Allnutt v Silverdale Developments (2007) Limited (in liquidation) [2012] NZHC 3084 (20 November 2012)

Last Updated: 26 November 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-004983 [2012] NZHC 3084

BETWEEN ROYDEN BRETT ALLNUTT, DIANE PATRICIA ALLNUTT AND JANENE MARY OLSON

First Plaintiff

AND GARY HUGH CHAMBERS, DENISE CATHY CHAMBERS AND DAVENPORTS HARBOUR TRUSTEE (2008) LIMITED

Second Plaintiff

AND THE IMPORTER BRASSWARE LIMITED

Third Plaintiff

Hearing: 11 October 2012

Appearances: G P Blanchard for first defendant

J D Turner for second third party

A R Gilchrist for fourth third party

Judgment: 20 November 2012

_{JUDGMENT OF ASSOCIATE JUDGE ABBOTT}

This judgment was delivered by me on 20 November 2012 at 1pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

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

Solicitors:

C Parker, Parker Rhodes, P O Box 47555, Ponsonby, Auckland, 1144

J Turner, McVeagh Fleming, PO Box 4099, Auckland 1140

Vlatkovich & McGowan, PO Box 120, Whangaparaoa 0943

Counsel:

G P Blanchard, PO Box 1235, Shortland Street, Auckland 1140

_{A Gilchrist, PO Box 5444, Wellesley Street, Auckland 1141}

ALLNUTT & ORS V SILVERDALE DEVELOPMENTS (2007) LTD (IN LIQ) & ORS HC AK CIV-2011-404-

004983 [20 November 2012]

AND BODY CORPORATE 411035

Fourth Plaintiff

AND SILVERDALE DEVELOPMENTS (2007) LIMITED (In Liquidation)

First Defendant

AND ANTHONY BUNTING Second Defendant

AND GARY RAYMOND COOPER Third Defendant

AND BARFOOT & THOMPSON Fourth Defendant

AND OMAHA INVESTMENTS NO.1 LIMITED Fifth Defendant

AND ROBERT JAMES FOSTER Sixth Defendant

AND HFC: CIVIL AND STRUCTURAL (NORTH) LIMITED

Seventh Defendant

AND RILEY CONSULTANTS LIMITED First Third Party

AND ATLAS CONCRETE LIMITED Second Third Party

AND WEST END CONTRACTORS LIMITED Third Third Party

AND NORTHERN CONCRETE CUTTERS LIMITED

Fourth Third Party

[1] This proceeding concerns commercial warehouse premises at 18 David McCathie Place, Silverdale. The owners of four separate units in that building contend that it was constructed with defects, including defective concrete floors. They have sued (amongst others) the development company, its directors and shareholders, and engineers associated with the design and construction for compensatory damages for the alleged defects.

[2] The development company, Silverdale Developments (2007) Limited (SD2007), is now in liquidation. It was put into liquidation by a resolution of its shareholders. Apart from the claims in this proceeding, it is solvent. It is defending the claim, and has also issued cross-claims against the engineers and third party claims against all persons who had any part in the allegedly defective work. These include the second third party, Atlas Concrete Ltd (Atlas), which supplied the concrete used in the floor slabs, and the fourth third party, Northern Concrete Cutters Ltd (NCC), which was engaged to cut expansion joints in the floors.

[3] Atlas and NCC have applied for an order that SD2007 provide security for their costs. The case is set down for a trial commencing in late February 2013. Trial is expected to take about 15 working days. Atlas and NCC say that there is reason to believe that SD2007’s assets will be insufficient to meet significant costs in defending its claim, and that justice requires that they be protected at least to the extent of the scale costs that could be awarded.

[4] SD2007 opposes both applications. It says that Atlas and NCC have not passed the threshold test of showing that there is reason to believe it will be unable to meet their costs if its claim against them is unsuccessful. It also says that in any event there is no sufficient basis for exercising the Court’s discretion in the matter to award security (particularly having regard to the principles that apply to seeking security against a company in liquidation), but if it is wrong in that, that any order should be relatively modest.

Background

[5] SD2007 was incorporated in March 2007 to carry out the development. It sold the units to the plaintiffs “off the plans”. Construction was completed in 2008, with the plaintiffs settling their purchases in late 2008 or early 2009. SD2007’s shareholders placed it into voluntary liquidation in May 2009.

[6] The purchasers noticed cracks in the concrete floor after taking possession. They had spoken to the directors of SD2007 about this before SD2007 was put into liquidation, but there had been no significant investigation of the cracks at that point. Investigations were undertaken from mid-2009 onwards to try to establish the cause of the cracking, and the nature and cost of remedial work. There were substantial differences in views between the experts and contractors who investigated the problem, ranging from a view that they were simply shrinkage cracks that had not been allowed for sufficiently in the design and construction of the floor slab, which could be remedied at modest cost by filling and resurfacing, to the view of the plaintiffs’ expert that there were several contributing defects and the floor slabs in the units needed to be replaced (with significant disruption to the plaintiffs’ businesses).

[7] The plaintiffs seek to recover the cost of the remedial work and their consequential losses (now claimed to be in the order of $2.3 million) from SD2007, its directors and the consulting engineers who prepared the design and specification and supervised the construction work, as well as the real estate agent who acted on the sales to the plaintiffs.

[8] SD2007 contracted out all of the work on the development. On that basis it has issued cross-claims against the consulting engineers who prepared the design and specification and inspected the work, and issued third party claims against all parties engaged in the construction, including a geotechnical engineer and a building company, as well as Atlas and NCC.

[9] Shortly before the plaintiffs commenced this proceeding, SD2007’s shareholders applied to terminate its liquidation so that they could direct SD2007’s

defence of the plaintiffs’ claim (the termination proceeding). The application was opposed by the liquidator and by the plaintiffs. It was unsuccessful.1 The plaintiffs’ claim is due to be heard in a trial commencing on 25 February 2013. It is estimated to take 15 days. Atlas and NCC seek an order that SD2007 provides security for their costs or that the claims against them be stayed.

Summary judgment application

[10] An application by NCC for summary judgment against SD2007 was to have been heard at the same time as the application for security for costs. NCC has elected not to pursue that application. It accepts that matters raised in SD2007’s notice of opposition are unsuitable for summary determination. That application is dismissed. By consent, costs on it are reserved.

The claims against Atlas and NCC

[11] The first to third plaintiffs allege that it was a term of their agreement with SD2007 that the design and specification of the units and construction methods used would be consistent with sound architectural and engineering standards2 and that the units would be structurally sound;3 and that the units would be constructed in

_{accordance with best trade practices.}4 _{Of particular relevance for the present}

applications, the plaintiffs allege that SD2007 failed to supply concrete for the floor slabs of the specified strength (30MPa after 28 days’ curing) and failed to cut expansion joints in the floor slabs to the specified depth (40mm).

[12] It is not in dispute that Atlas supplied SD2007 with the concrete for use in the floor slabs, and that NCC was engaged to cut the expansion joints. SD2007 has denied the plaintiffs’ allegations of a breach in these respects, but says that it contracted this work to Atlas and NCC respectively and if the work was not undertaken to specification or was otherwise defective, it is entitled to an indemnity

_{or contribution from them for any liability it has to the plaintiffs.}

1 _{Bunting v Buchanan [2012] NZHC 766.}

2 _{Paragraph 27(a), statement of claim.}

3 _{Paragraph 27(b), statement of claim.}

4 Paragraph 27(c), statement of claim.

[13] Atlas says that it supplied concrete as requested by SD2007 from time to time, and that the concrete supplied always met the strength required for the particular order. It says that its responsibility ended with delivery to SD2007 at the site, and it has no responsibility for where the concrete was used, how it was laid, or how it was cured. It relies on regular quality control tests undertaken of the concrete supplied to SD2007 which demonstrate that the concrete achieved the specified strength after the appropriate curing period.

[14] NCC accepts that the design specifications required expansion joints to be cut to 40mm, but says that it made all cuts in accordance with site instructions, notwithstanding that it pointed out to SD2007’s representative that a deeper cut was required. It also relies on expert evidence that the placement and depth of cut of the expansion joints is not the cause of the cracking.

The legal principles for security

[15] The Court’s power to order for security for costs is to be found in r 5.45 of

the High Court Rules:

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.

(4) A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(5) A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.

(6) References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[16] The approach that the Court takes can be found in the well known passage of the Court of Appeal’s decision in A S McLachlan Ltd v MEL Network Ltd:5

[13] Rule 60(1)(b) High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. 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.

[17] The Rule allows6 a third party to obtain security for costs against a defendant:

_{Ariadne Australia Ltd v Grayburn.}7

5 _{A S McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA) at 751–752.}

6 _{Rule 5.45(6).}

7 Ariadne Australia Ltd v Grayburn [1991] 1 NZLR 329 (CA).

[18] In summary, the rule provides for a two stage process:

(a) First, the Court must be satisfied that there is reason to believe that the party against whom the order is sought will be unable to pay the applicants costs if unsuccessful (known as the threshold test); and

(b) Once so satisfied, the Court has a discretion whether to order security to be given, and as to the quantum of that security.

Has the threshold test been met?

[19] Atlas and NCC have to satisfy the Court that there is reason to believe that SD2007 will be unable to meet an award of costs in their favour if SD2007’s claims against them do not succeed. They need to provide some evidential foundation upon which the Court can come to this conclusion. In many cases, and particularly where the respondent to the application does not give any evidence on the point, the Court must assess what inferences can be drawn from surrounding circumstances and the information that is available.

[20] At the time that the applications were filed, Atlas and NCC had little specific information as to SD2007’s financial position. They relied on general findings in the termination proceeding that SD2007 had only one asset, namely shares in Silverdale Developments (2008) Ltd (SD2008), which owned an adjoining property. They relied on the statement in that judgment (based on an affidavit by the liquidator) that the equity in that property was in the order of $600,000 after allowing for costs of sale and secured indebtedness.

[21] Counsel for Atlas and for NCC both took a general approach to the question of SD2007’s ability to pay by pointing to the quantum of the claim (in respect of matters potentially affecting Atlas and NCC it is in the order of $2.3 million), coupled with the need for SD2007 to meet its own costs in this proceeding (estimated at at least $160,000) and the potential for adverse awards of costs, both in respect of the plaintiffs and other parties against whom SD2007 had cross-claimed or whom it had joined as third parties. Counsel submitted that this demonstrated that if

SD2007 did not succeed it was unlikely to be able to meet any award made to their clients, and any award was unlikely to be recoverable.

[22] In support of this argument, they invited the Court to draw an inference of inability to pay from the fact that SD2007 remained in liquidation despite the shareholders’ attempt to have the liquidation terminated. Counsel for NCC, in particular, submitted that this was evidence from which a prima facie inference could be drawn.

[23] SD2007 responded to these contentions in two ways:

(a) First, shortly before the hearing the liquidator filed a further affidavit in which he confirmed that SD2007 had a single asset, namely the shares in SD2008, and that it had no creditors other than in respect of the claims brought in this proceeding. He confirmed that the equity in SD2008’s sole asset (the adjoining property, at 18 David McCathie Place) was at least $500,000.

(b) Secondly, counsel for SD2007 submitted that the applicants’ approach to the threshold question was too simplistic, and on a proper analysis there was little likelihood that it would have to pay any substantial sum to the plaintiffs, or meet any significant amount of costs, from its own resources.

SD2007’s financial position

[24] It is apparent from the evidence of the liquidator (as given in the termination proceeding, and confirmed in his updating affidavit in this proceeding) that SD2007’s shares in SD2008 have a value of at least $500,000. It has to be kept in mind that it was put into liquidation on the basis that it was solvent. I found in the termination proceeding that there was sufficient uncertainty about its solvency as a consequence of the claims now before the Court to justify the liquidation continuing in the interests of all potential creditors. Whether or not it is insolvent remains to be seen. However, that uncertainty as to its solvency must give rise to a prima facie

inference, for the purpose of the present application, that it may not be able to meet an award of costs.

The likelihood of a shortfall

[25] This takes me to the second of SD2007’s points, namely that SD2007’s assets are sufficient to meet any potential liability as a result of this proceeding, given the likelihood that even if the plaintiffs succeed against it, it will recover any award from the parties who carried out any defective work. Its counsel submitted that it was “only on the narrowest of contingencies that there might be a shortfall in respect of any costs award ultimately made” in favour of Atlas or NCC, on the following analysis:

(a) If the plaintiffs’ claim against SD2007 fails, they will have to pay the

costs of properly joined third parties.8

(b) If the plaintiffs succeed in their claim against SD2007, and SD2007 succeeds against Atlas and NCC, there will be no costs award against Atlas or NCC.

(c) If the plaintiffs succeed against SD2007, and SD2007’s claims against Atlas and NCC fail but cross-claims against other defendants and third parties succeed, Atlas and NCC will be protected for any awards in its favour by the recoveries that SD2007 will make on its other claims.

(d) It is only in the event that the plaintiffs succeed against SD2007, and SD2007’s claims against all other parties fail, that there is a prospect that SD2007 would be unable to satisfy any award of costs against it

_{and in favour of Atlas and NCC.}

8 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [22]; see also

Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd HC Auckland CIV-2003-404-

2542, 23 September 2005 at [32] – [33].

[26] The strength of SD2007’s argument lies in the fact that it contracted out all the design and construction work on this development. Although there has been considerable investigation into the cracking and its ramifications, there remain widely differing views as to the causes and the remedial work needed. SD2007’s expert has provided a recent affidavit, confirming his view as to the cause of the cracking and that the cost of remedial work is in the order of $200,000 (significantly less than that estimated by the plaintiffs’ expert).

[27] The central question on this application is whether this is sufficient to rebut the prima facie inference able to be drawn from the fact that the liquidation is continuing. I find, by the narrowest of margins, that it is not—SD2007’s argument requires me to give no weight to the possibility that SD2007 will ultimately be required to meet a judgment for damages and costs totalling in excess of $500,000. Although I consider that there is a very real prospect that that may not eventuate, I cannot be certain, and therefore I consider that there is a sufficient foundation, in that circumstance, for believing that SD2007 may not be able to meet an award of costs to Atlas and NCC should its claims against them fail. I will return to this as a factor in the balancing of interests.

The contribution of SD2007’s income stream

[28] A further issue arose shortly before the hearing as a result of recent steps taken by the liquidator to put SD2008’s property on the market for sale. There are two aspects to it:

(a) First, counsel for NCC raised a concern that this could mean that even the value of this asset would not be available to meet any award of costs, because the liquidator could distribute it before the dispute is determined. This point has been answered by the liquidator, who says that these claims form part of the liquidation, and he will not be in a position to distribute assets before the claims are determined in this proceeding.

(b) The second aspect is that the adjoining property is currently leased, and returning rental income of $110,000 per annum. Currently that income is being used to fund the liquidation, including this proceeding. Obviously, if the property is sold, that income stream will fall away. Although the liquidators state that the sale proceeds would be invested, it seems most unlikely that those proceeds would generate anything near the rental return. I will come back to address this later in the judgment. For the moment, I simply record that counsel for the liquidator stated in his oral submissions that the liquidator would postpone the sale if the Court felt that that was needed. On that basis I take into account, in determining the ability to meet an award of costs, that there is this income stream, but also that it is being used to meet the costs of the liquidation. I do not see that it alters the factors I have already considered as I anticipate (there being no evidence before me on the point) that there will be little additional income from this income stream to meet other parties’ costs, although it does mean that the equity in the property is unlikely to have been depleted by the time the proceeding is completed.

Should the Court exercise its discretion to award security?

[29] Although the Court has a wide discretion when deciding whether to exercise its discretion to award security, and exercises that discretion in the circumstances of the individual case rather than by reference to decisions in other cases, there are a number of factors which are commonly considered. I will now address the factors that counsel for Atlas and NCC advance as reasons for exercising my discretion in this case.

Balancing of interests

[30] The first factor is common to both these parties. In exercising its discretion the Court must balance the prospect that an order may prevent a party pursuing its

claim9 against a defendant being drawn into unjustified litigation, particularly where that is overly complicated and unnecessarily protracted.

[31] Counsel for Atlas and NCC argued that their respective clients were being drawn into complicated and lengthy litigation in which they could be regarded as “minor players” at best:

(a) Atlas says that it did no more than supply the concrete to the site (it was not involved in the preparation, laying or curing of the concrete) and the costs of a 15 day trial were disproportionate when assessed against its evidence that its own random testing of the concrete (taken at the time) demonstrated that the concrete was capable of achieving the specified strength.

(b) NCC also argued that a balancing required consideration of its minor role: the contract value for its work was only $1,100, for which it is facing a claim of up to $2.3 million, and a lengthy trial in which its part would be addressed in a fraction of the time needed for the remainder of the case. Its counsel referred to evidence given by experienced workmen who carried out the cutting, and their statements that they had checked the depth of the concrete, and queried the depth of the cuts that were required, but were instructed to cut them at the depth that they did. Counsel also relied on expert evidence that the cuts did not contribute (or contribute significantly) to the alleged failure of the slabs. I will come back to those points shortly when considering the merits.

[32] Lastly, both counsel submitted that it was unjust to expose their respective party to the costs of such complicated and costly litigation when the exposure of the parties who potentially could benefit from it, namely the shareholders and creditors, had no such exposure (because any exposure is necessarily limited to the assets of

_SD2007).

9 Identified in AS McLachlan at [15] as an inherent aspect of an order for security.

[33] There is some merit in the argument that the scales are currently tilted too much in favour of SD2007. On the one hand SD2007 is able to use its assets to bring this litigation against Atlas and NCC without any risk to the parties who stand to benefit (except to the extent that the fund otherwise available for distribution is depleted by the litigation – which, I will consider further in relation to the law on awarding security against a liquidator). On the other hand, there is a real, but remote, prospect that Atlas and NCC will have to carry the substantial costs of defending this proceeding even if they are successful. Additionally, because of the number of parties involved, there is the potential that both Atlas and NCC will be required to expend significantly more on costs in defending their respective roles than would be the case if the claim was merely against each of them. In my view these matters would be sufficient to justify an order of some amount, in the absence of any countervailing factor. I turn now to address three other factors which counsel have raised and which can have an impact on the exercise of the Court’s discretion.

[34] Both Atlas and NCC argued strenuously that the merits favoured it.

[35] Atlas submitted that the plaintiffs’ claim against SD2007 was “not weak” (contending that this had been a finding in the termination proceeding), but argued that this does not flow through to SD2007’s claim against it. Counsel submitted that SD2007’s claim against Atlas had no real prospect of success. He noted that there was no pleading that the concrete mix was inherently defective, and that Atlas had not been asked to advise on or provide services for the laying, cutting or curing of the concrete. He referred to Atlas’ own random testing of the batch from which the relevant concrete was supplied, and noted that that yielded a strength in advance of specification after 28 days. Counsel submitted that the case against Atlas will inevitably involve an examination as to how the concrete was poured, compacted and cared for during its curing period as factors affecting its strength. He said that the evidence suggested that it had not failed immediately, pointing to factors other than the strength of the concrete. Lastly he said that the concrete was supplied under standard terms which exclude liability for indirect or consequential loss following delivery.

[36] Counsel for NCC submitted that its evidence prima facie provided a complete defence: he referred to the evidence that SD2007’s representative had given NCC’s workers instructions to cut only to the lesser depth (30mm as against 40mm), and relied on evidence of its own expert that the failure of the floor slab was not caused by the depth of the cuts. Counsel argued that SD2007 had simply failed to provide an evidential foundation for contending that if the plaintiffs’ claim succeeded, SD2007’s claim against NCC would necessarily succeed also. He stated that the reverse, in fact, was more likely, given the evidence advanced by NCC.

[37] When determining the application for security, the Court will give some consideration to relative merits, but it is generally accepted that this is unlikely to go beyond an impression of those merits at an interlocutory stage.10 In particular, the Court cannot resolve any disputes relative to the merits.

[38] The facts in this case are not clear cut. It is significant that the experts disagree as to the cause of the concrete failure and the steps needed to remedy it. As such, all that can be said at this stage is that there appears to be an arguable case both for the plaintiffs against SD2007, and for SD2007 against the other defendants and the third parties. Addressing the claims against Atlas and NCC in particular:

(a) Atlas understandably argues that it has a strong defence, based on its random sampling and the uncertainty regarding the treatment of the concrete once poured. However, SD2007 has obtained independent laboratory reports suggesting that the concrete in the slab has not achieved the necessary strength, and SD2007’s director has given evidence that he was present onsite, observed the laying of the concrete, and states that the post-laying process was carried out properly. If the latter evidence is accepted, it adds support to the independent lab testing, and opens Atlas’ testing procedures to question. There is also a dispute as to whether the concrete failed immediately. Again, SD2007’s director (who was onsite) says that cracks started showing within weeks of the pour. Counsel for SD2007

_{accepted that the claim does not currently plead that the concrete was}

10 Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457 (HC).

inherently defective, but indicates that SD2007 may well amend its pleading in that respect.

(b) NCC’s allegedly “very strong” defence relies entirely on its evidence that its workers were instructed to cut to the wrong depths. However, this evidence is challenged by SD2007’s director (and this dispute was the reason that NCC did not proceed with its claim for summary judgment). Perhaps more significantly, however, NCC’s contention in this respect is inconsistent with the specification for the works, and with its invoices which record the contracted work as cutting joints to

40mm. Lastly, there is a clear dispute between experts as to whether the shallower cut has caused the cracking. SD2007’s expert is clear in his evidence that it has contributed.

[39] It is not possible, on this application, to reach a firm view on the merits of SD2007’s claims against Atlas and NCC. The claim against Atlas may well turn on expert evidence over Atlas’ random sampling, and examination of its evidence that the sample tested was indeed the concrete that went into the slab that failed. The claim will also depend on whether SD2007 can dispel the argument that the problem lies with the way in which the concrete was poured and cured. The claim against NCC seems likely to turn on the findings of credibility over the instructions given to NCC, but will also be affected by findings on causation.

Cause of SD2007’s impecuniosity

[40] The next factor that was raised briefly in argument was whether SD2007’s impecuniosity was caused by Atlas or NCC. The same considerations apply here as with the merits—it is not a factor which points strongly one way or the other in relation to Atlas or NCC, although the likelihood appears to be that any exposure SD2007 has to the plaintiffs’ claims has been caused by one or more of the defendants and third parties. To that extent, I accept the argument of counsel for SD2007 that it has properly joined Atlas and NCC so that all parties with potential liability are before the Court. However, and for the reasons given, it is not possible to regard their conduct as a compelling factor for declining an order for security.

SD2007’s liquidation

[41] This takes me to whether the fact that SD2007 is in liquidation should be a bar to any order. The general rule is that the fact that the respondent to the application is in liquidation is not a bar to an order, but generally the Court will need to be satisfied that there are unusual circumstances to justify security being

ordered:11

In the end the overall necessity is to ensure that justice is done as between the parties. This is the underlying reasoning behind each one of the criteria that the Court has indicated should be taken into account in the Bell-Booth case. Security for costs will or will not be ordered where it is necessary to ensure that one party is not placed at such a disadvantage that in the end a just result may be affected.

[42] The Court will usually distinguish between proceedings brought in the name of the company in liquidation, and those brought by a liquidator in his or her own name, and will take into account the fact that a claim brought in the name of the company creates a difficulty for defendants obtaining a worthwhile order for costs.12

[43] I have already addressed this point briefly when discussing the need to balance interests, and accept that the difficulty of recovering a costs order from a company in liquidation can be taken into account, particularly where there is a solvent creditor sitting behind the liquidation as was the case in Corey-Wright. I accept that in the present case SD2007 is funding the claim from its own resources. It is also relevant that this is not a claim that the liquidator has elected to bring as plaintiff, as was the case in Corey-Wright, but rather a third party claim brought to protect the interests of the creditors in face of the plaintiffs’ claim, which merely reflects that claim. It is significant though that the creditors are also parties to the proceeding.

[44] In my view the ultimate test on this point is whether an order is required to ensure justice is done between the parties. The matter is finely balanced. In the final

11 Cory-Wright & Salmon Ltd (in rec and in liq) v KPMG Peat Marwick (1992) 5 PRNZ 513 at 517 (HC); see also Tasman Charters Inc v Kamphius HC Auckland 2002-404-001642, 24 September 2004 at [33], and Millman Holdings Ltd (in liq) v Logan HC Auckland CIV 2005-404-002239, 20 July

_2007.

12 Pascoe Ltd (in liq) v DFC Overseas Investments Ltd HC Wellington CP153/93, 13 October 1993;

Clendon Inn 2007 Ltd (in liq) v Point Nominees (Clendon) Ltd [2012] NZHC 268 at [9].

analysis I am left with the impression that although the liquidator has arguable grounds for joining Atlas and NCC, having regard to the plaintiffs’ allegations and its expert’s views, their exposure on costs is disproportionate to their roles (the plaintiffs have not seen it necessary to join them as defendants), and requires some recognition of this. In the event that something unusual is needed, I find that element in the fact that the creditors are also parties to the proceeding, and are the beneficiaries of it if it succeeds.

What quantum is appropriate?

[45] Both Atlas and NCC seek an order that SD2007 give security in the amount of an anticipated award in their favour on a scale 2B basis. On that basis counsel for Atlas advanced a claim in his written submissions for $105,000, but acknowledged in the hearing that there were errors in his calculations and that the appropriate level was more correctly put in the order of $60,000. However, he also submitted that there was a reasonable prospect that NCC might be entitled to increased costs which would lift that sum. Counsel for Atlas sought a sum of $80,000 (again predicated on a scale calculation for the estimated duration of trial).

[46] I have referred earlier in this judgment to SD2007 currently having the benefit of an income stream from a lease of SD2008’s property. In my view that is a factor that I can take into account in considering SD2007’s ability to provide security, either by directly applying it or by allowing it to raise sufficient funds on the strength of SD2007’s asset. I accept that Atlas and NCC should have some protection for their costs, but also have to take into account that I consider the likelihood of its assets being insufficient to meet an award as relatively low in light of the potential for recovery from other defendants or third parties even if it is unsuccessful against Atlas and/or NCC. Taking into account that SD2007 has an ability to apply some part of its assets without necessarily preventing it from pursuing its claims, I consider that the appropriate quantum for an order is $35,000 for each of Atlas and NCC.

Should the claim be stayed pending payment?

[47] Whilst I accept the argument of counsel for SD2007 that it has joined Atlas and NCC appropriately (given that each of them has played a part in the construction of the allegedly defective premises, and that there is at least an arguable claim against them), I consider that that security should be in place before Atlas and NCC are required to commit to the necessarily significant cost of preparation for trial. In the circumstances, I consider that it is appropriate to order a stay if the security is not provided within a reasonable time.

Decision

[48] SD2007 is to provide security for the costs of Atlas and NCC in the sum of

$35,000 each. The security is to be provided by 17 December 2012. In the event security is not provided by that date, SD2007’s claims against Atlas and NCC will be stayed from that point until such time as security is provided.

[49] As the successful parties on this application, Atlas and NCC are entitled to costs on a scale 2B basis together with disbursements as fixed by the Registrar.

Associate Judge Abbott