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High Court of New Zealand Decisions |
Last Updated: 19 July 2023
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IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
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CIV-2018-485-482
[2023] NZHC 1595 |
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BETWEEN
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PAUL MARK MONNERY
First Plaintiff
PAUL MARK MONNERY and JULIE ANN MONNERY
Second Plaintiffs
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AND
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ANDREW GRAHAM PARSONS
First Defendant
JOHN MURRAY CREIGHTON
Second Defendant
BRUCE GORDON COPELAND
Third Defendant
KURT BREDENBECH
Fourth Defendant
MURRAY CHARLES PARSONS
Fifth Defendant
PUSH DEVELOPMENTS LIMITED
Sixth Defendant
SANDFIELD ASSOCIATES LIMITED
Seventh Defendant
SANDFIELD VENTURES LIMITED
Eighth Defendant
P K B INVESTMENTS LIMITED
Ninth Defendant
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Hearing:
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10 May 2023
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Appearances:
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C Carruthers KC for Plaintiffs
P Chisnall and J Haig for First and Sixth Defendants
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MONNERY v PARSONS [2023] NZHC 1595 [26 June 2023]
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D Chisholm KC and J Ryan for Second, Third, Seventh and
Eighth Defendants
G Bogiatto for Fourth, Fifth and Ninth Defendants
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Judgment:
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26 June 2023
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JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] This matter involves applications by all defendants against the plaintiffs for further security for costs and, by the first and sixth defendants, for further discovery.
[2] The case relates to a company by the name of Convendium Ltd (Convendium). The company was incorporated in June 2005 as a vehicle for developing and bringing to market a cashless payment system for vending machines. The second plaintiffs, Mr and Mrs Monnery, in their capacities as the trustees of a family trust, were the promoters and the original shareholders. The first plaintiff, Mr Monnery, was formerly the sole director and manager. In a variety of different circumstances, the defendant groups became shareholders or creditors of the company.
[3] In or about 2015 there was a falling out between Mr Monnery and the defendants after which Mr Monnery had no further involvement in the company. Eventually, Compendium failed altogether. It was struck off the register in November 2017. In November 2018 it was reinstated and liquidators were appointed to wind it up.
[4] Further background to the proceeding is described in previous judgments by Associate Judge Johnston dated 19 December 20181 and 26 October 2021,2 and the judgment of Associate Judge Sussock dated 6 May 2021 in separate but related proceedings.3
1 Monnery v Parsons [2018] NZHC 3414 at [1]–[3].
2 Monnery v Parsons [2021] NZHC 2854 at [3]–[5].
3 Sandfield Associates Ltd v Monnery [2021] NZHC 1003 at [7]–[38].
Context for the present applications
[5] In his judgment dated 19 December 2018, Associate Judge Johnston reached the view that, balancing the respective interests of the parties, justice would be served if he made a “modest, staged order for security for costs.”4 The plaintiffs were ordered to provide security for the defendants’ costs pursuant to r 5.45 of the High Court Rules 2016 as follows:5
(a) $25,000 upon the case being set down for trial;6 and
(b) $25,000 three months prior to the commencement of the trial.
[6] Subsequently, in May 2021, the first and sixth defendants and the third, seventh and eighth defendants made applications seeking orders for further security for costs. These applications were informally supported by the other defendants. In his judgment of 26 October 2021, Associate Judge Johnston adjourned these applications because the plaintiffs had informed the Court that they would be filing and serving an amended statement of claim that was likely significantly to reformulate their case.7 The applications could be renewed following the repleading of the plaintiffs’ case, or in the event of the plaintiffs proceeding without repleading.8
[7] The plaintiffs filed a first amended statement of claim on or about 17 February 2022. A second amended statement of claim was filed on or about 5 December 2022.
[8] The original statement of claim alleged two economic torts: causing loss by unlawful means and, as an alternative, conspiracy to injure economic interests. Following the amendments to the statement of claim there are three additional causes of action:
4 Monnery v Parsons, above n 1, at [41].
5 At [41]–[47].
6 This first tranche of security was paid as ordered.
7 Monnery v Parsons, above n 2, at [48]–[49].
8 Monnery v Parsons, above n 2, at [53].
(a) a third cause of action alleging breach of confidence against the third and seventh defendants;
(b) a fourth cause of action alleging breach of confidence against the first, second, fourth and fifth defendants; and
(c) a fifth cause of action alleging breach of fiduciary duty against the second defendant.
[9] The quantum of the plaintiffs’ claims for damages has more than doubled from the original statement of claim. The original claim alleged that the first plaintiff suffered loss of income in the sum of $1,120,000 and that has increased to $2,482,500. The original claim alleged that the second plaintiffs suffered loss of value of shares in the sum of $5,388,000 and that has increased to $11,205,706.
[10] The applications for further security have now been renewed. The first and sixth defendants filed an amended application for further security for costs on 27 January 2023 which included an application for appointment of an expert (not now pursued) and an application for further discovery against the plaintiffs. The fourth, fifth and ninth defendants and the second defendant filed supporting applications for further discovery on 26 January 2023 and 27 January 2023.
Security for costs — legal principles
[11] Rule 5.45(1) and (2) provides:
5.45 Order for security of costs
(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.
...
[12] Applications for security for costs are to be approached in three stages:9
(a) the first question is whether the threshold test in r 5.45(1) is met, or in other words, whether the applicant can establish that the rule applies;
(b) if the threshold is met, then the second question is whether it is just in all the circumstances to make an order for security for costs;10 and
(c) if the Court so concludes, then the third question is the nature of the order that should be made.
[13] A further application for security for costs can be made where:
(a) a proceeding has changed in character,11 for example, the addition of causes of action increasing significantly its complexity or a substantial increase in the amount claimed;12 or
(b) the plaintiff’s financial circumstances have deteriorated since the first application was determined.13
[14] The Court has inherent jurisdiction to review and set aside, or vary, an order for security for costs, even when made by consent, where there has been a significant
10 Balancing the interests of plaintiff and defendant is the overriding consideration: see Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [24].
11 Cargill NZ Ltd v Palmerston Wool Co Ltd (1997) 11 PRNZ 52 (HC).
12 Wenzhou Hongliang Trading Co Ltd v Finnigan [2021] NZHC 824.
13 Marine Resources (NZ) Ltd v Natural Gas Corp of NZ Ltd HC Wellington CP 237/91, 5 April 1995.
change in material circumstances or where the interests of justice so require.14 For example, where there has been a change in the character of the proceedings because the pleadings have been expanded significantly.15
[15] Determining the amount of security justified in the particular case requires the exercise of discretion rather than a strict mathematical approach.16 It does not necessarily need to be fixed by reference to likely costs awards but rather what the Court thinks fit in all the circumstances.17 The circumstances to be taken into account include the:18
(a) amount or nature of the relief claimed;
(b) nature of the proceeding, including the complexity and novelty of the issues;
(c) estimated duration of the trial; and
(d) probable costs payable if the plaintiffs are unsuccessful and/or the defendants’ estimated actual costs.
[16] A global award of security rather than individual orders may be more appropriate in a case involving multiple defendants as it allows the Court greater flexibility if and when required to allocate the funds to successful defendants.19
Jurisdiction
[17] Mr Carruthers KC submits that the issue of security for costs for the whole of the proceeding was dealt with comprehensively in the judgment of Associate Judge Johnston dated 19 December 2018 and there is no basis on which that
14 Cargill NZ Ltd v Palmerston Wool Co Ltd, above n 11; Stead v The Ship “Ocean Quest of Arne” [1995] NZHC 819; [1995] 3 NZLR 415 (HC); O’Malley v Garden City Helicopters (1994) 8 PRNZ 182 (HC); and West Harbour Holdings Ltd v Waipareira Investments Ltd [2013] NZHC 402 at [10]–[15].
15 Lawrence v Glynbrook 2001 Ltd HC Dunedin CIV-2009-412-713, 21 June 2011.
16 Sharp v Pillay [2017] NZHC 647.
17 McLachlan v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA).
19 Walker v Forbes [2017] NZHC 1212 at [91].
judgment should now be revisited. He submits that there was no appeal from the judgment and there was no application for leave to apply further at the time of the argument leading to the judgment; nor did Associate Judge Johnston reserve leave to apply further.
[18] Where an earlier application for security has been successful, I do not consider that it is necessary for leave to be reserved to apply for further security for costs.20 As set out above, the jurisdictional issue in respect of an application for further security for costs is whether a proceeding has changed in character; and there is inherent jurisdiction to review, or vary, an existing order where there has been a significant change in material circumstances of the case.21
[19] Mr Carruthers submits that the shape and scope of the case has not changed. He submits that it was always intended that the statement of claim would be amended following discovery. The amended statement of claim filed on 17 February 2022 added particulars and additional causes of action. He says that the defendants then asked for extensive particulars and the material sought and provided resulted in the plaintiffs reconsidering the pleadings. The reconsideration led to the second amended statement of claim (5 December 2022) which simply added further particulars resulting from the defendants’ requests. He says that the evidential material relied on by the plaintiffs comes from the defendants’ documents, as illustrated by the particulars provided.
[20] Mr Carruthers submits that the additional causes of action added by the amended statement of claim raise legal issues only and therefore cannot be said to add to the scope of the case in any way. He says that the addition of these causes of action has not resulted in amended defences being filed by any of the defendants indicating that they consider their existing denials are sufficient for the purposes of trial.
20 Smith v National Bank [1907] NZGazLawRp 165; (1907) 10 GLR 37, (1908) 27 NZLR 212 (SC); Robinson v Holmden Horrocks & Co HC Auckland CL21/91, 5 June 1992; Pawson v Claridge HC Auckland CIV-2006-404-5997, 21 December 2007; and Matthew Casey and others Sim’s Court Practice (online ed, LexisNexis) at [5.45.13(c)].
21 Cargill NZ Ltd v Palmerston Wool Co Ltd, above n 11; and West Harbour Holdings Ltd v Waipareira Investments Ltd, above n 14, at [10]–[15].
[21] However, as noted above, the second amended statement of claim was only filed in December 2022 and the defendants are yet to file any amended statements of defence as the timeframe for doing so was stayed until this application for further security for costs is determined.22
[22] The three additional causes of action are of a different nature to the original causes of action (economic torts), being causes of action for breach of confidence and breach of fiduciary duty, and they involve different remedies including an account of profits by the relevant defendants and a constructive trust in favour of the plaintiffs. As noted above, the claims for damages have more than doubled.
[23] It is not clear that the three additional causes of action only raise legal issues. Amended statements of defence are yet to be filed. Mr Chisholm KC submits that the defendants intend to seek further particulars, including as to the confidential information which is the subject of the allegations of breach of confidence in the third and fourth causes of action. He submits that the defendants will need to adduce additional evidence to address the further particulars pleaded in support of the original causes of action as well as the allegations made in the new causes of action.
[24] The order for security for costs in December 2018 was made in the context where it was considered that “...with careful case management and a reasonable level of cooperation between the parties this case is one that could be disposed of within 5-10 days.”23 Now, four-and-a-half years later, it is apparent that the proceeding has not been able to be advanced and disposed of as was anticipated. The matter was set down for a three-week fixture commencing on 21 June 2021 and this had to be vacated. Most of 2022 was taken up with an unsuccessful application by the plaintiffs for an order recalling the judgment of Associate Judge Johnston dated 26 October 2021 in relation to discovery. The matter is now set down for a three-week fixture in July 2024.
23 Monnery v Parsons, above n 1, at [40].
[25] A further relevant change since December 2018 with regard to the financial circumstances of the plaintiffs is that, on 30 August 2019, summary judgment was entered for Convendium against Mr and Mrs Monnery for $512,346.73 in respect of their overdrawn shareholders accounts.24 Subsequently, Convendium commenced bankruptcy proceedings against the Monnerys and bankruptcy orders were made on 12 March 2020. The bankruptcy orders were annulled on 29 April 2020 on the basis that counsel had not appeared at the first call and orders had been made in the absence of the Monnerys.25 In August 2020, the Court of Appeal upheld the summary judgment decision and the amount found owing by Mr and Mrs Monnery to Convendium on their current accounts was increased to $560,243.43.26 Mr and Mrs Monnery have obtained an order staying execution of the summary judgment claim and a halt on bankruptcy proceedings pending resolution of the present proceeding.27
[26] Overall, I am satisfied that there has been sufficient change in the character of proceedings or in the material circumstances such that there is jurisdiction for the Court to consider the defendants’ applications and to determine whether an order for further security should be made.
The threshold question under r 5.45(1)
[27] There must be reason to believe that the plaintiffs will be unable to pay the costs of the defendants if the plaintiffs are unsuccessful in the proceeding.
[28] When the order for security for costs was made in December 2018, there was no doubt that the threshold test had been met, and the plaintiffs did not contend otherwise.28
[29] Mr Carruthers confirms in his submissions that the plaintiffs have always conceded impecuniosity. However, he says that during the proceedings the plaintiffs
24 Sandfield Associates Ltd v Monnery [2019] NZHC 2151.
25 Convendium Ltd (in liq) v Monnery [2020] NZHC 838.
26 Monnery v Convendium Ltd (in liq) [2020] NZCA 345, [2020] NZCCLR 23.
27 Sandfield Associates Ltd v Monnery, above n 3.
28 Monnery v Parsons, above n 1, at [9].
have been able to meet substantial costs orders on interlocutory applications plus significant disbursements.
[30] The difficulty facing the plaintiffs in this regard is that they have not provided any evidence of their financial position.
[31] As found by Associate Judge Johnston in his 26 October 2021 judgment in this proceeding:29
[51] It is not of course a requirement that a plaintiff opposing an application for security for costs must disclose his or her or its financial position.
[52] However, a failure to do so places the plaintiff in a disadvantageous position because it effectively invites the Court to infer that the plaintiff will not be in a position to meet any costs order that may be made so as to foreclose the threshold question under r 5.45, and at the same time makes it difficult for the plaintiff to mount any argument that an order will preclude him or her or it from pursuing the claim.
[32] I consider that the position regarding the threshold question remains the same as it was in December 2018; there is no doubt that it is met.
Whether an order for further security for costs would be just in the circumstances
[33] Relevant factors for and against the making of an order for security for costs (or in this case, a further order for security) are identified in Highgate on Broadway Ltd v Devine.30 These include in the context of this proceeding: the apparent merits of the plaintiffs’ claims; whether the plaintiffs have access to third-party funding; whether the denial of further security would be oppressive to the defendants; whether the plaintiffs’ impecuniosity was caused by the defendants; and whether ordering further security deprives the plaintiffs of the ability to advance their claims.
29 Monnery v Parsons, above n 2, at [51]–[52].
30 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [22]–[24].
Apparent merits of the claim
[34] I recognise that there is a limit to the inquiry that can be made into the merits at this stage of the proceeding and that any assessment is no more than an impression.
[35] In his judgment dated 19 December 2018, Associate Judge Johnston reviewed the merits of the two original causes of action and concluded that “... on balance, the impression I have at this stage is that the claim is not strong”.31 He found:32
In summary then, this is certainly not one of those cases where the plaintiffs’ claim is so obviously meritorious that the Court ought to ensure that an order for security for costs does not prevent it coming to trial, but nor, in my view, is the plaintiffs’ case capable of being categorised as entirely without merit.
[36] Since December 2018, discovery has been completed, interrogatories answered, and the plaintiffs have filed an amended statement of claim and second amended statement of claim providing further particulars and pleading three additional causes of action.
[37] For the first and sixth defendants, Mr Chisnall submits that the merits of the plaintiffs’ claim have diminished. He says that the plaintiffs’ original claim against the first and sixth defendants, that they obtained as a part of the alleged conspiracy a copy of Convendium’s cashless vending system to use for their own purposes, is not maintained. Rather, he says that the plaintiffs now accept that the first and sixth defendants developed their own new system, but vaguely allege that components of the “architecture and processes” of the new system are identical to Convendium’s system. Mr Chisnall submits that how that is capable of founding a claim by the plaintiffs, as opposed to the company itself, remains problematic.
[38] With regard to the first cause of action (causing loss by unlawful means), Mr Chisholm KC submits that the plaintiffs must prove that the defendants intended to cause loss to the plaintiffs, but have not pleaded this allegation. He says that the plaintiffs’ claim that “misuse of confidential information” qualifies as unlawful means
31 Monnery v Parsons, above n 1, at [16]–[27].
32 At [27].
for the purpose of the tort (which is denied by the defendants) will have its own complexities.33
[39] As to the second cause of action (conspiracy to injure), Mr Chisholm emphasises that the plaintiffs must show not only that the defendants intended to harm the plaintiffs’ interests, but that such harm was the purpose of the alleged conspiracy.34 He submits that the defendants took steps at various times in response to Mr Monnery’s failed management of Convendium to forward or defend their own interests. He says it is clear from paragraph [95] of the second amended statement of claim (which provides particulars of the defendants’ alleged interference with the plaintiffs’ economic interests) that there was no cohesion in the defendants’ steps.
[40] The basis of the new breach of confidence causes of action is that Mr Monnery developed at his expense a cashless payment vending system known as e-Vend (which became known as Festival Payments) which was provided to Convendium for its use. The plaintiffs allege that the arrangements in relation to development of the technology comprised confidential information that belonged to Convendium, Paul Monnery and the Monnery Trust. The plaintiffs allege that this information was used by the some of the defendants to enable the creation of the same or a similar operating system to that owned by Convendium.
[41] The elements of the cause of action for breach of confidence are:35
(a) the information itself must be confidential;
(b) the information must be obtained in circumstances which give rise to an obligation of confidentiality;
(c) there must be an unauthorised use of the information.
[42] The defendants submit that there are issues with the breach of confidence claims including that:
33 Wagner v Gill [2014] NZCA 336, [2015] 3 NZLR 157.
34 Waite v Global Integrated Solutions Ltd HC Auckland CIV 2010-404-8333, 2 September 2011 at
[57] and [61].
35 Coco v Clark (Engineers) Ltd [1969] RPC 41 (Ch) at 47.
(a) the assertion that the plaintiffs had a joint interest with Convendium in Convendium’s business assets other than directly as shareholders ignores the separate corporate personality of the company and is contrary to the financial statements of the company which treated software development costs and software as assets of the company;
(b) the pleading does not properly disclose how and what information is confidential and how it was obtained in circumstances importing an obligation of confidence, and how precisely there was an unauthorised use; and
(c) limitation issues arise.
[43] With regard to the fifth cause of action (breach of fiduciary duty by the second defendant) it is submitted on behalf of the second defendant that while the fiduciary duties of a director are owed to the company, the plaintiffs are claiming damages and/or an accounting of profits for themselves personally; and the claim appears to be time barred.
[44] The defendants also emphasise the causation issues faced by the plaintiffs. In particular, they question how the pleaded losses flow from the pleaded causes of action given that Convendium was insolvent on both a cashflow and balance sheet basis by the relevant time.
[45] Mr Carruthers does not respond to the specific issues raised by the defendants with the pleaded causes of action as outlined above. He submits that most of the issues raised by the defendants come down to issues of contested fact.
[46] Overall, my assessment is that there are significant hurdles for the plaintiffs to overcome to succeed on their claims. The difficulties with the original causes of action identified in the judgment of Associate Judge Johnston remain.36 These are now overlaid with additional issues: identifying the confidential information relied on by the plaintiffs; how the plaintiffs had a joint interest in that information with
36 Monnery v Parsons, above n 1, at [16]–[27].
Convendium; how it was obtained by the relevant defendants in circumstances importing an obligation of confidence; and how there was an unauthorised use of that specific information.
[47] While none of the defendants have advanced their applications for further security on the basis that the plaintiffs’ claims would not survive a strike out or a summary judgment application, limitation issues are raised in relation to the new causes of action.
[48] I do not consider that it can be said at this stage that the plaintiffs’ case is altogether without merit or hopeless. However, without making any prediction as to the final outcome, there is a reasonable likelihood that costs may be ordered against the plaintiffs.
[49] The plaintiffs’ counsel stated in a memorandum to the Court dated 19 December 2022 that:
6. The plaintiffs have already paid the costs which have been awarded on interlocutory applications (a total of just over $55,000). And they have financial arrangements in place with friends and business associates to fund any further costs orders.
[50] The defendants submit that there has been a lack of disclosure by the plaintiffs of the actual financial arrangements in place and it is uncertain what benefit the plaintiffs’ “friends and business associates” are obtaining from the funding, but it is assumed that they will be securing a financial benefit.
[51] The defendants submit that when third party funders of litigation are involved, the Court should ensure that the defendants are adequately protected by a meaningful order for security for costs tending towards relatively full security.37
[52] In Waterhouse v Contractors Bonding Ltd,38 the Supreme Court found with regard to third party funding:39
...
(a) On the issuing of proceedings that are to be funded by a third party unrelated litigation funder who has no prior interest in the proceedings and whose remuneration is tied to the success of the proceedings and/or who has the ability to exercise some form of control over the conduct of the proceeding, the following details should be disclosed:
(i) the identity and location of any such litigation funder; and
(ii) its amenability to the jurisdiction of the New Zealand courts.
...
[53] As no affidavit evidence has been provided by the plaintiffs in relation to their financial position, I asked Mr Carruthers during the hearing whether the plaintiffs had satisfied their duty with regard to disclosure of any litigation funder as referred to above. Mr Carruthers confirmed that the arrangements with the friends and business associates are not commercial third party funding arrangements and do not involve any remuneration tied to the outcome of the proceeding. He said the plaintiffs’ friends and business associates had paid some cost orders and may pay some future costs orders if required to avoid any possibility of stay of the proceedings.
[54] On this basis, I do not consider that this is a case involving the presence of third party litigation funders which necessarily requires the Court to ensure that the defendants are protected by further security tending towards relatively full security. However, I come back to the issue of the plaintiffs not providing evidence of their financial position below.
[55] The first and sixth defendants rely on the following passage from the judgment of Kós J in Highgate on Broadway Ltd v Devine:40
... Security for costs is relatively exceptional. Where it is likely to result in the denial of access to justice, it is entirely exceptional. But in some situations
38 Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91.
39 At [76] (footnotes omitted).
40 Highgate on Broadway v Devine, above n 30, at [22(e)] (footnotes omitted).
to allow 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, over-complicated or unnecessarily protracted.
[56] The defendants submit that the plaintiffs are insolvent and have committed an act of bankruptcy, albeit that their bankruptcy is stayed pending determination or resolution of this proceeding. They note that the plaintiffs continue to increase their potential liabilities to creditors while this proceeding continues by increased exposure to costs orders in favour of the defendants.
[57] The defendants also refer to the protraction of the litigation which was not expected at the time of the first application for security in 2018, and the further costs that the defendants are now exposed to including the fact that the matter is now set down for a 15 working day hearing rather the originally estimated 5–10 working day hearing.
[58] The defendants refer to repeated breaches of timetable orders by the plaintiffs that have increased the burden on the defendants as to case management and repeat their submissions as to the diminishing merits of the claim following discovery and repleading.
[59] As set out above, my assessment is that there are significant hurdles for the plaintiffs to overcome to succeed on their claims, but I do not consider that it can be said at this stage that the plaintiffs’ case is altogether without merit or hopeless. Therefore, it would be going too far to conclude at this stage that the litigation is “unjustified or unmeritorious”. However, I consider that the protraction of the proceeding since December 2018 weighs in favour of an order for further security for costs.
Considerations against making an order
[60] The first issue is whether it is reasonably probable that the plaintiffs’ impecuniosity was caused by the defendants.
[61] The plaintiffs assert in their notice of opposition that their current financial position is the result of the defendants’ conduct. However, as submitted my Mr Chisnall, without detailed financial information as a starting point, this factor cannot be reliably assessed. I do not take this factor into account as being a factor against making an order for further security.
[62] The second question is whether an order for further security for costs would likely have the effect of preventing the plaintiffs from being able to advance a prima facie meritorious claim.
[63] In the first security for costs judgment, Associate Judge Johnston stated:41
A consideration that makes balancing the interests of the parties particularly difficult in this case is that the plaintiffs have elected not to put in any evidence as to their financial positions. In those circumstances, I do not think I can properly infer that the plaintiffs are unable to put up any amount of security for costs or that an order would prevent them from pursuing this litigation. Having regard to the material before the Court I do not think I can go any further than concluding that an order for security for costs against the plaintiffs in this case will make it more difficult for them to pursue their claim.
[64] The issue arose again in the judgment of Associate Judge Johnston in relation to further applications dated 26 October 2021.42
[65] The plaintiffs continue not to provide any evidence as to their financial positions in opposing the defendants’ applications for further security for costs. The plaintiffs simply state in their notice of opposition dated 6 April 2023 that their financial circumstances have not changed.
[66] The plaintiffs oppose any order for further security but do not mount an argument that an order for further security will prevent them from pursuing their claims.
[67] In the circumstances, I can go no further than Associate Judge Johnston in concluding that an order for further security for costs against the plaintiffs will make it more difficult for them to pursue their claim.
41 Monnery v Parsons, above n 1, at [36].
42 Monnery v Parsons, above n 2, at [50]-[52].
[68] The final issue to consider under this head is whether the application for security has been unduly delayed.
[69] I note that the applications were first made in May 2021 and were adjourned in October 2021 pending the repleading of the plaintiffs’ case.
[70] There does not appear to be any suggestion by the plaintiffs that there has been delay by the defendants in pursuing their applications. Accordingly, this is not a factor that I take into consideration.
The costs risk
[71] The proceeding is set down for a hearing for 15 days in July 2024. Counsel for the third, seventh and eighth defendants have provided a schedule of Category 2 costs and disbursements with their submissions which is adopted by the other three defendant groups. This schedule estimates costs for each defendant group in the sum of $149,136. The schedule also provides an estimate for expert evidence (two experts) in the sum of approximately $80,000.
[72] The plaintiffs contend in their notice of opposition that scale costs of preparation for trial and trial of a three-week hearing are in the order of $68,000 for a 2B case. However, the plaintiffs have not put forward a schedule showing how this has been calculated.
[73] Security for costs is usually future looking, and it is generally inappropriate to make an order for security for costs that have already been incurred.43
[74] The schedule put forward by the defendants covers steps in the proceeding from the commencement of defence, and includes allowances for notices for further particulars, response to amended pleading, preparation for first case management conference and appearance at the conference, miscellaneous mentions hearings or call
43 Pickard v Ambrose HC Wellington CIV-2003-091-143, 13 August 2009 accepted on appeal: Ambrose v Pickard [2009] NZCA 502, adopted in Sisson v IAG New Zealand Ltd [2014] NZHC 616 at [71] and Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 2504, [2018] NZAR 1699, (2018) 24 PRNZ 465 at [74]; and see McGechan on Procedure, above n 9, at [HR5.45.07].
overs, discovery and inspection, and one interlocutory application. The schedule then covers preparation of briefs, lists of issues, preparation for hearing and appearance at the hearing.
[75] As raised with counsel for the defendants at the hearing, the schedule appears to cover costs for stages of the proceeding that have already occurred and in respect of which costs have already been incurred. In this regard, Mr Chisholm submits that the application for further security should be considered as having been filed in May 2021 and then adjourned in October 2021. He submits that, even at this stage, the parties are to some extent back at the beginning in that they need to file amended defences to the second amended statement of defence and it is likely that particulars will be requested.
[76] However, my assessment is that some of the steps included in the schedule are unlikely to be repeated. For example, I understand that discovery and inspection have largely been completed, and it is not clear to what extent further case management conferences will be required at this stage given that the matter has already been timetabled to trial. The schedule also allows for two notices of further particulars (one may be reasonable) and the maximum time allocation for responding to the second amended statement of claim.
[77] Mr Chisholm submits that this is not a case where the defendants have common defences and/or where the factual background is the same for each defendant. He says that the involvement of each group of defendants is quite different with different allegations being asserted. Therefore, it is suggested that each of the defendant groups will incur costs in the order of the costs set out in the schedule.
[78] However, it seems to me that there are likely to be issues that will be common across defendant groups, for example, some elements of the original causes of action which are pleaded against all defendants, and with respect to the first, second, third, fourth, fifth and seventh defendants, the issue of what information comprises the “confidential information”. Causation will also be common to all groups. It seems to me that with a reasonable level of cooperation between the defendant groups,
duplication of evidence (including expert evidence) and submissions on common issues can be avoided.
[79] In summary, my sense is that the scale costs estimated in the schedule adopted by the defendants are to some extent overstated, and that defendant groups that are not taking the lead on common issues will incur less costs.
Conclusion — further security for costs
[80] I have concluded that, balancing the respective interests of the plaintiffs and the defendants, there should be an order for further security for costs.
[81] In particular, I have given significant weight to the following factors:
(a) the increase in the number of causes of action from two to five and the increase in the complexity of the case and the evidence that will be required;
(b) the quantum of the plaintiffs’ claims for damages has more than doubled from the original statement of claim;
(c) the protraction of the proceedings since December 2018 and the fact that the hearing is now set down for three weeks (15 working days) rather than the 5–10 working days estimated when security for costs was originally set;
(d) the plaintiffs have continued to elect not to provide evidence as to their financial position; and
(e) taking into account that security for costs is future looking, and anticipating a reasonable degree of cooperation between the defendant groups on common issues, the scale costs estimated in the schedule adopted by the defendants are to some extent overstated, and the defendant groups that are not taking the lead on common issues will incur less costs.
[82] The defendants accept the principle that in a claim against multiple defendants it is appropriate to make a global award of security rather than individual orders because it provides the Court with greater flexibility if and when it is required to allocate the disbursement of secured funds to successful defendants.44
[83] Accordingly, as a global award, I fix security for costs at $150,000, an increase of $100,000 from the original order.
[84] The plaintiffs have paid $25,000 already, so there is a total of $125,000 yet to be paid. It is appropriate that this be paid in stages between now and the trial in July 2024.
[85] I consider that $40,000 should be paid by the close of pleadings date; a further
$40,000 should be paid by the date for serving the plaintiffs’ briefs of evidence; and$45,000 should be paid three months before the commencement of the trial.
Discovery issue
[86] The first and sixth defendants have previously sought discovery of the plaintiffs’ relevant financial records including, in respect of the first plaintiff, evidence of income, including but not limited to his annual IR3 tax returns for the entire period in issue (from 2013 to the present).
[87] An order was made by Associate Judge Johnston in his judgment dated 26 October 2021 as follows:45
[45] It is elementary that a party claiming damages or any other remedy is obliged to discover relevant documentation relating to the loss in respect of which such a remedy is sought. In the case of a claim for monetary compensation of one sort or another such as this, it is hard to see how a claimant could avoid discovering details of his, her, their, or its financial circumstances over the relevant period of time. Mr Carruthers did not contend otherwise. To that extent the application is not opposed.
[46] I will make an order in the terms sought by the first and sixth defendants in their notice of application.
44 Walker v Forbes, above n 19, at [91].
45 Monnery v Parsons, above n 2, at [45]–[46].
[88] The first and sixth defendants’ notice of application dated 21 May 2021 sought an order for discovery as follows:
(a) Directing the plaintiffs to file and serve a supplementary affidavit of documents listing all relevant documents in their control relating to their pleaded claim for losses suffered.
[89] The grounds on which the order was sought included:
(a) The plaintiffs have not discovered any of their financial records, in particular, the first plaintiff has failed to discover his income tax returns for each of the years from 2013 to the present.
[90] Mr Chisnall submits that the plaintiffs have still not discovered the first plaintiff’s IR3 tax returns. Further, the second plaintiffs have not discovered any financial records including as to income.
[91] Mr Carruthers submits that the essence of the application by the first and sixth defendants for discovery was to ascertain the income of the plaintiffs over the period to take it into account in assessing damages or compensation. He submitted that, in response to the order, the plaintiffs filed and served an affidavit sworn on 29 March 2022 annexing the records of income received by the plaintiffs over the relevant period. However, he said the first plaintiff would abide the decision of the Court with regard to the first plaintiff’s IR3 tax returns.
[92] In my view, the first plaintiff’s IR3 tax returns should be discovered as they provide evidence of income disclosed by the first plaintiff to the Inland Revenue.
[93] With regard to the second plaintiffs, Mr Carruthers submitted that as the second plaintiffs’ claim for damages is based on the value of their shares in Convendium, records of income are not relevant. However, as submitted by Mr Chisnall, evidence of dividends received by the second plaintiffs from Convendium would be relevant.
[94] In accordance with the discovery order, the second plaintiffs are required to discover any financial records including as to income for the relevant period.
[95] The first and sixth defendants also seek an order that failure by the plaintiffs to comply with any order for a supplementary affidavit of documents will result in the plaintiffs’ claims being stayed. I am not prepared to make such an order at this stage.
Result
[96] Accordingly, I make the following orders:
(a) pursuant to r 5.45, the plaintiffs are to provide security for the defendants’ costs in the total sum of $150,000 (on account of the costs of all defendant applicants) to the Registrar of the High Court at Wellington as follows:
(i) $25,000 on the case being set down for trial (already paid);
(ii) $40,000 on the close of pleadings date;
(iii) $40,000 on the date of service of the plaintiffs’ evidence; and
(iv) $45,000 three months prior to the commencement of the trial.
(b) pursuant to r 5.45(3)(b), if those amounts remain unpaid after they have fallen due for payment, the plaintiffs’ case will be stayed until such time as they are paid.
(c) pursuant to r 7.48, the plaintiffs are to file and serve within 20 working days of the date of this judgment a supplementary affidavit of documents containing all their relevant financial records from 2013 to the present, including but not limited to all IR3 tax returns filed for the first plaintiff.
Costs
[97] The costs of this application are reserved. If counsel are unable to agree on costs then they may file memoranda (not exceeding five pages) and I will deal with
costs on the papers.
Associate Judge Skelton
Solicitors:
Woods Fletcher Associates, Wellington for plaintiffs
Macalister Mazengarb, Wellington for first and sixth defendants K3 Legal Ltd, Auckland for second defendant
Claymore Partners, Auckland for third, seventh and eighth defendants
George Bogiatto, Auckland for fourth, fifth and ninth defendants
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URL: http://www.nzlii.org/nz/cases/NZHC/2023/1595.html