Scrapbook Alley Limited v Chow [2012] NZHC 1635 (17 July 2012)

Last Updated: 21 August 2012

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2011-454-141 [2012] NZHC 1635

IN THE MATTER OF a Deed of Lease

BETWEEN SCRAPBOOK ALLEY LIMITED Plaintiff

AND DAN CHOW, FAI CHOW AND DAVID ALAN LEA

Defendants

Memoranda: From Counsel for Defendants dated 30/05/12

From Counsel for Plaintiff dated 13/06/12

Counsel: G.A. Paine - Counsel for Plaintiff

T. Manktelow - Counsel for Defendant

Judgment: 17 July 2012

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This judgment of Associate Judge Gendall was delivered by the Registrar on 17 July

2012 at 3.30 pm under r 11.5 of the High Court Rules.

Solicitors: Bruce Andrews, Solicitors, PO Box 351, Palmerston North

_{Guy and Toby Manktelow, Solicitors, PO Box 12-091, Palmerston North}

SCRAPBOOK ALLEY LIMITED V D CHOW, F CHOW AND DA LEA HC PMN CIV-2011-454-141 [17 July

2012]

Introduction

[1] Before the Court are two applications. The first is an application by the defendants to strike out certain causes of action in the claim brought against them by the plaintiff. In the second application, also brought by the defendants, they seek an order for security for costs against the plaintiff.

[2] Both applications are opposed by the plaintiff.

Background

[3] The defendants are the owners of commercial premises located in a building situated at 88 Main Street, Paihiatua (the building). They agreed to lease one shop (the premises), situated in and being a part of the building, to the plaintiff by Deed of Lease dated 17 February 2010 (the Lease). The plaintiff then opened and began carrying out its scrap-booking material retailing business from the premises.

[4] The Lease of the premises was for an initial term of 2 years commencing on 1

March 2010 at a rental of $5,200.00 plus GST per annum, with two further rights of renewal, each for three years. The plaintiff also agreed under the Lease that it would pay twenty per cent of the total rates and insurance premiums for the defendants’ building.

[5] Not long after the commencement of the Lease, on 23 May 2010, a fire broke out in the building. It appears that the cause of the fire related to electrical faults in the building, which occurred outside the premises leased by the plaintiff. The premises, being that part of the building leased by the plaintiff, were substantially damaged by the fire. In addition, the fire caused substantial damage to the plaintiff’s chattels, stock and plant in the plaintiff’s leased premises. The plaintiff in its first amended statement of claim filed 18 October 2011 claims that this damage amounted to $62,661.67 (GST inclusive).

[6] Subsequently, the defendants claimed that the fire had rendered the building (and the plaintiff’s leased premises) un-tenantable. Therefore, the defendants purported to terminate the lease.

[7] The plaintiff sought details of the insurance cover on the building and any insurance assessor’s reports in relation to the fire. The defendants have advised that they forwarded the plaintiff’s requests to their insurance company. Nevertheless, the plaintiff maintains that to date, the defendants have still neglected or refused to make available this information.

[8] On 4 March 2011, the plaintiff filed its initial statement of claim in this proceeding alleging, amongst other things, breach of fiduciary duty, breach of contract and negligence on the part of the defendants.

[9] In response, on 15 April 2011, the defendants applied for summary judgment against the plaintiff, or in the alternative, to strike out the plaintiff’s claims. The defendants filed an amended application on 10 August 2011, which included the application for security for costs.

[10] I heard the opposed application for summary judgment and strike-out on 25

August 2011. As the defendants’ application for security for costs had only been filed some two weeks earlier, however, I adjourned that application to give the plaintiff an opportunity to respond. In my decision dated 5 September 2011 on the summary judgment/strike out applications, I concluded that there was a tenable basis to argue that at least one of the plaintiff’s pleaded causes of action could succeed at trial. Therefore, I dismissed the summary judgment application, but in doing so indicated that this was only by a fine margin.

[11] At that hearing, I also addressed a number of the other causes of action advanced by the plaintiff. I noted that the plaintiff’s claim “at the very least” required significant re-pleading in a range of areas and observed that I was tempted to strike out some of the causes of action, but decided that the better course was to adjourn the defendants’ strike-out application to give the plaintiff the opportunity to amend its pleadings.

[12] The plaintiff duly filed an amended statement of claim, as I have noted, on 18

October 2011. Then, on 20 October 2011 I directed that the recalled strike-out application and security for costs application were to be set down for hearing on 8

December 2011. That hearing did take place on 8 December 2011 when I heard argument from counsel for both parties on the defendants’ strike-out and security for

costs applications. It was agreed at this hearing, however, that I would reserve my decision on the applications before the Court in order to give the parties an opportunity to endeavour to settle this matter by way of a Judicial Settlement Conference, given the amounts at stake and the circumstances prevailing here. Accordingly, the proceeding was set down for a Judicial Settlement Conference on 4

April 2012.

[13] The Judicial Settlement Conference was held on 4 April 2012 but it was unsuccessful. In a Minute I issued on 16 May 2012, I gave the parties the opportunity to file and serve any further submissions on the outstanding strike-out and security for costs applications, which they have now done. I now give my decision on these applications taking into account all the material and submissions which have been placed before the Court.

Strike-Out Application

[14] It is appropriate to turn first to consider the defendant’s strike-out application here.

[15] On this, under r 15.1(1), this Court may strike out all or part of a pleading if it:

(a) Discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b) Is likely to cause prejudice or delay; or

(c) Is frivolous or vexatious; or

(d) Is otherwise an abuse of the process of the court.

[16] The authors of McGechan on Procedure at HR 15.1.02 provide the following summary of the principles relevant to r 15.1(1):

The established criteria for striking out was summarised by the Court of Appeal in A-G v Prince [1998] 1 NZLR 262, (1997) 16 FRNZ 258, [1998] NZFLR 145 (CA) at 267, and endorsed by the Supreme Court in Couch v A-G [2008] NZSC 45 at [33], per Elias CJ and Anderson J:

(a) Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.

(b) The cause of action for defence must be clearly untenable. In Couch Elias CJ and Anderson J, at [33], said: “It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.”

(c) The jurisdiction is to be exercised sparingly, and only in clear cases.

This reflects the Court’s reluctance to terminate a claim or defence

short of trial.

(d) The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.

(e) The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation. In Couch, at [33], Elias CJ and Anderson J said: “Particular care is required in areas where the law is confused or developing.” There is considerable authority that developments in negligence need to be based on proved rather than hypothetical facts.

Analysis

[17] The causes of action of the plaintiff, as set out in its Amended Statement of

Claim, can be summarised as follows:

(a) The defendants owed a fiduciary duty to the plaintiff and have breached that fiduciary duty by failing to disclose insurance-related information to the plaintiff and failing to act in the bests interest of the plaintiff when obtaining insurance. (Exemplary Damages of $50,000.00 are sought in this cause of action).

(b) The defendants breached their contract with the plaintiff by breach of the covenant of quiet enjoyment (whether express or implied).

(c) The defendants by their agents, servants or employees entered the leased premises and converted property of the plaintiff, including stock, plant and chattels.

(d) The defendants by their agents, servants or employees trespassed on the property of the plaintiff.

(e) The defendants are liable for nuisance, by allowing the fire to unreasonably interfere with the plaintiff’s use and enjoyment of the premises.

(f) The defendants owed a duty to the plaintiff to ensure that the premises were in such a condition as to prevent the escape of fire from one part of its premises to another, and breached that duty, causing loss to the plaintiff.

[18] The defendants argue that “at least some” of these causes of action cannot succeed. In his submissions, before me, counsel for the defendants specifically addressed causes of action noted at [17](a), (b) and (f) above. Below, I will consider each of these causes of action in turn. Before me, no real issue was taken with the causes of action advanced by the plaintiff at [17](c), (d) and (e) above pleading conversion, trespass and nuisance. On their face, those causes of action should remain here and are not struck out.

_{First cause of action: breach of fiduciary duty}

[19] The plaintiff’s first cause of action is headed “Fiduciary Duty” and the primary allegation, at para [18] of the pleading, is that the defendants owed a duty “to act in the utmost good faith with respect to the insurance as set out in the Deed of Lease.” The plaintiff goes on to claim that, by paying 20 per cent of the insurance premium assessed for the building, the defendants had a fiduciary duty to keep the premises and the building insured to their replacement value, to have the plaintiff’s interest (as tenant) noted on the policy and to make available at all times a copy of the insurance policy to the tenant. It further claims that the plaintiff was entitled to rely upon the defendants not to act with respect to the insurance in a way that was contrary to the plaintiff’s interests. The allegation is made that the defendants breached those duties by failing to provide the plaintiff with information relating to the insurance on the building and failing to act in the best interests of the plaintiff.

[20] The defendants submit here that they do not owe a fiduciary duty to the defendants because the arrangement between the parties was simply an arm’s length commercial transaction.

[21] There are a number of well-established categories of fiduciary relationships, but these categories are not closed. For example, the trustee-beneficiary relationship, the solicitor-client relationship, directorships, and the employer-employee

relationship are all recognised as fiduciary relationships.1 However, some relationships have been recognised as non-fiduciary, including the banker-customer relationship, the borrower-lender relationship, mortgagor-mortgagee relationship, and the vendor-purchaser relationship.2 The reason is that in these relationships, there is no obligation on one party to act in the best interests of the other. Counsel for the plaintiff has not directed me to any authority which suggests that the landlord- tenant relationship is a recognised category of fiduciary relationship. In fact, as I see it, the landlord-tenant relationship is more akin to those types of relationship that are

recognised as non-fiduciary such as that of mortgagor-mortgagee or vendor- purchaser.

[22] A landlord-tenant relationship may still in certain circumstances be fiduciary in nature, but it depends on the particular facts of the case. Fiduciary obligations will not be found in some situations. For example, if the alleged fiduciary is able to act completely in their own interests then that relationship is not fiduciary because the ability to act in one’s self-interest is the “antithesis of fiduciary obligation”.3 Thus, there has been a reluctance by the courts to find that there are fiduciary obligations in commercial transactions because commercial relationships are ones that are “inherently ‘at arm’s length’”, parties generally act in their own self-interest and “no trusting component is involved”.4

[23] In Bell v Jones5, counsel for the appellant argued that there was a fiduciary relationship between a landlord and a tenant in the particular circumstances of that case. The Judge held that there was no fiduciary relationship because the relationship was not “one of vulnerability” such as to give rise to a fiduciary relationship.6 In the present case, in her affidavit, filed in opposition to the applications before the Court, the director of the plaintiff Ms Patricia Street (Ms Street) describes the circumstances surrounding the entry into the tenancy. It appears from her description that there was nothing distinguishing this tenancy from any

_{other commercial arm’s length transaction. There is nothing to suggest that any kind}

1 _{Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at 17.3.}

2 _{At 17.4.}

3 _{At 17.5.3.}

4 _{At 17.2.14.}

5 _{Bellv Jones HC, Wellington, AP222/00, 7 August 2001.}

6 At [12].

of trust was reposed in the defendants. Rather it appears that the defendants, as the landlords, were free to act in their own self-interest both before entry into the tenancy and after entry into the tenancy (subject to the contractual terms agreed).

[24] In addition, there is nothing in the terms of the tenancy here to suggest a fiduciary relationship was created. The plaintiff points to the fact that it was obliged to pay 20 per cent of the insurance premium for the building and that this created the obligation for the defendants to provide information relating to the insurance. In my view, that does not follow. If the plaintiff wished to be entitled to all the information relating to the insurance of the building, it might have ensured there was a clause to this effect in the Lease contract. Taking into account the circumstances surrounding entry into the tenancy and the terms of the tenancy itself, in my view, the tenancy was a normal arm’s length commercial transaction and no fiduciary obligations were created. The attempts by counsel for the plaintiff to invoke assistance from the

Supreme Court decision in Chirnside v Fay in my view do not assist here.7 The

comments in Chirnside regarding the existence of possible fiduciary duties do not apply as I see it to the commercial situation prevailing between the parties in this case.

[25] Even if a fiduciary relationship did exist between the plaintiffs and the defendants, as I see it, the core duties of a fiduciary have not been breached in this case. Those core duties are generally to avoid unauthorised personal profit or to benefit from the relationship; to avoid conflict between personal interest and duty; to avoid divided loyalties and to report to the beneficiary the fact a breach of fiduciary duty has been committed by the fiduciary.8 The defendants, it might be argued, have not breached any of these core duties by failing to provide the plaintiff with information relating to the insurance of the building, or by failing to ensure that

certain insurance is obtained for the plaintiff. And, as to the provision of information and documentation concerning the defendants’ insurance, these are surely matters for proper interrogatories or discovery.

[26] In my view, this cause of action cannot succeed and an order for it to be struck out is to follow.

7 _{Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 (SC).}

8 Butler at 17.2.2.

_{Second cause of action: breach of contract}

[27] Clause 32.1 of the Lease provides for quiet enjoyment of the leased premises by the plaintiff. It states:

THE Tenant paying the rent and performing and observing all the covenants and agreements herein expressed and implied shall quietly hold and enjoy the premises throughout the term without any interruption by the Landlord or any person claiming under the Landlord.

[28] The plaintiff alleges here that the defendants breached this clause in several ways. First, it did so by allowing New Zealand Fire Service personnel, insurance assessors and other unknown people to enter the leased premises without the plaintiff’s express agreement or knowledge. Secondly, it contends that the defendants allowed fire to enter the premises and destroy the plaintiff’s stock, chattels and plant. It says that these breaches have caused its loss. In addition, the plaintiff claims that there is a general implied covenant of quiet enjoyment in the Lease which has also been breached.

[29] The defendants in response maintain that they had no responsibility of any kind for the actions of the New Zealand Fire Service personnel, insurance assessors and “other unknown people”. They contend further that, even if those parties were the responsibility of the defendants, they were entitled to access the premises pursuant to cl 13.1 of the Lease which provides:

THE Landlord and the Landlord’s employees contractors and invitees may at all reasonable times enter upon the premises to view their condition.

[30] The defendants also submit that, in any event, there is no causal nexus between the entry of the persons described into the leased premises and the loss that the plaintiff claims, that is, the loss of stock, plant and chattels. In relation to the breach of the implied covenant of quiet enjoyment, it says also that the express covenant for quiet enjoyment must have displaced the implied covenant.

[31] On these aspects, it is clear that a covenant by the landlord for quiet enjoyment of leased premises is implied by the relationship between landlord and

_tenant,9 _{unless it is displaced by the inclusion of an express covenant for quiet}

9 Section 218(2) of the Property Law Act 2007.

enjoyment.10 The covenant protects the lessee against interruption in their possession of the leased property. It is breached by the landlord, or a person claiming under or through the landlord, if their acts or omissions interfere substantially with the tenant’s possession. This covenant has been held to be breached in cases where the landlord has re-entered the premises unlawfully. A landlord may also be in breach of the covenant of quiet enjoyment even if the act complained of is legal and/or reasonably necessary, for example, where repairs needed to be undertaken by the landlord.

[32] It is clear in the present case that the express covenant for quiet enjoyment in cl 32.1 (set out above at [27]) displaces the implied covenant for quiet enjoyment imported by s 218(2) of the Property Law Act 2007. So to succeed in this particular claim, the plaintiff must prove a breach of cl 32.1. In the present case, there are a number of live issues surrounding the determination of whether there has been a breach. First, an issue arises as to whether the parties described above who allegedly breached the plaintiff’s quiet enjoyment of its premises were “claiming under the Landlord”. Secondly, if those parties were claiming under the landlord, issues over the relationship between cl 32.1 (covenant for quiet enjoyment) and cl 13.1 (Landlord’s right of inspection) arise. That is, whether the covenant for quiet enjoyment can still be breached by the defendants carrying out their right to inspect under the Lease. Thirdly, if there has been a breach of the covenant, whether any loss can be claimed by the plaintiff.

[33] In my view, these are all complex issues involving significant and no doubt substantially disputed facts and as such they are not issues that can be properly determined on a strike out application. Therefore, the application to strike out this cause of action must be declined.

_{Sixth cause of action: escape of fire}

[34] The plaintiff argues that the defendants, as owners of the building, owed a duty to the plaintiff to ensure that the premises were in such a condition so as to

_{prevent the escape of fire from one part of its premises to another. It contends that}

10. Bennion, Brown, Thomas and Toomey New Zealand Land Law(2nd ed, Brookers, Wellington,

2009) at 8.8.01 citing Miller v Emcer [1956] EWCA Civ 6; [1956] Ch 304, [1956] All ER 237 (CA) and Nordern v Blueport

Enterprises Ltd [1996] 3 NZLR 450.

the defendants breached their duty in two ways; first, by failing to ensure that the partitions between the premises leased by the plaintiff and neighbouring tenants or occupiers had a fire proof wall and secondly, by allowing the fire to occur through the installation of unlawful electrical wiring in the building. It says that these breaches of duty by the defendants have caused the plaintiff’s loss here.

[35] The defendants, on the other hand, point to cl 11.1 of the Lease which they say limits their liability for loss caused by repairs or defects. Clause 11.1 provides:

THE Landlord shall keep and maintain the building, all building services, the Landlord’s fixtures and fittings, and the car parks in good order and repair but the Landlord shall not be liable for any:

...

(d) Loss suffered by the Tenant arising from any want of repair or defect unless the Landlord shall have received notice in writing thereof from the Tenant and shall not within a reasonable time thereafter have taken appropriate steps to remedy the same.

[36] As I understand the position, at no time was any written notice of any electrical faults or other defects provided by the plaintiff as tenant here. In relation to the argument that the defendants owed a duty to the plaintiff to ensure that there would be no escape of fire from one part of the building to another, the general principle too is that a person is not bound to take care positively to prevent injury to,

or otherwise confer a benefit on, another person.11 In my view, therefore, the

defendants did not have a positive duty here to fully fire proof the leased premises. This however is distinguishable from the situation where a fire breaks out, the landlord knows this has occurred and does nothing about it – Goldman v Hargrave.12

That does not seem to be the case here however.

[37] The more difficult issue in this case however is whether there was a breach of a duty of care in relation to the electrical wiring in the building. There does not appear to be any direct evidence before the Court to suggest that it was in fact faulty electrical wiring in another part of the building that caused the fire. But assuming that the plaintiff’s allegation that faulty electrical wiring did exist, could the

_{defendants be liable for negligence here?}

11 _{Stephen Todd (ed) The Law of Torts in New Zealand (5th ed, Brookers, Wellington, 2009) at 162.}

12 Goldman v Hargrave [1967] 1 AC 645 (PC).

[38] The defendants can exclude their liability in tort by contractual provision.13

The purported exclusion must be incorporated into the contract and it must exclude liability in negligence in “clear and unambiguous language”.14 There are specific rules about the ability of parties to exclude their liability for negligence.15 These rules were set out by the Privy Council in Canada Steamship Lines Ltd v R16 and later cited with approval by the Court of Appeal in Airwork (NZ) Ltd v Vertical Flight Management Ltd.17 First, an express reference to negligence or a reference to a synonym for it will suffice. Secondly, in the absence of an express reference to

negligence, the Court must consider whether the words used are wide enough in their ordinary meaning to cover the concept of negligence. Clauses purporting to exclude or limit liability for “any loss” have been treated as insufficient because they do not address the cause or origin of the loss. But the addition of words “arising from any cause whatsoever” may be treated as sufficient to exclude liability for negligence. Thirdly, the court must also consider whether the head of damage may be based on some other ground other than negligence.

[39] In my view, cl 11.1 noted at [35] above clearly and unambiguously excludes the liability of the defendants for any loss caused by faulty electrical wiring (if that was indeed the cause of the fire) as no written notice of any want of repair was given here. Therefore, it must follow that there is no arguable cause of action in negligence, and this pleading must also be struck out. An order to this effect is to follow.

Security for costs

[40] Turning now to the defendants’ second application before me, this being one for security for costs on which the defendants seek $15,000.00 security, the application is advanced in reliance on r 5.45 of the High Court Rules 2008 which

_provides:

13 Producer Meats (North Island) Ltd v Thomas Borthwick and Sons (Australia) Ltd [1964] NZLR

_{700 (CA) at 702-703.}

14 _{At 702-703.}

15 For further discussion, see Rt Hon Sir Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at 703-707.

16 _{Canada Steamship Lines Ltd v R [1952] AC 192 (PC) at 208.}

17 Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 (CA) at 652-653.

5.45 Order for security of costs

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

(i) is resident out of New Zealand; or

(ii) is a corporation incorporated outside New Zealand; or

(iii) is a subsidiary (within the meaning of section 5 of the Companies Act

1993) of a corporation incorporated outside New Zealand; or

(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.

(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

(3) An order under subclause (2)—

(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i) by paying that sum into court; or

(ii) by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and

(b) may stay the proceeding until the sum is paid or the security given.

...

[41] The general approach to a security for costs application was summarised in

Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2]: (a) Has the applicant satisfied the Court of the threshold in r 5.45(1)? (b) How should the Court exercise its discretion under r 5.45(2)?

(c) What amount should security for costs be fixed at? (d) Should a stay be ordered?

[42] I will address each of these steps in turn.

_{Has the applicant satisfied the threshold in r 5.45(1)?}

[43] In order to satisfy the threshold in r 5.45(1), the plaintiff must be resident outside of New Zealand, incorporated outside of New Zealand, or a subsidiary of a company outside of New Zealand, or there must be reason to believe that the plaintiff will be unable to pay the costs of the defendant if it is unsuccessful.

[44] The plaintiff is not a company resident or incorporated outside New Zealand. Therefore, for the threshold in r 5.45(1) to be met, there must be reason to believe that the plaintiff will be unable to pay the costs of the defendant if unsuccessful.

[45] An affidavit of a Mr Peter Lindstrom (Mr Lindstrom) the defendants’ solicitor was filed on 10 August 2011 in support of the defendants’ application for security for costs. Although objected to at that time by counsel for the plaintiff, in my view, this affidavit in the main deals purely with machinery matters and is to be read. I rule accordingly. And, in this affidavit evidence, Mr Lindstrom states that the Commissioner of Inland Revenue has applied to the Court to bankrupt the sole director and part shareholder of the plaintiff, Ms Street. Mr Lindstrom says that he understood that as at 28 July 2011 Ms Street owed $53,534.45 to the Commissioner of Inland Revenue in unpaid GST, PAYE and income tax. According to Mr Lindstrom, the petition to bankrupt Ms Street was adjourned on 21 September 2011 to allow for the sale of the assets of the scrapbooking business which the Court was informed had ceased trading. It appears that this matter has now been settled, but the terms of that settlement are unknown. The defendants’ submissions dated 30 May

2012 also annexed the plaintiff’s entry on the Companies Register which had a note as follows:

The Registrar of Companies is satisfied that this company has ceased to carry on business and has initiated action to remove the company from the register. Public notice has been given and the objection period has lapsed. The Registrar will continue with the removal process.

[46] The defendants claim that the fact of the application to bankrupt Ms Street (given her close involvement with the plaintiff company) and the entry on the plaintiff’s Companies Register record is sufficient to justify the conclusion that the plaintiff is impecunious and would be unable to pay the defendants’ costs in the event its present action is unsuccessful.

[47] The plaintiff, on the other hand submits that, if the Court decides to consider Mr Lindstrom’s affidavit (which as noted above is to be the case), in any event, it should be noted that the bankruptcy application against Ms Street has been dismissed. It says, therefore, that the Court cannot infer from that fact of the filing of a bankruptcy application against a director/shareholder that the plaintiff is

impecunious. Rather the plaintiff contends the facts suggest that the dismissal of the application might support the view that the plaintiff is not impecunious.

[48] And, in relation to the entry on the plaintiffs’ Companies Register record, counsel for the plaintiff says that the note relates to a “technical administrative task” that is to be undertaken by the plaintiff’s accountants, and it is irrelevant to the question of whether the plaintiff can pay the defendant’s costs if it is unsuccessful.

[49] In my view, however, what evidence is before the Court (and the plaintiff has essentially provided no financial material of any substance) does provide reason to believe that the plaintiff will be unable to pay the costs of the defendant if it is unsuccessful. It seems to be accepted that the plaintiff is no longer trading, it appears to have no assets of any kind and it seems it may have been involved in difficulties over unpaid taxation with the Inland Revenue Department. In addition, the defendant has put forward no real evidence to counter these suggestions by the defendant that it is impecunious.

_{How should the Court exercise its discretion under r 5.45(2)?}

[50] In determining whether to exercise the discretion to order security for costs against the plaintiff, I am required to balance the interests of the plaintiffs with the interests of the defendants. That balancing exercise was summarised by the Court of Appeal as follows:18

The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.

Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.

[51] The Court may assess the merits of the plaintiff’s claim in determining whether to exercise its discretion to grant an order for security for costs.19 But the Court must be careful not to make detailed findings. The Court may also consider:

(a) Whether the plaintiff’s impecuniosity was caused by the defendant’s

actions;

(b) The means of anyone associated with the proceeding which may be able to assist the plaintiff;

(c) Delay on the part of the defendant in bringing the application; and

(d) Whether the making of an order might prevent the plaintiff from proceeding with a bona fide claim.

[52] In this case, the plaintiff has brought six causes of action against the defendant, two of which are now to be struck out. The other four causes of action are largely fact dependent. There are few facts before the Court at this point however to suggest that these causes of action will be successful.

[53] It is long accepted from the authorities that there is a very real limit as to how far an enquiry as to the merits of a proceeding made at the early stage at which time a security for costs application is generally made, can be realistically considered20. In complex matters, in particular, any assessment as to the merits is likely to be no more than an impression and cannot be a definite indicator as to ultimate outcome at trial.

[54] At the present point in this proceeding I cannot really reach any firm conclusion as to the merits and prospects of success of the plaintiff’s claim. This question as to the merits of the plaintiff’s claim must be considered neutral here.

[55] A second issue to be considered here is the question as to whether the plaintiff’s impecuniosity in this case has resulted from the actions of the defendant complained of. The rationale for this principle is that it may well be unjust for a defendant to receive the benefit of a security for costs order if it is the defendants own actions being the subject of the litigation that have caused the plaintiff’s impecuniosity21.

[56] In the present case, the plaintiff contends that its impecuniosity has been caused solely by the cessation of its business resulting from the fire to its premises and the defendants actions ultimately in terminating its lease. There is no evidence

before me as to whether the plaintiff may have carried insurance against such risks. It is presumed in light of the present proceeding that no such insurance was carried. The impact of this aspect on the plaintiff’s impecuniosity is not, however, entirely clear. It is suffice to say at this point that it would be usual in cases such as the present for a tenant of a retail shop such as the plaintiff to consider carrying its own full and comprehensive insurance against the risk of fire with respect to all its stock, plant and business continuation.

[57] In light of this, it might be said that it is hard to accept here that the plaintiff’s impecuniosity has resulted directly from the actions of the defendant regarding the fire. But, what is clear is that the defendants chose to terminate the plaintiff’s lease after the fire occurred and this, together with the plaintiff’s loss of its plant, stock and business, resulted in a situation where its principal asset being the retail business had gone.

[58] I find therefore that there is a reasonable probability here which could be established by persuasive evidence that the plaintiff’s impecuniosity has resulted from the defendants’ actions complained of in this proceeding. In my view, this is a clear factor which militates against security being granted. In balancing all the interests of the parties here, the defendants’ security for costs application is to be refused.

[59] For completeness, I note that as to the matter referred to at para [51](b) above concerning the means of anyone associated with the proceeding which might assist the plaintiff here, in my view this has no bearing in the present case. It is the plaintiff company which brings these proceedings, and certainly there is no evidence before me that its shareholders/directors or any other related parties are in a position to fund this litigation.

[60] Finally, issues of delay in bringing this application noted at para [51](c) above again in my view are neutral so far as the present application is concerned. This application was brought in August 2011 at a time according to the defendants when they learned of the likely financial position and impecuniosity of the plaintiff. I take the view that there was no unreasonable delay in bringing the present security for costs application on the part of the defendant.

Conclusion

[61] For all the reasons outlined above the defendants’ strike-out application succeeds in part only and its security for costs application fails.

[62] As to the strike-out application the following orders are now made:

(a) The plaintiff’s first cause of action in fiduciary duty outlined at paras

18-23 of the first amended statement of claim is struck out.

(b) The application to strike-out the plaintiff’s second cause of action pleading breach of contract outlined at paras 24-29 of the first amended statement of claim is dismissed.

(c) In so far as the defendants may have also applied initially to strike-out the plaintiff’s third cause of action in conversion, fourth cause of action in trespass and fifth cause of action in nuisance in the first amended statement of claim, this application is also dismissed.

(d) The plaintiff’s sixth cause of action pleading escape of fire at paras

44-50 of the first amended statement of claim is also struck out. [63] As to the defendants’ application for security for costs, this is dismissed.

[64] On the question of costs, the defendants have been partly successful and partly unsuccessful in their applications before the Court and as a result in my view costs on these applications should lie where they fall. There is to be no order made as to costs.

Post-Script

[65] On a number of occasions in the past when this proceeding has been before the Court I have expressed a view to counsel for the parties that, particularly given the amount at stake here (which as I understand it is essentially a claim for a little

over $62,000.00) this is a matter which cries out for some sensible resolution. It is not a matter which, in my view, should proceed to trial. The parties are therefore again encouraged to liaise with a view to resolving this dispute in a reasoned and sensible way.

‘Associate Judge D.I. Gendall’