Turner v Sigglekow [2012] NZHC 2101 (17 August 2012)

Last Updated: 21 August 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2006-409-001172 [2012] NZHC 2101

BETWEEN NOELINE JANE TURNER Plaintiff

AND CHRISTELLE JANE SIGGLEKOW First Defendant

AND NAMEL LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)

Second Defendant

AND QBE INSURANCE (INTERNATIONAL) LIMITED

Third Defendant

Hearing: 7 August 2012

Appearances: G J Beresford for Plaintiff

A J Davis for First Defendant

G Gallaway for Second and Third Defendants

Judgment: 17 August 2012

_{RESERVED JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

Introduction

[1] In 1994 Mrs Turner built four townhouses in Durham Street, Christchurch. Between 1995 and 1997 Mrs Sigglekow, then a real estate sales person working for Namel Limited, then known as Rolle Limited, was engaged to sell the properties.

[2] In this proceeding Mrs Turner alleges various breaches of Mrs Sigglekow’s responsibilities as a real estate agent, for which it is said she and Namel Limited are liable to her in damages. QBE Insurance held a professional indemnity policy in respect of their actions at that time. The proceeding is awaiting trial. All defendants seek an order that Mrs Turner give security for the costs that may be awarded against

_{her if her action is unsuccessful.}

NOELINE JANE TURNER V CHRISTELLE JANE SIGGLEKOW HC CHCH CIV-2006-409-001172 [17

August 2012]

[3] Mrs Turner says that she does not have the means or the ability to pay security for costs and if directed to do so she would not be able to pursue her claim. She says that the actions of Mrs Sigglekow and Namel have caused her to be in her present financial circumstances.

[4] Rule 5.45 of the High Court Rules provides that if there is reason to believe that a plaintiff will be unable to pay the costs of a defendant if unsuccessful in a proceeding, a Judge may order the plaintiff to give security for costs. Further directions may be made in relation to the making of payment or giving other security, and staying the proceeding pending compliance.

[5] In A S McLachlan Ltd v MEL Network Ltd,[1] the Court of Appeal said: [13] Whether or not to order security and, if so, the quantum are

discretionary. They are matters for the Judge if he or she thinks fit in all the

circumstances. The discretion is not to be fettered by constructing

“principles” from the facts of previous cases.

[14] While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a checklist of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.

[6] Given Mrs Turner’s evidence that she is not in a financial position to pay security for costs, and the supporting information about her financial position, her counsel did not argue that she would be able to pay the defendants’ costs if her claim fails. I therefore have jurisdiction to make an order directing Mrs Turner to give security for the defendants’ costs. Given that Mrs Turner could not meet an adverse order to pay costs, there is a sound reason to direct her to give security for the

_{defendants’ costs before the case goes any further.}

Background to this proceeding

[7] Mrs Turner’s development of four townhouses was carried out at the instigation of her son, Roderick, and his wife Marie. The land to be developed was purchased by Mrs Turner for $122,500, at their suggestion, and paid for entirely by a loan from Countrywide Bank. The bank also agreed to advance $400,000 to fund the estimated cost of building. The four townhouses were built and sold but in the final wash-up there was a shortfall leaving Mrs Turner unable to pay GST she owed on the project. She was adjudicated bankrupt in March 1999.

[8] In 2001 Roderick and Marie Turner commenced proceedings against Mrs Sigglekow and Namel Limited (though not QBE) claiming improper conduct by Mrs Sigglekow and Namel and alleging they had suffered damage as a result. The allegations made were similar to those in the present proceeding though the damages claimed were significantly less.

[9] Although Mrs Turner was not a party to the proceeding she gave evidence in support of her son and daughter-in-law’s claim.

[10] The claim failed. The District Court Judge found that the development was undertaken by Mrs Turner senior, not by her son and daughter-in-law. Accordingly the latter had no basis for a claim. The Judge also found that the proceedings were founded on forged documents. Subsequently Mr Turner was charged with criminal offences, convicted and imprisoned. The hearing in the District Court lasted eight days. The existence of the forged documents on which Roderick and Marie Turner relied was known before the proceeding commenced, but they continued notwithstanding. In assessing awards of costs the Judge found Namel had acted professionally and honourably but raised serious concerns about Mrs Sigglekow’s actions as the agent responsible for negotiating sales of the apartments. He declined to make findings on issues which he considered were suspicious, as it was unnecessary to do so given his reasons for rejecting the claim, but he went as far as to say that her hands were “far from clean” and consequently did not award her costs. Rolle, on the other hand, was awarded solicitor and client costs against Roderick and Marie Turner.

[11] Mrs Turner senior then commenced this proceeding in May 2006. By then she had been discharged from bankruptcy. She was granted legal aid. This was withdrawn in May 2012 opening the way for the defendants to bring this application.

Mrs Turner’s position

[12] Mr Beresford opposes an order directing Mrs Turner to give security for costs on two principal grounds:

She has a strong claim which she will be prevented from pursuing if directed to give security for costs.

The actions of Mrs Sigglekow are the cause of her inability to pay costs if unsuccessful.

Does Mrs Turner have a strong claim?

[13] Mrs Turner says that Mrs Sigglekow arranged sales of two of the units to personal associates at prices below their market values, and that sales of the other two units were also at prices below market value. I cannot discern any other criticism of the latter sales from the second amended statement of claim filed in May

2012. One of the townhouses was resold about 18 months later for $186,500. In simple terms the case for Mrs Turner is that had all the units sold for $186,500 she would have received $746,000 on settlement, the extra funds being more than sufficient to pay the GST for which she was finally bankrupted, approximately

$59,000. Mrs Turner seeks a refund of selling commission, and in the case of each townhouse, the difference between its sale price and $186,500.

[14] In addition, she seeks general damages of $200,000 which, as far as I can tell from the second amended statement of claim, are said to arise from settlement of all four townhouses ultimately being arranged for a reduced global sum, $64,000 below the contract prices, some unspecified costs relating to finance and an unquantified loss said to have been incurred as a result of the plaintiff’s home being sold. There is also a very general reference to “ongoing losses” as well as distress and anguish. Exemplary damages are sought in the sum of $50,000.

[15] Argument for the defendants is focused on the damages claimed. Mr Davis says that Mrs Turner accepts that she does not have any independent valuation evidence to support her contention that all four townhouses should have been sold, at the time they were sold, for the price which was achieved for one of them later,

$186,500. He says the initial selling instructions were to ask $165,000 with a view to accepting $160,000 for each unit and therefore the prices obtained (recorded by the Judge as $155,000, $159,000 and for two units, $160,000) were very close to Mrs Turner’s instructions. He submits that Mrs Turner will be unable to show that the units were sold at prices significantly below market value or outside her instructions at the time they were sold, even though one was re-sold for a higher price later.

[16] I note that in the second amended statement of claim it is pleaded that one of the units described by the Judge as having been sold for $160,000 was in fact sold for $142,500, but this discrepancy is not explained.

[17] Similarly, no explanation is given for the fact that notwithstanding the sale prices, whether totalling $634,000 as the Judge recorded, or $616,500 as now pleaded, settlements took place after some negotiations, for a total sum of $570,000 on a global basis. Mrs Turner accepts that she does not know why this occurred.

[18] Had that global settlement sum not been accepted, she would have received some $46,500 more, based on the pleaded sale prices, and some $64,000 more based on the prices quoted by the Judge. The latter would have covered the GST, and the former nearly so.

Discussion

[19] Where an order to give security for costs will prevent a plaintiff from pursuing a claim, an order should only be made after careful consideration and in a case in which the claim has little chance of success. However the interests of the

_{defendants must also be weighed.}[2]

[20] Although there is clearly evidence to support Mrs Turner’s contention that Mrs Sigglekow acted in breach of her duties to them as their real estate agent, and possibly in breach of the Real Estate Agents Act 1976, there are manifest weaknesses in her assessment of damages. First, there is no independent valuation evidence to support her contention that the market value of any of the townhouses when sold was greater than the sums she accepted at the time, which are broadly in line with her written selling instructions to the agents.

[21] Secondly, there is no evidence from any other source from which it can be inferred that a resale price achieved 18 months later fairly represents the market value of the townhouse concerned at the time it was sold by Mrs Turner.

[22] Thirdly, even if that figure does represent the market value of that townhouse at the earlier date, there is no evidence from which it can safely be inferred that this figure also represented the market value of each of the other three townhouses.

[23] Fourthly, there is no evidence about why Mrs Turner accepted a global settlement sum of $570,000 with three individual purchasers at the time. Mrs Turner pleads that Mrs Sigglekow’s breaches of her fiduciary duties, relating to the selling prices, caused her to accept this reduction in price, but does not plead how or why that occurred, and on the face of the pleading it appears to be a non sequitur.

[24] Fifthly, had a global settlement sum not been accepted, Mrs Turner would have received at least $46,500 more, and possibly over $60,000 more, depending on which set of sale prices is correct. Given that the latter covers the GST, non- payment of which led to her bankruptcy, and the former would have allowed most of that GST to be paid, the acceptance of the lower settlement sum is arguably the material cause of the bankruptcy and thus Mrs Turner’s financial position.

[25] Sixthly, there are no particulars given from which I can infer any degree of strength in the claim for general damages. It was not included in the claim before the District Court and does not have any readily apparent basis in the present proceeding.

[26] Seventhly, the claim for distress and anxiety appears to seek a sum well outside the established range of awards of damages in this category.

[27] For these reasons I consider that even though liability may be established there are major causation and quantification difficulties in the way of Mrs Turner proving the loss she claims based on the values of the townhouses, the subsequent sale of her own home, and her bankruptcy. There may be a little more strength in her claim for a refund of commission, but that is a claim for only $23,197 in a proceeding seeking over $400,000.

Were the actions of Mrs Sigglekow the cause of Mrs Turner’s inability to pay costs if

unsuccessful?

[28] Mrs Turner relies on Mrs Sigglekow’s pleaded actions as the cause for lower sales prices being achieved than the market values of the townhouses, and thus of insufficient monies being received to pay GST which was owing. This in turn is said to have resulted in the sale of her house and eventually her bankruptcy.

[29] Mrs Sigglekow says:

there is no evidence before the Court of Mrs Turner’s financial position before she went into this property development venture at the behest of her son,

all the funding was borrowed,

the venture was clearly under strain financially as it was necessary to persuade Countrywide to accept a sum below the amount it was owed before it would release its mortgage to allow settlement to take place,

it was necessary to induce the purchasers to settle by reducing the prices as an incentive.

[30] Counsel refers to the observation of the District Court Judge at [35], that the principal reason for Mrs Turner’s bankruptcy was her son’s ineptitude as a developer. The Judge noted that he embarked on a particularly risky venture in her name with little or no capital involved and at the end of the development there were insufficient funds to complete the work needed before settlement of the townhouses could proceed. As the Judge put it, this was a situation open to exploitation and Mr Turner must accept responsibility for having created it.

Discussion

[31] If the actions of a defendant have caused the impecuniosity of a plaintiff, it may be unjust to order that plaintiff to give security for costs. However, a reasonable probability that this has occurred must be established by persuasive evidence, and mere assertion of this position will not suffice.[3] On an application for security for costs it may not be possible to establish this degree of probability readily. A reasonable inference must be able to be drawn from the facts placed

before the Court. I discuss these in turn.

[32] First, Mrs Turner has not put before the Court any evidence of her financial position prior to her entering this venture. She owned a house, but the extent of her equity in it is not known. Nor is it known whether she had any other assets.

[33] Secondly, it is clear that there were major difficulties with the development resulting in Countrywide being persuaded to accept a lesser sum than its full entitlement, the purchasers having to be enticed to settle by significant discounts against contract prices, and obligations to Inland Revenue not being met. The observations of the District Court Judge referred to at [30] above, formed after eight days of evidence, are noted, though not decisive.

[34] Thirdly, in my view it is over simplistic to rely on a price obtained for one of the townhouses 18 months after it was first sold, apply that price not only to that

_{property but to all four properties, assume without verification that it represented}

their value at the time Mrs Sigglekow orchestrated their sales, deduct from that the prices obtained (which were generally in line with Mrs Turner’s written sale instructions) and say that if that difference had been obtained Mrs Turner would not have been bankrupted for non-payment of GST.

[35] Fourthly, Mrs Turner’s expectation of sale prices at the outset was approximately $640,000 from which sales commission of about $23,000 would have to be deducted, followed by GST. Given a purchase price for the land of just over

$120,000 and advances for building costs of $400,000, the margin which could have been expected at the outset was slim. There is no evidence, however, that building costs were contained within the funding arranged, nor any evidence of the extent of the borrowing from Countrywide before it accepted settlement at $530,000 on a discounted basis. Any projected margin would appear to have diminished.

[36] Mrs Turner has not established a reasonable probability on persuasive evidence that her position now, 15 years or more after this venture was undertaken, was caused by the actions on the part of Mrs Sigglekow of which she complains.

Further factor to be considered?

[37] Counsel for the defendants submitted that I should also take into account the fact that their clients have already faced an eight day trial in relation to the facts relied on in this proceeding. Whilst that was an action brought by Mrs Turner’s son and daughter-in-law, she gave evidence in support of their claim. Now they are faced with the entire case being relitigated, with a trial expected to have a similar duration.

[38] Whilst Mrs Turner actively participated in her own son and daughter-in-law’s claim, despite being the developer herself and, if she is to be believed in this proceeding, having herself incurred losses which she seeks to recover, I have not taken this factor into account in my overall assessment of whether security for costs should be ordered. It reflects poorly on Mrs Turner’s conduct, but security for costs is not ordered to admonish. In my opinion the factors which need to be weighed up are those which I have summarised above.

[39] Taking into account all the factors I have identified, I am satisfied that Mrs Turner should be ordered to give security for costs to Mrs Sigglekow, and to Namel and QBE.

How much security should be given?

[40] It is expected that the costs that might be awarded, on scale, to Mrs Sigglekow, and to Namel and QBE together, will be in the order of $50,000 each. I do not accept Mrs Turner’s submission that only $5,000 to $10,000 should be awarded to each. In the event of Mrs Turner’s case failing, sums of that magnitude would represent only 10 to 20 per cent of the actual costs that would be awarded to the defendants, and the balance would not be recoverable. In all the circumstances of this case, I am satisfied that substantial awards are justified.

[41] Mrs Turner has turned down an offer of $70,000 to settle her claim. Whilst initially made without prejudice, Mrs Turner later disclosed it. Although the way in which a trial Judge may award costs if Mrs Turner is partially successful cannot be predicted with certainty, there is force in the submission for the defendants that she would need to recover more than $70,000 before any costs will be awarded to her, and that costs could be expected to be awarded to the defendants if she were to recover less. As I have noted, Mrs Turner’s claim for refund of commission is more soundly based than her claim for damages beyond that. However, the sum claimed is only one-third of the amount she was offered. I do not think it is realistic to reduce the amount for which security might be ordered, in this circumstance.

[42] In my opinion, in the circumstances I have outlined each of the first, and second and third, defendants should have security for costs in the sum of $40,000. This represents a substantial proportion, but not all, of the costs which on realistic assessments the defendants are likely to be awarded.

[43] Counsel did not address how security should be given, because it was Mrs Turner’s position that she could not meet any order for costs. Accordingly, I direct that Mrs Turner is to pay into the Christchurch Registry of the Court the sum of

$40,000 in respect of the first defendant’s costs, and the sum of $40,000 in respect of

the second and third defendants’ costs, or alternatively to give to the satisfaction of the Registrar (or in the alternative, my satisfaction) security for these sums.

[44] The defendants have succeeded on this application. They are entitled to costs on a 2B basis plus disbursements fixed by the Registrar.

J G Matthews

_{Associate Judge}

Solicitors:

Grimshaw & Co, PO Box 6646, Auckland. Email: [e-mail]

Clark Boyce, PO Box 79122, Christchurch 8446. Email: [e-mail]

Chapman Tripp, PO Box 2510, Christchurch 8140. Email: [e-mail] /

[e-mail]

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[1] A S McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA).

[2] A S McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA).

[3] Davy v Howell (1993) 7 PRNZ 141 (HC), Weld Street Takeaways & Fisheries Ltd v Westpac

Banking Corporation [1986] 1 NZLR 741 (HC).