region of $50,000. If one increases that by one-third, the figure I arrive at for an assessment of likely actual and reasonable costs is $65,000.

⁵ See Sharp v Pillay [2017] NZHC 647 at [17].

• [19] I have considered whether that figure should be adjusted – up or down – having regard to the other factors that generally rise to the surface in dealing with applications for security for costs. There is no suggestion here as there is in some cases that Mr Savill is acting as a front for any other party so as to shield them from exposure to a costs award. It is not obvious to me that the plaintiff’s impecuniosity has been caused by the actions of AMFL or that AMFL can be criticised for delay in terms of making this application. The only other factor that I have considered – but, in the end, concluded is immaterial – is the conduct of the litigation to date. I have considered that issue because it is suggested on behalf of AMFL that Mr Savill is querulous – my word rather than counsel’s – and that his approach has added to the cost of this litigation. Whilst it is fair to say that a review of the conduct of the litigation to this point suggests that Mr Savill has run every available argument, that in itself does not appear to me to be a factor that should count against him in this case. After all, as a litigant, he is entitled to advance his case as he sees fit, and security for costs is future looking rather than looking at the costs already incurred.⁶

• [20] For the reasons already canvassed, the view I take is that a proper balance between the interests of the parties will be struck if I make an order in favour of AMFL granting security for costs in the sum of $65,000.

• [21] In my view, those costs should be paid in two stages, the first $32,500 to be paid within 15 working days of the date of this judgment and the second $32,500 to be paid within five working days of the case being set down for trial.

• [22] No useful purpose would be served by making such orders if they were not accompanied by an order for a stay and accordingly I order that if either of those payments is not made by the time specified, then Mr Savill’s claim will be stayed. In order to avoid a situation in which the proceeding becomes moribund, I order that if the proceeding is stayed for 20 working days, then it will be struck out for want of prosecution (without the need for further application).

6. See Ambrose v Pickard [2009] NZCA 502 at [42] and Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 2504, [2018] NZAR 1699 at [74].

• [23] As to the costs of this application, the applicant being largely successful, I direct that Mr Savill is to pay the applicant’s actual and reasonable costs. If the applicant’s actual costs are challenged by Mr Savill as being unreasonable, then the parties may submit memoranda in the usual way.

Associate Judge Johnston

Solicitors:

Canterbury Legal, Christchurch for plaintiff Anderson Lloyd, Queenstown for defendant