HIEBER AS TRUSTEE AND ANOR V COTTON HC AK CIV 2005 - 404-7393 [2006] NZHC 793 (10 July 2006)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                CIV 2005 - 404-7393




                BETWEEN                     E C HIEBER AS TRUSTEE AND ANOR
                                            Plaint
iffs

                AND                         M J COTTON
                                            First Defendant

      
                                                                        CIV


                AND BETWEEN                 INDEPENDENT
REALTY
                                            DEVELOPMENTS LIMITED
                                            Plaint iff


                                                                              CIV


                AND BETWEEN                 PERTH
HOLDINGS LTD
                                            Plaint iff

                AND                         INDEPENDENT REALTY
                                            DEVELOPMENTS LIMITED
                                            Defendant


Hearing:
       29 June 2006

Appearances: Mr Chisholm for E C Hieber and anor and Independent Realty
             Developments Limited
 
           Mr Morton for Mr M J Cotton and Perth Holdings Limited

Judgment:       10 July 2006 at at 4 p.m.

               JUDGMENT
OF ASSOCIATE JUDGE J P DOOGUE
                  [Plaintiffs' application for security for costs]


Solicitors:
Glaister Ennor, P
O Box 63, Auckland
Gellert Ivanson, P O Box 25239, Auckland

Counsel:
D Chisholm,
Mr Morton




HIEBER AS TRUSTEE AND ANOR V COTTON
HC AK CIV 2005 - 404-7393 10 July 2006

Background

[1]     There are a number of different proceedings before Court between the
present
parties. Two District Court proceedings have been transferred to this Court. As
well, a third set of proceedings was commenced
in this Court.        In the proceedings
filed in this Court Erwin Charles Hieber and Independent Reality Developments
Limited are
the plaintiffs and I shall refer in this judgment to them in that capacity.


[2]     Independent Reality Developments Limited ["IRD"]
purchased a mall
property from Mr E C Hieber ("Mr Hieber") which he owned in his capacity as
trustee for the E C Hieber Family Trust
("the Trust").


[3]     The shares in IRD were owned by another company called London
Continental Limited which has its address
in Monaco. The sale of the mall resulted
in IRD incurring a debt of $7.2 million to Mr Hieber. The interest on that debt was
set
so as to equate to the costs of funds which the Trust had itself borrowed to
acquire the property. It had borrowed those funds from
London Continental Limited.
A valuation dated 12 May 2005 put the value of the mall at approximately $7
millio n.


[4]     I understand
that the arrangements further provided that on implementation
of the arrangement to transfer the mall from Mr Hieber to IRD, the
debt which the
Trust owed to London Continental Limited which was $9,000,000 would be reduced
to $2,000,000. I assume that by some
means IRD would take over the debt owed by
the Trust to London Continental Limited.


[5]     Mr Hieber is a bankrupt. He was adjudicated
bankrupt in Brisbane on 25
January 2006. He said in a questionnaire that he prepared for the bankruptcy Trustee
that the Trust owed
him $3,000,000. He also said the he owed London Continental
Limited $7,000,000. This must be the amount advanced by London Continental
Limited to the Trust for the purchase of the mall.


[6]     Mr Cotton managed the mall for the Trust/IRD. The Trust and IRD have
bought proceedings against him.        They allege that he failed to account to the
plaint iffs for income derived by way of rentals
on property situated in the mall.

They also say that actions or omissions on his part reduced the profitability of the
mall operation
and they seek damages from him. The exact nature of the claims the
plaint iffs bring against Mr Cotton is uncertain.


[7]    The
plaintiffs also sue Mr and Mrs Cotton for matters arising out of the
Cottons' management of another property which the Trust owned through the
vehicle of a company
- Fleming Investments Limited.


[8]    In general terms the plaintiffs seek delivery up of records and an enquiry into
damages arising
out of these various matters.


[9]    The Cottons owned a company called Perth Holdings Limited.               Perth
Holdings Limited
issued proceedings in the Manukau District Court against IRD. In
those proceedings Perth alleges that there was a management agreement
between the
owners/operators of the Howick Mall ­ broadly the Trust ­ and the Cottons but that
by various assignments Perth became
the "beneficial owner" of the rights under the
management agreement. Perth claims that IRD wrongly terminated that agreement.
It
seeks an enquiry into damages in regard to that cause of action. It also claims to
be owed $50,625 for sums that it charged to IRD
in two invoices dated respectively,
31 October 2003 and 23 November 2004.


[10]   IRD commenced a further set of proceedings against
Mr Cotton in the
District Court at Auckland. In those proceedings IRD alleged that Mr Cotton was
the manager of the mall and that
he failed to provide financial data and breached the
agreement in other ways.       IRD sought $112,000 together with an enquiry
for
damages payable by Mr Cotton in those proceedings.


[11]   Both sets of District Court proceedings have been transferred to
the High
Court. It is likely that the two sets of District Court proceedings and the High Court
proceedings will be consolidated
or heard together. That would bring some badly
needed order to the various proceedings between the parties.

[12]   The defendants
in the High Court proceedings, Mr and Mrs Cotton, seek
securit y for costs against Mr Hieber and IRD.          In one of the District
Court
proceedings, IRD seeks security for costs against Perth Holdings Ltd ("Perth").


Defendants' submissions on Cottons' application
for security for costs
against Mr Hieber and IRD in High Court proceeding

[13]   Mr Morten contended that security for costs should
be paid in cash in one
lump sum.     He said that in considering the matter of security for costs the Court
should take into account:


       a)      The amount or nature of the relief claim;


       b)      The nature of the proceedings including the complexity
and novelty of
               the issues and therefore the likely extent of interlocutories;


       c)      The estimated duration
of the trial;


       d)      The probable costs payable if the plaintiffs are unsuccessful and
               perhaps also the
defendants' estimated actual (that is solicitor and
               client) costs.


The amount or nature of the relief claimed

[14]
  The defendants submit that it is not feasible to separate out the respective
claims brought by the two plaintiffs and that the
correct approach is to look at the
matter of costs globally.


[15]   The defendants draw attention to what they say is the lack
of particularisation
of the claims by the plaintiffs.     They claim that they were not given various
informat ion or that information
given was inaccurate.         On the other hand, the
defendants do not give any detail of the respects in which the information was
inaccurate. The defendants say that the claims have the appearance "of a fishing
trip". They say that the claim for breach of fiduciary
duty is unparticularised and
that the remedies sought are delivery up of documents and an enquiry as to loss. The
defendants submit
that these aspects of the plaintiffs' pleadings tell against them.

Complexity and novelty

[16]   The defendants say that the proceedings
are factually complex but not novel.
They agree that is properly characterised as a 2B proceeding.          The defendants
complain
that there is no specificity in the statement of claim about what documents
are required. Not unexpectedly, given the amount of administration
that must have
been involved in managing a shopping mall, the defendant holds extensive
documents. It says there are 37 folders containing approximately
25,000 documents.
Discovery is going to be difficult and they suggest that discovery and production
should be classified as a 2C
matter.


[17]   The complexity of the proceedings includes uncertainty about who the actual
parties were to the various contracts.


Estimated duration of trial

[18]   The defendants say that because of the wide-ranging factual enquiry that will
be involved four
days will be required for the hearing. I note that that the plaintiffs
have not given their estimate of the trial duration.


Probable
costs that plaintiffs will have to pay if unsuccessful

[19]   In his written submissions, Mr Morten set out calculations forecasting
that
the defendant will in due course be liable for a costs order calculated in reference to
Schedule 3 on the basis that the defendant
is entitled to be paid for 46.3 days ­ all of
these except two being on a 2B basis. The defendants say that, translated into money
terms, this means that the plaintiffs will eventually face a party and party costs order
based on the Schedules to the Rules of approximately
$67,000. Additionally, they
estimate their actual solicitor and client costs to exceed $100,000.


[20]   That is not, however, the
end of matters because the defendants say that,
addit ionally, allowance has to be made for the costs that are likely to be incurred
arising out of the Auckland District Court proceedings which have been transferred
to the High Court. The defendants do not refer
to the other proceedings which was
transferred from the District Court because, obviously, that being a claim initiated by

the
defendants, no order for costs can be made against the plaintiffs in that
proceeding.


[21]   Again in his synopsis, Mr Morten asserts
that a further estimate of Schedule 3
costs needs to be attempted so far as the Auckland District Court proceedings is
concerned.
The defendants have undertaken such an estimate and say that if the
plaint iffs are unsuccessful they will have to meet an additional
order for costs
represent ing 19.7 days which on a 2B basis multiplies out to a figure of $28,565.
They say their solicitor and client
costs are likely to exceed $35,000 for the part of
the proceedings referable to the Auckland District Court proceeding that has been
transferred across to this Court


[22]   In his oral argument, Mr Morten said that if, contrary to his main submission,
staged security
were to be required, with the first stage including steps up until
preparation for trial, some $22,000 should be ordered.


Plaintiffs'
submissions

[23]   The plaintiffs accept that an order for security for costs is appropriate. The
submissio ns of their counsel,
Mr Chisholm, were directed to establishing two points.
First, the plaintiffs say that any order for costs ought to be a staged one.
Second,
they made submissions about the quantum of costs. Other miscellaneous points were
taken as well which I deal with below.


[24]   As to stage payments, Mr Chisholm submitted that orders for payment of
securit y for costs in stages are now commonplace
since the introduction of case
management in the High Court.


[25]   He said that stages of the proceeding, for security purposes,
are typically:

       a) Completion of discovery;
       b) Preparation for trial; and
       c) Trial.

[26]   The rationale for
orders for staged payments is clear, he submitted:

       a)      It is difficult to tell with any certainty what course may be
taken in a
               proceeding at an early stage, or to reliably assess the likely trial
               duration.


      
b)      There will be no prejudice to a defendant in an order for staged
               securit y:


               i)      A defendant
will not be required to incur the cost of a stage of
                       the proceeding until that stage has been reached.



              ii)     Security can be revisited at subsequent stage.


       c)      In contrast, the requirement for a global payment of security
can be
               oppressive to a plaintiff who would be required to fund all of their
               costs of the proceeding,
in addition to payment of security for costs
               that the defendant has not yet incurred.


[27]   By the plaintiffs'
calculations, the first stage of the proceedings would
invo lve an order under 2B of costs at $10,820. Notwithstanding the reference
to 2B,
the plaintiffs say there should be some discount off the likely award of costs. While
they suggest therefore that any security
should be less than the figure of $10,820 for
the first stage of the proceedings, they are nevertheless prepared to make a first
staged payment of $10,820.


[28]   Mr Chisholm said that the proceeding was not complicated. He said that it
was no more than an
attempt to get Mr Cotton to properly account for the income
and expenditure during the period when he was managing the shopping mall.
He
contrasted the defendants' claim that there were thousands of discoverable
documents that would need to be dealt with, with the
affidavit of Mr Cotton of 31
May 2005 in the proceeding that originated from the Manukau District Court [that is,
Perth Holdings
v IRD] to the following effect:

       I would also point that with the exception of the 2004 bank statements and
       paid accounts
file that the Plaintiff is not holding any other records relating
       to the project. I believe that all records prior to 2004
were stored at the
       shopping centre in the office that Mr Hieber insisted be established.

[29]   Mr Chisholm also said that
the defendant exaggerated the number of
interlocutories that might reasonably be anticipated. He gave as an example the
assumpt ion
that there would be eight memoranda required (for each of which costs
would be claimable under Schedule 3 of the High Court rules).


[30]   He also submitted that as a litigant in person Mr Cotton was not entitled to an
order for security for costs, and the plaintiffs
relied upon DCR 45-26 Brookers
District Courts Procedure, and Re Collier (A Bankrupt)  [1996] 2 NZLR 438.


Assessment

[31]   My view is that the plaintiffs' proceedings do seem to be vague and not
closely focused. The plaintiffs are
not to be penalised for deficiencies in their
pleadings by an order for security for costs. However, the uncertainties and lack of
particularisat ion does suggest that extensive interlocutories will be required. They
seem also to involved more than simply taking
accounts between the parties. The
plaint iffs are seeking damages for acts and omissions which are claimed in the
pleadings to have
caused loss to the plaintiffs as owner of the mall.


[32]   In my view, while the forecast figures put together by the defendants
do offer
assistance, it is not possible to come to a view on a fixed or mechanical approach.
Broadly speaking, it seems to me that
if the proceedings are ultimately consolidated
and generally streamlined and particularised, any order for costs is likely to be
substant ially less than the figures suggested by the defendants.


[33]   In round terms the defendants are suggesting Schedule
3 award in the vicinity
of $95,000 with actual legal costs being in excess of $135,000.


[34]   My expectation is that ultimately
a costs award of some $60,000 is likely,
having regard to all matters including the probability of a 4-5 day trial.


[35]   I agree
that the defendants have established an entitlement to an order. I
agree that in my discretion I should make such an order. I accept
that staged
payments are called for. I do not believe there is any reasonable ground for taking
any other approach.

[36]   At this
stage of the proceedings, an appropriate and fair order is that the
plaint iffs are to provide in the sum of $20,000. I will set
out formal orders below.


IRDL's application for costs against Perth

Plaintiffs' submissions

[37]   As I have already noted, there
were two sets of District Court proceedings,
one which started at the Manukau District Court and one at the Auckland District
Court.
The Auckland District Court proceeding has now been subsumed into the
plaint iffs' claims in the High Court. Mr Cotton's company,
Perth Holdings Limited,
started the proceedings at Manukau and that proceeding was later transferred to the
Auckland High Court.


[38]   The Manukau proceeding (which I will call the "Perth claim") asserts that
IRD owed Perth $50,625 arising out of two invoices
rendered for separate sums of
$40,500 and $10,125.


[39]   The pleading also alleges wrongful breach of the management agreement
which Perth claims existed between it and IRD. In addition to seeking $50,625
which are claimed debts, Perth has included in its
proceeding a claim for damages
which are at large.


[40]   The statement of claim alleges that the management agreement that Perth
sues on was originally entered into between Howickville Distributors Limited as
trustee for the Trust and the Cottons trading as
Howickville Management Services.


[41]   In paragraph six of the statement of claim Perth alleges:

       6. By various assignments
of which the plaintiff and the defendant have
          respectively had notice, the plaintiff and the defendant are the beneficial
          owners of all right, title and interest in the PHL management agreement.

[42]   Mr Chisholm was critical of the strength
of the Perth claim. Not the least of
his criticisms centred upon the pleading just mentioned which claims to set out the
way in which
the rights under the management agreement devolved to Perth. Mr
Chisho lm also drew attention to the basis for the invoice of $40,500
dated 31

October 2003. This amount was claimed by Mr Cotton on the basis that he was
ent it led to a percentage of a deposit of
$600,000 which an intending purchaser paid
as a condition of an agreement for sale and purchase the mall. Mr Cotton claimed
his entitlement
under the management contract saying his rights under that
agreement were not limited to taking a percentage of the rents collected
under his
stewardship, and that he was also entitled to a commission on any sale of the
building.


[43]     Mr Chisholm drew my attention to the fact that the management agreement
(even assuming that Perth is entitled to sue on it) described what the responsibilities
of the manager were. The responsibilities
set out in the management agreement all
seemed to relate to what one would expect a building manager would be required to
do such
as invoicing tenants, processing of invoices, attendance to maintenance and
that type of thing. Under the section of the contract
headed "remuneration" the
fo llo wing clauses appear:

         1. The manager shall provide a monthly statement (refer 7 above)
showing
         all income received during that month.

         2. The manager shall in turn, invoice the Trust 6 % of all amounts
collected
         during that month.

[44]     Mr Chisholm said that Perth's claim for the $40,500 was dubious. He said
the clause
in the agreement only entitled the manager to claim a percentage of the
rents.


[45]     I accept that there is some force is Mr
Chisholm's submission. It is very
difficult to make an assessment of the strength of the claim but I would not describe
it as a strong
one.


[46]     Mr Chisholm said that there were real grounds for supposing that Perth
would be unable to meet an order for costs.
He pointed to the fact that Perth had
apparent ly been unable to pay a $750 setting fee in the District Court despite being
ordered
to do so in August 2005. He also noted that in a Notice of Opposition filed
by Perth to the application for security for costs Perth
stated that its financial
difficult y had been caused by IRD which Mr Chisholm said amounted to an

acknowledgement of its financial
inability. He also said the Perth described itself as
having been a trading company but did not give any up to date information about
whether it was still trading and what new business it had taken on since severing its
associat ion with the plaintiffs.


[47]  
 The plaintiffs said that the Court was entitled to draw an inference from the
failure on the part of Perth to provide particulars
of its financial means: Arklow
Investments v MacLean  (1984) 8 PRNZ 188, 191.


Defendant's submissions

[48]    Mr Morten disputed that there was any basis for invoking Rule 60 to make an
order for security
for costs. He said there was no proof of the inability of the
company to pay. He said that, so far as the criticisms of the strength
of the case were
concerned, it was maintainable that the form of the service agreement did entitle
Perth to claim the commission.
He said if an order for security was made it should
be staged.


Decision on plaintiffs' application for security

[49]    The overall
circumstances of the case persuade me that there is doubt as to
whether or not Perth would be able to meet any order for costs. The
company's
business was apparently operating the mall. It no longer does so. It does not say
what its business is now. Obviously,
it is a limited liability company. In its notice
of opposition it speaks of the plaintiffs being the cause of its financial misfortunes.
These matters cause some unease concerning the defendant's ability to meet any
award for costs.


[50]    I consider that it is appropriate
to make an order for security and that it
should be on a staged basis. The amount that is sought by way of security as an
interim
payment is $7,000. I consider that that sum is reasonable. The plaintiffs
have not sought to limit the amount to any particular phase
of the proceedings and it
is implicit in their submission that if further application is required to be made for
addit ional security
then that application will be made. That approach is acceptable.
Presumably if the plaintiffs decide to make such an application
they would provide

material reviewing the accumulated amount of costs that could be made under 2B to
a given stage in the proceedings,
compare that figure with the $7,000 ordered and
invite the Court to make a further order.


Orders

[51]    I order that the Mr Hieber
and IRDL are to provide security for costs in the
sum of $20,000.


[52]    I direct that Perth is to provide security for costs
in the sum of $7,000.


[53]    Security is to be provided within 21 days of this order and is to be provided
by paying the sums
ordered into Court or providing security for such sums to the
satisfact ion of the Registrar.


[54]    Each party's proceeding(s)
shall remain stayed until such time as the security
has been provided.


[55]    These orders are without prejudice to the rights
of the parties to make
applicat ion for further orders for security for costs in due course.


[56]    I consider that it is not
appropriate to make an order for costs in favour of
either party on the present applications.




_____________
J.P. Doogue
Associate
Judge