Sun v Peninsula Road Limited [2012] NZHC 1209 (31 May 2012)

High Court of New Zealand

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Sun v Peninsula Road Limited [2012] NZHC 1209 (31 May 2012)

Last Updated: 5 July 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-7991 [2012] NZHC 1209

BETWEEN HO KOK SUN & ORS Plaintiffs

AND PENINSULA ROAD LIMITED First Defendant

AND KAWARAU VILLAGE HOLDINGS LIMITED

Second Defendant

AND RUSSELL MCVEAGH Third Defendant

Hearing: 16 March 2012

Appearances: P G Skelton and R A Edwards for plaintiffs

R B Stewart QC, M J Tingey and I Rosic for second defendant

M R Crotty for third defendant

Judgment: 31 May 2012

_{JUDGMENT OF GILBERT J}

This judgment was delivered by me on 31 May 2012 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ......................

_{Counsel: R B Stewart QC, Auckland:} [e-mail]

Solicitors: Anderson Creagh Lai, Auckland: [e-mail]

Glaister Ennor, Auckland: [e-mail]

Buddle Findlay, Auckland: [e-mail]

Bell Gully, Auckland: [e-mail]

SUN & ORS V PENINSULA ROAD LTD & ORS HC AK CIV 2011-404-7991 [31 May 2012]

Introduction

[1] The 109 plaintiffs in this proceeding are parties to 114 agreements to purchase units in a new development in Queenstown from the first defendant, Peninsula Road Limited (PRL). The combined purchase price is approximately

$85 million. The plaintiffs have paid deposits, together totalling approximately $9.5 million, which are held by the third defendant, Russell McVeagh, as stakeholder.

[2] The second defendant, Kawarau Village Holdings Limited (KVHL), has

taken an assignment of PRL’s interest under these agreements.

[3] KVHL served settlement notices on the plaintiffs in late December 2011 but the plaintiffs have refused to settle the agreements. The plaintiffs claim that they were induced to enter into the agreements by misrepresentations and that the agreements are in breach of s 37(1) of the Securities Act 1978 and therefore invalid and of no effect. They seek orders pursuant to s 43 of the Fair Trading Act 1986 declaring the agreements void and directing that the deposits be refunded. Alternatively, they seek a declaration pursuant to s 37 of the Securities Act that the agreements are invalid and unenforceable and an order directing return of the deposits.

[4] The plaintiffs applied successfully without notice for an interim injunction

freezing the deposits and accrued interest in Russell McVeagh’s trust account.

[5] KVHL applies for an order requiring the plaintiffs to provide security for costs. It also applies for an order requiring the plaintiffs to provide security to support the undertakings as to damages that have been filed by the plaintiffs in support of their application for the interim injunction.

[6] KVHL also applied for an order setting aside the interim injunction but this application was abandoned prior to the hearing.

[7] PRL is in receivership and in liquidation. Mr Barker filed a memorandum on its behalf advising that PRL has no interest in the present applications or the

substantive proceeding, having assigned its interest in the agreements for sale and purchase to KVHL. It does not intend to take any steps in this proceeding.

[8] Mr Crotty appeared for Russell McVeagh. He advised that Russell McVeagh will abide the decision of the Court. Mr Crotty was accordingly excused from the hearing.

Background

[9] PRL (now in receivership and liquidation) was incorporated by Nigel

McKenna, a well-known property developer, to undertake a major development on a

6.4 hectare site at Kawarau Falls in Queenstown. The development was intended to comprise a wide range of accommodation options and recreational facilities including 13 hotels and serviced apartment buildings. It was to be completed in three stages. Stage 1 comprised five buildings including the Lakeside West and Kingston West buildings and was expected to be completed by the summer of

2009/2010.

[10] It appears that Mr McKenna was unable to secure sufficient funding from one lender to fund all three stages of the development. To overcome this problem, the land was subdivided in late 2007. PRL retained ownership of the land required for Stages 2 and 3 and another company associated with Mr McKenna, Melview (Kawarau Falls Station) Investments Limited (MKFSI), acquired title to the Stage 1 land and PRL’s interest in the agreements for sale and purchase of units in Stage 1. MKFSI was to undertake Stage 1 of the development with another company in the Melview Group, Melview (Kawarau Falls Station) Development Limited (MKFSD). These arrangements enabled separate financiers to take first ranking security over the land and other assets associated with each stage of the development.

[11] Austpac Investment Consultancy Limited (Austpac) was given exclusive rights to market and sell units in the Lakeside West and Kingston West buildings in South East Asia. The 109 plaintiffs in this proceeding, all of whom live in South East Asia, entered into agreements for sale and purchase of units in Lakeside West and Kingston West between 1 August 2006 and 26 May 2009. In terms of the

agreements the deposits are held by the vendor’s solicitors, Russell McVeagh, on interest bearing deposit in trust for the vendor and the purchaser. The deposits are earning interest at the rate of approximately 3% per annum. The deposits and accrued interest total approximately $9.5 million.

[12] Most of the agreements for sale and purchase provide that the deposits and accrued interest shall be paid to the vendor by way of credit against the purchase price on the date that both the certificate of title to the property and the certificate of practical completion have issued. Some of the agreements provide for payment of the deposit on the earlier of these two dates. At least one of the agreements provides for the deposit to be paid to the vendor upon notice that the vendor’s independent project manager has certified that construction of the building has commenced.

[13] MKFSI and MKFSD were placed in receivership on 26 May 2009. Brendon Gibson and Grant Graham of KordaMentha (the Receivers) were appointed receivers of MKFSD and MKFSI by Bank of Scotland International (BOSI), which had financed Stage 1 of the development.

[14] MKFSI obtained certificates of practical completion for Kingston West and Lakeside West in March 2010. The plaintiffs claim that these certificates do not conform to the requirements of the agreements for sale and purchase.

[15] The Receivers decided to incorporate a new special purpose vehicle to facilitate the completion of Stage 1 of the development. Accordingly, in April 2010, the Receivers incorporated KVHL as a wholly-owned subsidiary of MKFSI.

[16] On 7 October 2010, KVHL entered into a loan facility agreement with BOSI for up to $145 million to fund the acquisition of Stage 1 from MKFSI. Interest is payable under the facility agreement at the rate of approximately 12.7% per annum until 30 January 2013 when it will increase to approximately 17.7% per annum.

[17] MKFSI assigned its interest in the agreements for sale and purchase to KVHL

with effect from 22 October 2010. Notice of this assignment and of the earlier

assignment from PRL to MKFSI was given to the plaintiffs’ solicitors on 26 and

27 October 2011.

[18] The agreements for sale and purchase provided for the incorporation of a precinct society prior to the settlement date. The precinct society was to manage the infrastructure for the development. Its functions include the provisions of services and amenities including landscaping, outdoor furniture, street lighting, roads, outdoor car parking, footpaths, gas, water supply and other services. All unit holders were required to be members of the precinct society. This society, which was called the Alpine Lakes Drive Precinct Society, was incorporated on 6 December 2010.

[19] Separate certificates of title for the units in Kingston West issued in

December 2010. Certificates of title for the units in Lakeside West issued in April

2011.

[20] On 9 November 2011, KVHL’s solicitors advised the plaintiffs’ solicitors that the certificates of title and certificates of practical completion had issued. The plaintiffs’ solicitors took issue with the certificates of practical completion and further certificates were provided on 25 November 2011.

[21] KVHL called for settlement of the agreements in December 2011. None of

the plaintiffs settled. Accordingly, KVHL’s solicitors served settlement notices on

19 and 20 December 2011. These notices expired between 9 and 13 January 2012.

[22] The present proceedings were issued on 13 December 2011 and were accompanied by an application without notice for an interim injunction restraining Russell McVeagh from disbursing the deposits. The application was granted on an interim basis by Priestley J that day. The orders were conditional on an authorised representative of all plaintiffs filing undertakings as to damages by 19 December

2011. Undertakings have since been filed by all plaintiffs other than plaintiff 58 in respect of whom no deposit is held.

The claim

[23] The plaintiffs’ first cause of action alleges misleading and deceptive conduct by PRL in breach of ss 9 and 14 of the Fair Trading Act 1986. Orders are sought under s 43(2) of the Act declaring the agreements void and directing that the deposits be returned. The allegations of misleading conduct are that PRL misrepresented that:

(a) It would arrange finance of up to 80% of the purchase price for Kingston West units and up to 70% for Lakeside West units whereas no such finance has been arranged;

(b) The Lakeside West building would be used exclusively for luxury residential apartment purposes whereas it contains mixed residential and retail or commercial units including a bar and a commercial spa;

(c) All three stages of the development would be completed and the plaintiffs would benefit from being able to use the common facilities of the entire development whereas Stages 2 and 3 of the development may not be completed;

(d) Its resource consent only permitted it to build residential apartment units in the Lakeside West building whereas a variation to the resource consent was granted in 2010 permitting visitor accommodation and liquor and restaurant activities; and

(e) Facilities in the Lakeside West building would be available for the exclusive use of residents whereas members of the public may use some of the facilities in the building.

[24] The plaintiffs claim to be entitled to enforce their remedies against KVHL as assignee by virtue of s 11 of the Contractual Remedies Act 1979.

[25] The second cause of action is for an alleged breach of s 37(1) of the Securities Act 1978. The plaintiffs contend that the requirement to participate in the precinct society meant that the agreements constituted offers of participatory

securities. They allege that such offers were made to members of the public in New

Zealand by:

(a) Marketing the development on Melview Group’s website in New

Zealand;

(b) Marketing the development at the Kawarau Falls Station pavilion in

Queenstown; and

(c) Providing the intended form of agreement to Glaister Ennor as the nominated solicitors and agents for the purchasers.

[26] The plaintiffs claim that the agreements are invalid and of no effect in terms of s 37(4) of the Act because there was no registered prospectus or authorised advertisement and PRL did not comply with any exemption notice.

[27] Because it is relevant to the exercise of my discretion whether to order security for costs or security for the undertakings, I now consider the strength of the plaintiffs’ claims. In doing so, I recognise that the proceeding is at an early stage and that further evidence may become available which may affect the assessment of the merits.

Securities Act claim

[28] The only evidence offered by the plaintiffs to support their allegation that offers were made to members of the public in New Zealand is a statement by Jeffrey Lai, a solicitor, who represents plaintiffs 1-42, that his investigations revealed that marketing occurred as alleged in the statement of claim. He does not substantiate this assertion with any direct evidence.

[29] Timothy Jones, a solicitor representing plaintiffs 43–109, states that in mid

2006 his firm, Glaister Ennor, received a pro forma sale and purchase agreement from PRL in its capacity as the nominated solicitors for the purchasers. He says that in late 2010, he was approached by the Receivers’ solicitors with proposals to revise the terms of the sale and purchase agreements.

[30] The Receivers deny that any offer was made to members of the public in New Zealand in respect of the Lakeside West and Kingston West units. They say that the units were only marketed and sold in Asia. They produced letters from Mr McKenna to Bayleys Real Estate in October 2006 and November 2007 confirming that units in Kingston West and Lakeside West could only be marketed and sold in Asia. Austpac held exclusive rights to market and sell the units in South East Asia and conducted property seminars in that region. The Receivers understand that the plaintiffs all purchased their units through Austpac. None of the Kingston West and Lakeside West units have been purchased by any member of the New Zealand public; the only sales have been to the plaintiffs, all of whom live in South East Asia.

[31] The Receivers are not aware of any marketing of these properties in New Zealand. They filed an affidavit from Natasha Cook who was employed by Melview Developments Limited as a relationship manager from October 2007 until October

2009. She is also not aware of any marketing of Lakeside West or Kingston West units in New Zealand through the Melview Group website, or at the pavilion or at Melview Group’s administrative office in Queenstown. She says that this office was not open to the public.

[32] The Receivers contend that the provision of draft agreements to Glaister Ennor cannot constitute an offer to members of the public in New Zealand because Glaister Ennor was acting as the New Zealand agents and solicitors for the overseas purchasers.

[33] I recognise that the proceeding is at an early stage and more evidence may become available. However, on the evidence that has been filed to date, the plaintiffs appear to face some difficulty with their claim under the Securities Act.

Fair Trading Act claims

[34] Mr Lai’s affidavit in support of the without notice application for an interim injunction made no reference to the plaintiffs’ claims under the Fair Trading Act other than to refer to correspondence between solicitors. Mr Jones’ affidavit similarly made no reference to the Fair Trading Act claims other than to refer to a

letter from his firm alleging misrepresentations. This letter did not give any specifics as to how, when or by whom such representations were allegedly made.

[35] In an affidavit sworn on 2 March 2012 in opposition to KVHL’s present

applications, Mr Lai sought to substantiate the Fair Trading Act claims as follows:

(a) He produced finance documents provided to the purchasers of Units

506 and 539 in Kingston West at one of the marketing information meetings. These refer to a New Zealand loan of 60% of the purchase price. Mr Lai states that these purchasers understood that the New Zealand loan would be arranged by the vendor but he does not state the basis of this understanding. This evidence provides only limited support for the plaintiffs’ claim that the vendor represented that it would arrange finance for 80% of the purchase price for units in Kingston West.

(b) He produced some handwritten notes taken by the purchasers of Unit

107 in Lakeside West at one of the marketing evenings. These notes record “NZ – 80%” and “70%”. Mr Lai claims that these notes record the representation that either 80% or 70% vendor-arranged financing would be available depending on the currency of the loan. I note that this is not consistent with the pleaded representation, which was that the level of finance depended on whether the unit was in Kingston West or Lakeside West, rather than the currency of the loan.

(c) He produced a marketing booklet which he says was used in marketing the development overseas. This booklet described the Lakeside West building as comprising “private apartments that have access to the services of the adjacent hotel”. The adjacent hotel was the Reserve North building and is now the Hilton Queenstown. Mr Lai states that the Hilton has not made its amenities and services available to owners of units in Lakeside West.

(d) Mr Lai states that KVHL has arranged for a pub, called Stacks Pub, to be located on level 3 of the Lakeside West building and for the Hilton to have a conference facility on level 1.

(e) Mr Lai states that the plaintiffs understand that there is no present prospect of Stages 2 and 3 of the development being built. He says that those of his clients who agreed to purchase units in Stages 2 and 3 have had their agreements cancelled and deposits returned.

[36] The evidence provided by Mr Lai regarding vendor finance is slightly at odds with the claim made by Mr Jones that the purchasers were told that the vendor would arrange finance on “reasonable terms” for 80% of the purchase price in respect of Kingston West and 70% of the purchase price for Lakeside West.

[37] The Receivers have no knowledge of any such finance representation being made. There is no evidence that any plaintiff has asked the vendor to provide finance to enable settlement to proceed. It is clear that none of the plaintiffs wishes to settle.

[38] On the basis of the evidence currently available, it appears that the plaintiffs face some difficulty with their claims to be entitled to avoid the agreements because of alleged misrepresentations about the vendor’s intention to provide vendor finance.

[39] Mr Jones pointed out in his affidavit that the Receivers applied for resource consent to change the use of the Lakeside West units from residential use to visitor accommodation and for consent to sell liquor from a combined bar and restaurant on the site. This does not mean that the representation allegedly made about the earlier resource consent was untrue or that it was misleading because the vendor intended, at the time the representation was made, to apply for a different resource consent. There is no evidence that this was the case.

[40] The Receivers say that these changes are permitted by cl 4.9 of the agreements, which allows some flexibility to the vendor to make changes to the draft outline plans and specifications attached to the agreements. Clause 4.9 provides:

Variations to the Draft Outline Plans and Specifications: The Purchaser acknowledges that:

(a) the Draft Outline Plans and Specifications represent the Vendor’s current intentions with regard to the Development and will need to be evolved and detailed during the progression of the Development; and

(b) the Vendor may at any time alter or vary the Draft Outline Plans and Specifications and any subsequent plan relating to the Development (including inverting or “mirroring” the Unit, varying, altering, adding to or omitting parts of the Common Property, varying, adding to or substituting external components and finishes on the Building and the alteration, variation or cancellation of any proposed easement shown on any such plan) in such manner as the Vendor considers appropriate having regard to the circumstances, and provided that such alternation or variation does not materially adversely affect the value of the Unit, the Purchaser shall not be entitled to claim any compensation, damages, right of set off or to make any objection or requisition based on such alteration, variation or cancellation.

[41] It appears that the plaintiffs are not concerned about their units being able to be rented out for visitor accommodation. Mr Lai stated that the plaintiffs are concerned that they will be prevented from renting out their units for visitor accommodation except by arrangement with the hotel operator.

[42] The Receivers maintain that the limited retail services to be provided from a number of external units from within Lakeside West will not have any materially adverse effect on the value of the units. They say that the gymnasium and spa provided for residents within the building will be for the exclusive use of the unit owners.

[43] In the absence of valuation evidence, I cannot form any view as to whether the alteration to the draft outline plans and specifications in respect of the Lakeside West building will materially adversely affect the value of any of the units. If so, that could give rise to a claim for breach of the agreements, but it is difficult to see how it would sound in a claim under the Fair Trading Act.

[44] The last complaint under the Fair Trading Act concerns the alleged representation that all three stages would be developed and the plaintiffs would therefore receive the benefits of the common facilities of the entire development.

This is another statement of future intention. It is accordingly not actionable unless there was no such genuine intention at the time the representation was made or there was no reasonable basis for the representation. There is no evidence that the developer did not intend to complete all three stages of the development or that there was no reasonable basis for expecting that this would occur. The Receivers understand that significant costs were incurred in connection with Stages 2 and 3 of the development. On the basis of the evidence currently available, the plaintiffs also face difficulty with this part of their claim.

Conclusion on the strength of the plaintiffs’ claims

[45] Mr Stewart QC, for KVHL, acknowledges that the plaintiffs have an arguable case. This is why KVHL withdrew its application to set aside the injunction. I agree with his assessment that the plaintiffs’ case is arguable but I do not consider that it is at all strong, based on the evidence currently before me.

Security for costs

[46] Mr Skelton, for the plaintiffs, accepted that the threshold test in r 5.45 of the High Court Rules is satisfied in this case because the plaintiffs are all resident outside New Zealand. He also accepted that KVHL is entitled to an order for security for costs. KVHL abandoned its application for security for costs against plaintiff 10 at the hearing because he owns an unencumbered property in New Zealand.

[47] Counsel agreed that security should be given on a staged basis. However, they have been unable to agree on the appropriate stage for which security should be ordered or the amount of security. Mr Tingey, who handled this part of the argument for KVHL, argued that each plaintiff should provide security for costs in the sum of

$5,000 to cover all steps in the proceeding until the matter is set down for trial. Mr Skelton submitted that it is too early to estimate the likely course of the proceeding and the costs likely to be involved. He submitted that an all-in sum of

$15,000 covering all plaintiffs would be sufficient to cover all steps in the proceeding until completion of discovery.

[48] In my view, it is desirable to set security for costs now for all steps up to setting-down. Although this will require a forecast of the likely steps, I consider that any difficulties with this are outweighed by the cost and delay of repeated applications for security.

[49] Mr Tingey calculated that scale costs to the setting-down stage would be

$61,476 on a 2B basis or $81,404 on a 2C basis assuming two interlocutory hearings and an amended pleading. This equates to $746 per plaintiff but makes no allowance for the fact that there are multiple plaintiffs.

[50] Mr Tingey pointed out that each plaintiff will need to substantiate his or her Fair Trading Act claim by pleading and proving the representations, reliance and loss. Each plaintiff will have to file an affidavit of documents relevant to these issues. KVHL will need to consider each claim separately when inspecting the plaintiffs’ documents and preparing its defence. Mr Tingey submitted that an additional allowance should be made of half-scale 2B costs for the preparation of the statement of defence for each plaintiff. This would amount to $1,880 per plaintiff. He submitted that scale 2B costs should be allowed for inspection of each plaintiff’s documents. This would amount to a further $2,820 per plaintiff.

[51] The sums referred to above equate to $5,546 per plaintiff or $5,276 per plaintiff if all costs are calculated on a 2B basis. Based on this analysis, Mr Tingey submitted that security should be provided by each plaintiff in the sum of $5,000. He submitted that this was consistent with the Court of Appeal’s decision in Smith v

Covington Spencer Limited,[1] where $7,000 per plaintiff was suggested by the Court

as an appropriate amount for security for the initial stage of multi-party proceedings involving claims of misrepresentation and negligence.

[52] By comparison, Mr Skelton’s proposal for an all-in sum of $15,000 equates to each plaintiff providing security in the sum of $139.

[53] I do not consider that Mr Skelton’s proposal is realistic or appropriate. I

consider that the methodology proposed by Mr Tingey is appropriate in this case.

However, in my view, the time allowances he proposes for preparing the defence and inspecting each plaintiff ’s documents are excessive. He also allowed for the costs associated with the filing of the counterclaim by KVHL. These costs should not be taken into account.

[54] I consider that each plaintiff, other than plaintiffs 10, 36, 53, 57, 64, 80 and

90, all of whom own real estate in New Zealand, should provide security for KVHL’s

costs in the sum of $3,500 until setting-down.

Security to support undertakings as to damages

[55] Although the application to set aside the injunction was withdrawn, the parties agreed that I should consider whether security for the undertaking should be provided as a condition of the interim injunction remaining in effect.

Legal principles

[56] Any applicant for an interlocutory injunction is required to file an undertaking to comply with any order to pay compensation for any damage caused by the injunction. Overseas applicants may be required to provide security if there might otherwise be difficulty enforcing the undertaking.[2] The adequacy of the undertaking is a factor to consider when weighing the balance of convenience in any given case and therefore whether an injunction should be granted.

Submissions

[57] Mr Stewart submitted that the plaintiffs should be directed to provide security to support their undertakings as to damages. He submitted that the plaintiffs’ claims are weak and KVHL should be protected for the losses it will sustain if the plaintiffs’ claims fail and it therefore turns out that the injunction ought not to have been granted. Save for plaintiff 10, Mr Stewart submitted that none of the plaintiffs have assets in New Zealand, or at least none of a sufficiently permanent character, to provide adequate protection to KVHL for any losses it may suffer.

[58] While most of the plaintiffs live in Singapore or Malaysia where there are reciprocal arrangements enabling enforcement of New Zealand judgments, Mr Stewart submitted that the cost and inconvenience of attempting to enforce the undertakings against assets in those jurisdictions would substantially negate the value of the undertakings. He relied on evidence from a lawyer practising in Singapore who estimated that the cost of registering and enforcing a New Zealand judgment in Singapore would be between $5,800 and $8,700 if the matter was straightforward and uncontested or between $44,000 and $57,000 if the matter was contested. On that basis, the cost of taking enforcement action against, for example,

87 plaintiffs, could be up to $2 million if enforcement was defended. Even on an uncontested basis the costs would range between $255,000 and $427,000 if there were 87 plaintiffs involved. These costs are disproportionate to any damages likely to be awarded against each plaintiff.

[59] Mr Tingey handled the argument on quantum. He submitted that security should be provided in a sum sufficient to cover KVHL’s losses for the period until judgment is likely to be given. He submitted that the proceeding is likely to take two years to be finally resolved and that KVHL’s losses will be the difference between the interest payable on the BOSI facility, being approximately 12.7% per annum until 30 January 2013, and 17.7% per annum thereafter, and the interest being earned on the deposit with Russell McVeagh of 3% per annum. Mr Tingey submitted that it would be appropriate to apply the contractually agreed rate of interest for late settlement of 15% per annum, which roughly equates to the weighted average interest rate payable to BOSI over the two year period until final resolution of the proceeding. Using this rate, the differential is 12% per annum or 24% over two years. On this basis, Mr Tingey submitted that security should be provided by all plaintiffs, other than plaintiff 10, in an amount equal to 24% of the deposit paid in each case.

[60] Mr Skelton submitted there is no need to order security in support of the plaintiffs’ undertakings. He submitted that the purpose of requiring security is to ensure that the undertaking is “real” and “not illusory” and that the plaintiffs will be able to honour the undertakings if called upon to do so. He submitted that these considerations are less relevant in this case because the litigation is over a fund

which has been secured against dissipation for the benefit of all parties. He submitted that the Court should not order the plaintiffs to provide security beyond the contractually agreed deposit where there is a dispute over who is entitled to the money.

[61] Mr Skelton further submitted that KVHL’s losses will not be represented by the difference between the interest it is obliged to pay under the BOSI facility and the interest being earned on the monies in Russell McVeagh’s trust account. He submitted that KVHL is a “hive-down” company formed to effect a recovery to BOSI. He argued that BOSI will not recover all of its capital, let alone any interest, and that the true loss will be represented by BOSI’s cost of funding which Mr Lai estimates to be in the order of 5% per annum.

[62] In any event, Mr Skelton submitted that the position of each plaintiff must be considered separately when deciding whether to make any order for security to support the undertakings. He pointed out that 103 of the plaintiffs live in Singapore or Malaysia where New Zealand judgments may be enforced. He submitted that no security should be ordered against those plaintiffs where they have provided evidence of their means to satisfy any order under their undertakings.

[63] Schedules were produced by both sides helpfully collating the evidence as to means and categorising the plaintiffs in groups, depending on their individual circumstances. I asked counsel at the hearing to endeavour to synchronise the categories in their respective schedules and to attempt to reach agreement on which category each plaintiff was in.

[64] Since the hearing, I have received a further affidavit from Mr Jones, sworn on

21 March 2012. This affidavit provides evidence on behalf of 14 plaintiffs who had not previously provided any information. I have also received a memorandum from counsel for the plaintiffs dated 20 April 2012 providing an updated schedule incorporating the information in Mr Jones’ recent affidavit. Counsel for KVHL responded with a memorandum dated 3 May 2012 objecting to the further evidence from Mr Jones and providing an updated schedule based on the evidence available at the hearing.

[65] I record my thanks to counsel for their efforts in providing the schedules and attempting to reach agreement where possible. However, I did not expect to receive further evidence and I made no provision at the hearing for this to occur. In view of KVHL’s objection to the further evidence, I have not taken it into account.

Discussion

[66] For the reasons already discussed, I consider that although the plaintiffs’ pleaded claims are arguable, they are by no means strong. In my view, KVHL should be properly protected for its losses in the event that the plaintiffs’ claims fail and it turns out that KVHL should have received the deposits. It has not been suggested that any of the plaintiffs is unable to provide the security. It is simply that they would prefer not to do so.

[67] I do not accept Mr Skelton’s submission that an order requiring security to support the undertakings would involve disturbing the contractual bargain as to the agreed deposit. The plaintiffs have obtained an injunction restraining Russell McVeagh from paying those monies to KVHL. If KVHL prevails in the litigation, it will follow that it will have been denied its contractual entitlement to those monies by reason of the injunction. The losses flowing from being kept out of this money are the losses for which it should be protected by the undertakings as to damages. The parties agreed to a default interest rate of 15% per annum.

[68] I can understand Mr Skelton’s submission that the commercial reality is that all recoveries will be for the benefit of BOSI or its assignee[3] and that KVHL was formed as a special purchase vehicle to assist in this process. However, this does not alter the fact that KVHL has entered into a loan agreement and accepted an obligation to pay the agreed interest rates. I agree with Mr Tingey that the losses KVHL may suffer will be the difference between the interest payable under the facility and the interest earned on the deposit in Russell McVeagh’s trust account. This is equivalent to the contractually agreed default interest rate payable under the

_{agreements of 15% per annum.}

[69] I do not consider that those plaintiffs who own real estate in New Zealand should have to provide security to back their undertakings. The plaintiffs in this category are plaintiffs 10, 36, 53, 57, 64, 80 and 90. No deposit is held for plaintiff

58 and accordingly no security should be provided by this plaintiff. None of the other plaintiffs have assets of a sufficiently permanent nature in New Zealand. The cost of enforcing the undertakings overseas against each of these plaintiffs would be disproportionate to the likely damages. I consider that each of these plaintiffs should provide security in a sum equivalent to 24% of the deposit held in Russell McVeagh’s trust account, excluding interest.

Result

[70] Each plaintiff, other than plaintiffs 10, 36, 53, 57, 64, 80 and 90, is to provide

security for the second defendant’s costs up to setting-down in the sum of $3,500.

[71] Each plaintiff, other than plaintiffs 10, 36, 53, 57, 58, 64, 80 and 90, is to provide security to support their undertaking as to damages in a sum equivalent to

24% of the deposit held in Russell McVeagh’s trust account, excluding interest.

[72] If the parties are unable to agree the form of security, the matter should be referred back to me.

[73] The plaintiffs are to pay the second defendant’s costs on this application on a

_{2C basis.}

M A Gilbert J

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[1] Smith v Covington Spencer Limited [2008] 1 NZLR 75 (CA).
[2] Pop-A-Shot Inc v Filtration and Pumping (Commercial) Limited (1989) 3 TCLR 225 (HC).

[3] Mr Lai understands that BOSI has sold these receivables to a Singapore investment fund known as

Quilington PTE Limited.