Luscombe v O'Sullivan [2012] NZHC 2300 (7 September 2012)

Last Updated: 28 September 2012

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV 2010-443-000073 [2012] NZHC 2300

BETWEEN CHARLES REX LUSCOMBE, DOROTHY TURNER, AND KATHLEEN WHYTE AS ALL THE EXECUTORS NAMED IN THE WILL OF WINIFRED ANNE LUSCOMBE DECEASED Plaintiffs

AND DILLON O'SULLIVAN First Defendant

AND KELVIN JOHN SYMS Second Defendant

Hearing: 1 May 2012

Counsel: D J King/A McGowan for plaintiffs

M A Muir for second and third defendants

Judgment: 7 September 2012

_{JUDGMENT OF ASSOCIATE JUDGE ABBOTT}

This judgment was delivered by me on 7 September 2012 at 2.30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors:

Dennis King Law, PO Box 1092, New Plymouth 4340 (for plaintiffs) Gilbert Walker, PO Box 1595 Auckland 1140 (for first defendant)

David J Stock, PO Box 29443, Fendalton, Christchurch 8540 (for second and third defendants) Jones Young, PO Box 189, Auckland 1140 (for fourth defendant)

Chapman Tripp, PO Box 2206, Auckland 1140 (for fifth and sixth defendants)

Izard Weston, PO Box 5348, Wellington 6145 (for seventh defendant)

Counsel:

M A Muir, Barrister, PO Box 4234, Auckland 1140

_{C T Patterson, Barrister, PO Box 2886, Auckland 1140}

C R LUSCOMBE & ORS V D O'SULLIVAN & ORS HC NWP CIV 2010-443-000073 [7 September 2012]

AND SIMON ROBERT PURVIS Third Defendant

AND ANDRE GAYLARD Fourth Defendant

AND BRET PAUL JACKSON Fifth Defendant

AND KENNETH DAVID SWAIN Sixth Defendant

AND DONALD FRANCIS CURTIN Seventh Defendant

AND JOHN PERRIS Eighth Defendant

[1] The plaintiffs are the executors and trustees of the estate of Winifred Anne Luscombe, their deceased mother. With the assistance of her son, Mr Charles Luscombe (the first named plaintiff), she invested her savings in several finance companies that subsequently failed. The plaintiffs seek to recover her losses through this proceeding, which has been issued against several parties who were allegedly responsible for advice leading to the investments.

[2] The second and third defendants were directors of FP North Ltd (formerly Vestar Ltd), now in liquidation, an investment advisory company through which the investments were made. They were also members of an investment committee established to provide advice to FP North’s board of directors on investment products. In this judgment I will refer to them as the defendants.

[3] The defendants have applied for an order that the plaintiffs provide security for their costs in the sum of $75,000. The plaintiffs acknowledge that the estate is insolvent, but say that that can be attributed to the conduct of the defendants and that it would be unjust to make an order.

Background

[4] FP North offered investment advisory services through various entities and offices throughout New Zealand. It had an office in Hawera where the first defendant, Mr O’Sullivan, was a financial advisor.

[5] FP North set up an investment committee of persons with experience in finance and investment for the purpose of identifying possible products and putting together a variety of model investment portfolios for the assistance of FP North’s financial advisors. The investment committee comprised a mix of directors of FP North and independent persons. Model investment portfolios were prepared for different kinds of investors, and financial advisors could either recommend them to clients or suggest other investments – whichever best suited the individual investor’s needs.

[6] The second and third defendants at material times were directors of FP North and members of the investment committee.

[7] The deceased, at material times, was elderly and frail. She and/or Mr Luscombe approached Mr O’Sullivan at FP North’s Hawera office about investment of approximately $500,000. They sought recommendations for investment of the money. Mr Luscombe arranged for the funds to be invested in fixed term securities offered by several finance companies, chosen from a list provided to them by Mr O’Sullivan. The plaintiffs say that they understood that this list was drawn up by the investment committee and distributed to advisors by direction of FP North’s board.

[8] Mr Luscombe reinvested most of the funds as the securities matured. Unfortunately, there was still a substantial sum invested in a number of finance companies that failed when the global financial crisis struck.

[9] The plaintiffs have sued the second and third defendants in their capacity as directors of FP North, claiming that they aided and abetted various breaches of duty by Mr O’Sullivan, that they breached their duties as directors and knowingly assisted breaches of fiduciary duty by FP North. They have also sued them in their capacity as members of the investment committee, claiming that they were negligent and breached fiduciary duties. The plaintiffs’ claim approximately $300,000, which takes into account sums that were withdrawn and, more recently, some modest recovery on the investment.

[10] Two other directors of FP North at times leading up to its liquidation were granted summary judgment against the plaintiffs in this Court in August 2011 on the basis that they had no direct involvement in the deceased’s investment portfolio. Costs were awarded against the plaintiffs in the sum of $38,486.38. The plaintiffs have filed an appeal against the summary judgment, and applied for stay of execution of the costs order pending appeal. One of their grounds for seeking a stay was that the estate did not have the ability to pay the costs order or to reimburse the plaintiffs if they were to do so.

[11] In light of Mr Luscombe’s evidence to that effect, counsel for the defendants sought details of the plaintiffs’ personal financial position (on the grounds that the plaintiffs will have a personal liability to meet any costs award if the estate is unable to). The plaintiffs have not responded to that request.

The legal principles

[12] The application is brought under r 5.45 of the High Court Rules. Under that rule the defendants are required first to establish that there is reason to believe that the plaintiffs will be unable to pay their costs if they (the plaintiffs) are unsuccessful in their claim (known as the threshold test).

[13] If the defendants satisfy the threshold test, the Court has a discretion both as to whether to make an order, and as to the quantum of any order. The principles that the Court applies in exercising that discretion were reviewed by the Court of Appeal in A S McLachlan Ltd v MEL Network Ltd.1 The primary principle is that the Court’s discretion is not fettered by decisions in previous cases. The discretion must be exercised on the facts of the case and involves a balancing of the parties’ respective

interests. Although the Court can have regard to anything that is material, there are a number of factors to which the Court will commonly have regard. The two factors of particular significance in the present case are whether the merits of the case are clearly in favour of either party, and whether any impecuniosity of the plaintiffs has been caused by the defendants.

The threshold test

[14] As already mentioned, there is no dispute that the assets of the estate will be

insufficient to meet the defendants’ costs.

[15] The question for consideration is whether the defendants have passed the threshold test by showing that the plaintiffs are personally unable to meet an award

of costs.2 Counsel for the plaintiffs argued that the defendants have not passed the threshold test because there was no evidence before the Court as to their financial circumstances.

[16] While I accept that there is no direct evidence of the plaintiffs’ means, I consider that I can infer that they personally will be unable to meet a potential award of costs from the following:

(a) There is evidence before the Court that, when the plaintiffs stated in their evidence for the stay application that the assets of the estate were insufficient to meet the costs of the summary judgment application, the defendants asked the plaintiffs to satisfy them that they were in a position to meet an award. The plaintiffs have not responded to that request and have not filed any evidence to show their respective financial positions.

(b) In his written submissions on this application, counsel for the plaintiffs acknowledged that the plaintiffs would not be able to meet an award of costs of the magnitude that was possible, and that even the amount being sought by the defendants by way of security “would likely be beyond the resources” of the plaintiffs. In his oral submissions, counsel retracted that concession and reframed the plaintiffs’ position. He said that the issue was whether the plaintiffs would advance funds to the estate to meet an award of costs, and an order for security in the amount sought was “likely to be the end of the plaintiffs’ claim”. He invited the Court to consider this submission in light of the fact that the sum the defendants were seeking was about a quarter of the claim now being advanced.

_{Although he did not state this explicitly, this submission can be}

2 The plaintiffs have previously conceded that they will be personally liable for an award of costs if they are unsuccessful and the estate is unable to pay: Luscombe v O’Sullivan [2012] NZHC 1203 at [14]. The authorities referred to in that judgment are repeated for ease of reference: Laws of New Zealand Trusts at [430]; John Mowbury, Lynton Tucker, Nicholas Le Poidevin, Edwin Simpson and James Brightwell Lewin on Trusts (18th ed, Sweet & Maxwell, London, 2008) at [21]-[51]; Cadman v Versini HC Auckland CIV-2009-404-7925, 30 May 2011 at [47].

construed as a decision by the plaintiffs on the economics of the case

– that is, by weighing costs against the prospects of success.

(c) The plaintiffs are the beneficiaries of the estate as well as being its executors and trustees. In those circumstances, I would not expect there to be the same reluctance to provide security for costs as would exist if they had no financial interest. In that case, there might have been greater strength to the plaintiffs’ argument that they were unwilling to provide security because they were uncertain whether they would be indemnified out of the assets of the estate.

[17] Taking all of these matters into account I am satisfied that the threshold test has been met, and that there is reason to believe the plaintiffs will be unable to meet an award of costs to the defendants if they are unsuccessful in this claim.

Should security be ordered?

[18] The plaintiffs’ principal ground for saying that the court should not order security is that an order is likely to prevent them from pursuing their claim. They say that this would be a denial of access to justice, which would be unjust having regard to the matters about which they complain and the defendants’ role in those matters. The counter-position for the defendants is that they are entitled to be protected from being drawn into lengthy and complicated litigation, particularly where (as the defendants’ argue) the claims are not well-founded in law or on the facts.

[19] In AS McLachlan Ltd the Court of Appeal noted that it was implicit in the rule that an order for security could result in a plaintiff being unable to pursue the claim, and for that reason where an order could have that effect it was to be made “only after careful consideration and in a case in which the claim has little chance of success.”3

[20] The first point that must be made is that the plaintiffs have asserted that they are unlikely to be able to meet an order for the sum sought, but have not given any evidence in support of that assertion. There are no accounts for the estate, nor have the plaintiffs disclosed their personal financial circumstances. This means that the Court is unable to make an informed assessment as to whether this is a case of inability to meet an award, or unwillingness to do so (and risk assets that they have), or whether the answer lies somewhere in between.

[21] The defendants’ opposing interests, on the other hand, are largely based on whether they are being put to unnecessary costs. This is essentially a matter of the merits of the case, to which I will now turn.

Review of merits

[22] As it was made clear by the Court of Appeal in A S McLachlan Ltd, the Court will endeavour to assess the merits and prospects of success of the claim, but in a complex matter the assessment may be no more than an impression and is not necessarily an indicator of the likely outcome at trial.4 However, in this case there has already been an assessment on merits of much of the claim in the summary judgment, albeit that that judgment is under appeal.

[23] The plaintiffs say that the summary judgment is not determinative (given the appeal) or necessarily significant (given that it involved different defendants and the claims will largely turn on the specific acts of the individual defendants).

[24] Counsel for the plaintiffs carefully traversed the factual contentions in a lengthy and discursive statement of claim (or, more correctly, a proposed fourth amendment to the claim, in which they intend to introduce a further cause of action to which I will return), and pointed to evidence of the defendants’ roles as:

(a) members of the investment committee which:

(i) formulated recommendations that were the basis of the advice given by Mr O’Sullivan (and on which Mr Luscombe says he relied in selecting and renewing the investments that ultimately failed);

(ii) failed to advise of the need for adequate diversification of fixed interest investments;

(iii) reinstated one of those companies, Bridgecorp Ltd (Bridgecorp), to the list of recommended investments in August 2005 after having removed it in January 2005 following an independent report into concerns;

(iv) recommended investments in closely related companies, and in one company (Boston Finance Ltd) in which they had an interest, without disclosing those matters;

(v) failed to communicate a decision made in February 2007 to gradually reduce investment in Bridgecorp; and

(b) as directors who:

(i) failed to ensure that recommendations of fixed interest investments were adequately diversified;

(ii) implemented policies limiting advisors to use of the

investment committee’s recommended investments;

(iii) issued reports to clients reassuring them about investment in New Zealand finance companies without mentioning the removal of Bridgecorp from the recommended list (Mr Syms in March 2005);

(iv) failed to tell advisers not to recommend Bridgecorp as questions about it liquidity emerged in March 2006;

(v) failed to keep investors and advisors fully informed about investigations into Bridgecorp and actively encouraged reinvestment of maturing investments; and

(vi) controlled the flow of information to clients after the collapse of Bridgecorp in early July 2007 to try to encourage reinvestment of maturing investments (Mr Purvis).

[25] In addition to the claims in relation to directors that were examined in the summary judgment claim by the fifth and sixth defendants (that they aided and abetted Mr O’Sullivan’s breaches of the Fair Trading Act 1986 and gave dishonest assistance to breaches of fiduciary duty by FP North – although they did not rely on the latter claim in this application), the plaintiffs propose amending their claim in negligence to one of breach of directors’ duties under s 137 of the Companies Act

1993 (the Act), which they contend gives them a right to recover their losses under s

301 of the Act.

[26] They also claim that the defendants are liable as members of the investment committee on the grounds that they assumed the role of financial advisors and, as such, breached duties of care in the drawing up of the list of recommended investments, and breached fiduciary duties by recommending investment in related companies or companies in which they had an interest, failing to disclose to the plaintiffs information gained about Bridgecorp from the independent report, and various other allegations of failing to act as a reasonable investment advisor.

[27] Counsel for the plaintiffs submitted that although the plaintiffs’ allegations are still to be tested, they are based largely on documents which would speak for themselves, and that there is a reasonable case for the defendants to answer, both as members of the investment committee and as directors.

[28] Counsel for the defendants argued in opposition that there was no legal or factual merit to any of the claims. He relied on the assessment in the summary judgment that the directors in that case (the fifth and sixth defendants) had not stepped outside their roles as directors and members of the investment committee,

and could not therefore be accountable as a matter of law.5 He submitted that those findings were equally applicable to the claims against the defendants; there was no evidence to suggest that the defendants had stepped outside their roles as directors or members of the investment committee.

[29] In relation to the proposed claim under s 301 of the Act, he said that any duties are owed to the company rather than to investors, and any claim that FP North might have against the defendants was enforceable only for the benefit of all creditors; there is no ability for the plaintiffs to seek a payment to them as distinct from compensation to the company in respect of a breach of statutory duty.6

[30] In relation to the claim for aiding and abetting Mr O’Sullivan’s alleged breaches of the Fair Trading Act he submitted that, as in the summary judgment, there is no evidence that:

(a) the defendants had any knowledge of the plaintiffs’ needs or that they participated in recommending any portfolios or specific investments for the plaintiffs;

(b) the plaintiffs in fact used one of the recommended portfolios as against selecting investments from the recommended list (this was an express finding in the summary judgment);7 or

(c) the defendants had assisted Mr O’Sullivan in any way or had anything

to do with any advice he gave to the plaintiffs.

[31] Counsel for the defendants referred to evidence given by Mr O’Sullivan in opposition to an application for consolidation. This evidence was not before the Court on the earlier summary judgment application. In it, Mr O’Sullivan says that Mr Luscombe was not interested in FP North providing portfolio management services of any kind (which would have entailed ongoing management advice) and

_{said that he would manage the investments himself. Mr Syms (the second}

5 _{Luscombe v O’Sullivan HC New Plymouth CIV-2010-442-73, 15 August 2011 at [140] and [147].}

6 Mitchell v Hesketh (1998) 8 NZCLC 261,559 (HC) cited in General Marine Services Ltd v The Ship

_{“Luana” (No 2) HC Auckland CIV 2010-404-2435, 7 February 2011 at [19].}

7 At [107] and [113].

defendant) commented on this in his evidence on this application, saying that FP North simply acted as a broker, to allow Mr Luscombe to obtain the more attractive interest rates that were available through FP North due to the volume of its business. In addition, counsel referred to further evidence by Mr O’Sullivan that he was uncomfortable about placing all of the funds in fixed interest investments (indicating again that Mr Luscombe was making his own decisions rather than acting on advice, and that the losses were in large part attributable to his wish to maximise interest).

[32] Counsel submitted that not only was there no evidence of any advisory relationship or assumption of liability by the defendants for any advice, but this evidence negatives any duty of care owed in relation to any advice that could have been given. He also noted the acknowledgment from the plaintiffs’ solicitor in correspondence that this case was the least strong of a number of similar cases because in this case there had been no authority delegated to FP North in respect of ongoing investments.

[33] Lastly, counsel for the defendants pointed to the lack of causal connection between specific acts of the defendants (which might be seen as going outside the usual roles of the defendants) and the plaintiffs’ losses:

(a) The plaintiffs had already made two of their three investments in Bridgecorp by the time that the Australian Securities Commission placed an interim stop order on Bridgecorp’s fundraising in Australia and the plaintiffs say that the defendants attempted to alleviate advisors’ concerns about Bridgecorp; and

(b) All investments were in place by the time Bridgecorp collapsed; it was thus not open to the plaintiffs to withdraw from the fixed term investments and reinvest elsewhere.

[34] Weighing the respective arguments and reviewing the evidence before the court on the application, I get the impression that the merits lie more with the defendants than with the plaintiffs. The plaintiffs’ allegations are mostly very general and appear to be met by the arguments that were accepted in the summary

judgment and the fact that Mr Luscombe appears to have used FP North as a broker rather than as a financial advisor. In the few instances where the plaintiffs have advanced specific matters of complaint, there is a serious question as to whether they have caused the plaintiffs’ losses. The outcome of the forthcoming appeal may require a reassessment of this view, but this decision must proceed on the basis of what is before the Court.

[35] I do not see that the proposed claim based on s 301 assists the plaintiffs: the plaintiffs rely on s 301(1)(c) as a basis for contending that the Court can make an order in their favour rather than a payment to the company. Section 301(1) reads:

301 Power of Court to require persons to repay money or return property

(1) If, in the course of the liquidation of a company, it appears to the Court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the Court may, on the application of the liquidator or a creditor or shareholder,—

(a) Inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; and

(b) Order that person—

(i) To repay or restore the money or property or any part of it with interest at a rate the Court thinks just; or

(ii) To contribute such sum to the assets of the company by way of compensation as the Court thinks just; or

(c) Where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the Court thinks just to the creditor.

[36] While I accept in principle the argument that the company may have a claim against the defendants for breach of directors’ duties and that the plaintiffs, as creditors of FP North, can bring an application under s 301, counsel’s argument requires the Court to read the power in s 301(1)(c) without regard to the rest of the

section and the authorities on s 301.8 The authorities make it plain that the benefit of any right of action is for all creditors, and s 301(1)(c) is applicable to claims for specific money or property rather than for losses generally. In Mitchell v Hesketh the Court expressly ruled that the benefit could not be paid to a creditor.9 This point has most recently been endorsed by the Court in General Marine Services Ltd, which also noted that s 301(1)(c) does not apply to a director’s breach of statutory duty.10

[37] Counsel for the plaintiffs submitted that the plaintiffs’ interpretation had not been argued in the earlier cases. Whilst I accept that there was no explicit reference to that argument in the decisions, I consider that it is implicit in the terms of the judgments that the point was before those Courts. Whilst I appreciate the reasons for recasting the duty of care claim in this way (to try to avoid the difficulties of foreseeability, remoteness and corporate veil arguments in a direct claim for breach of duty), I see no need to depart from the findings in the early authorities. On that basis I see no prospect for success of this claim.

Whether impecuniosity has been caused by the defendants

[38] The plaintiffs say, as their second significant factor on the exercise of discretion, that any impecuniosity has been caused by the actions of the defendants.

[39] Putting aside the conceptual issue as to whether the impecuniosity to consider is that of the estate or of the individual plaintiffs (because the plaintiffs are also the beneficiaries of the estate), there is a significant issue as to whether the facts show a causal connection. First, the evidence points to Mr Luscombe making his own decisions rather than relying on specific advice for both investments and reinvestments. Secondly, and more significantly, his complaints that the defendants failed to warn the plaintiffs and other investors when issues about Bridgecorp arose (choosing instead to “control the flow of information” to investors through the

_{financial advisors) came at a time when the investments were all in place (with the}

8 Mitchell v Hesketh, above n 6; Drilling Fluid Equipment Ltd NZ v Falloon HC New Plymouth CIV

_{2008-443-377, 27 March 2009 at [28]; General Marine Services Ltd, above n 6, at [19].}

9 _{At 261,563.}

10 At [19].

possible exception of the third investment in Bridgecorp in November 2006 which was after concerns about Bridgecorp had surfaced).

[40] When considering this factor the Court requires the party raising impecuniosity to provide some evidence to support its contention, but even then, in a case of any complexity, it is a difficult submission to sustain because it “smacks of prejudgment and any finding must necessarily be tentative”.11 Any assessment short of a full hearing is difficult if not impossible and the court requires something more than mere assertion. I accept the submission of counsel for the defendants that the

plaintiffs’ evidence falls short of this standard; Mr Luscombe’s evidence is largely a matter of assertions and has been comprehensively addressed in Mr Syms’ affidavit in reply. Again, I conclude that this factor favours the defendants on the evidence before the Court.

Balancing of interests

[41] Counsel agreed that the exercise of the discretion requires a balancing of interests.12 Counsel for the plaintiffs argued that that was particularly relevant where the defendants’ actions caused impecuniosity. I do not see that as a hard and fast rule; as I have said, the potential cause of any impecunioisity is merely an element to be weighed.

[42] I accept that the plaintiffs may have difficulty meeting any order but, as I have already said, I cannot determine whether that is truly a matter of inability as distinct from reluctance to put up available resources. However, their difficulties can be ameliorated both by factoring them into the quantum of any award and by making it payable in stages. Payment in stages will also allow reconsideration, if appropriate, in light of the outcome to the appeal against the summary judgment.

The comments of the Court of Appeal in Saunders v Houghton are apposite:13

_{[37] McGechan on Procedure records at [HR5.45.03](2) that in considering}

11 Davy v Howell (1993) 7 PRNZ 141 (HC) at 144; in similar vein, see Meates v Taylor (1992) 5

_{PRNZ 524 (CA) at 528.}

12 _{Weld Street Takeaways & Fisheries Ltd v Westpac Banking Corp [1986] 1 NZLR 741 (HC).}

13 Saunders v Houghton [2010] 3 NZLR 331 (CA) at [37].

applications for security the court will try as far as possible to assess the merits and prospects even though in a case of any complexity that will be no more than an impression. It must do its best with what is before it. Security for costs can be a matter for continuous review, with a staged process for reappraisal which might increase or reduce security as more is learned about the case. There is a sliding scale: a case with slight merits may warrant a substantial order for security at least for an initial stage and may extend to provide indemnity to the opposing party. An apparently strong case may warrant reduced or no security....

[43] Weighing all these matters, I come to the view that it is appropriate to make an order that the plaintiffs provide security for costs. I turn now to consider the quantum and terms of any order.

What quantum would be appropriate?

[44] The amount of security is not necessarily to be fixed by reference to likely costs awards, but is to be what the Court thinks fit in all the circumstances.14

Nevertheless, the Court will have regard to a possible award, as well as the amount of the claim, the nature of the proceeding (including the complexity and novelty of the issues), and hence the likely duration of trial.15

[45] The defendants estimate that trial will take between two and three weeks. They calculate that costs awarded on a standard scale 2B basis (for three weeks) would be $150,922 and that they would also be entitled to a further $25,000 for expert costs (exclusive of GST and disbursements) and significant disbursements (they have already incurred in excess of $5,000). The defendants seek $75,000 as a reasonable contribution towards those costs. They say that that sum takes into account any possible saving that might arise if, in due course, the other cases being case managed together with this proceeding are heard at the same time.

[46] There is no question that the costs will be substantial given the number of defendants, the number of causes of action, and the complex legal issues and factual disputes. Whether the trial would take more than two weeks may depend on the outcome of the plaintiffs’ appeal. If it is unsuccessful the decision could lead to yet

_{further reduction of parties (either by agreement or as a consequence of interlocutory}

14 _{A S McLachlan Ltd, above n 1, at [27].}

15 McGechan on Procedure (looseleaf ed, Brookers) at [HR 5.45.07].

applications by other defendants). Conversely, if the appeal is successful and the plaintiffs are able to continue against the fifth and sixth defendants, the duration of the trial will be extended (although the decision of the Court of Appeal may help to narrow the issues for trial). There is also an unresolved issue as to whether this proceeding should be consolidated or heard together with similar claims by other investors against the same defendants. That matter is also awaiting the outcome of the appeal.

[47] Substantial costs have already been incurred in the interlocutory steps to this point. As well as preparing their statements of defence, the defendants have undertaken discovery and answered interrogatories. There have been a substantial number of case management conferences, many of them related to the contest between the fifth and sixth defendants and the plaintiffs. There is also the likelihood of further amendment of the pleadings (the plaintiffs intend to file their fourth amended statement of claim after the appeal has been determined). That may lead in turn to further applications by the defendants, particularly if the plaintiffs choose to include the claim based on s 301 of the Act.

[48] Counsel for the defendants invited the Court to order security on a three stage basis: a sum to be paid immediately, a further sum to be paid after the conclusion of interlocutory steps (which will be influenced by the decision of the Court of Appeal), and the third stage before trial. Counsel submitted that this staging would allow the plaintiffs to have time to spread security by up to 2 years (allowing for up to a year to complete interlocutory steps following a determination of the appeal, and then further time between then and trial).

[49] I regard the sum sought by the defendants as a reasonable amount for security for a three week trial. However, given the potential effect of the Court of Appeal decision on trial duration and hence costs, I consider it premature to make an award now for costs to the end of trial. I consider that costs should be awarded on a staged basis with the sum for the first stage fixed now, but the question of whether to fix the balance in one or two stages and the amount to be fixed to be determined at a case management conference to follow release of the decision of the Court of Appeal, at

which point the parties will have a better understanding of what further interlocutory steps may be needed and the duration of trial.

Decision

[50] I make an order that the plaintiffs provide security for the costs of the defendants up to this stage of the proceeding (but excluding the costs of the present application) in the sum of $25,000 by deposit of that sum with the Registrar to be held on an interest bearing deposit. The plaintiffs’ claim against the defendants is stayed until security is given.

[51] The application is adjourned to a case management conference to be fixed by the Registrar following release of the decision of the Court of Appeal, for the fixing of a further sum in respect of costs through to end of trial and to determine staging and timing of payment.

[52] In keeping with the preferred practice under the High Court Rules to fix costs on interlocutory applications as they are determined, I order that the plaintiffs pay the defendants their costs in respect of this application on a scale 2B basis and disbursements as fixed by the Registrar, such costs to be paid within 10 working

_{days of sealing and service of this order.}

Associate Judge Abbott