West Harbour Holdings Limited v Waipareira Investments Limited [2012] NZHC 3188 (28 November 2012)

Last Updated: 4 December 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-005801 [2012] NZHC 3188

BETWEEN WEST HARBOUR HOLDINGS LIMITED Plaintiff/Respondent

AND WAIPAREIRA INVESTMENTS LIMITED First Defendant/Applicant

AND MARINA RESORT LIMITED Second Defendant

Hearing: 20 November 2012

Appearances: R E Harrison QC for Plaintiff/Respondent

P J Dale for First Defendant/Applicant

Judgment: 28 November 2012

_{JUDGMENT OF VENNING J}

This judgment was delivered by me on 28 November 2012 at 12.15 pm, pursuant to Rule 11.5 of the

High Court Rules.

Registrar/Deputy Registrar

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

Solicitors: Atmore & Co, PO Box 147483, Auckland 1144 (G Atmore) Grove Darlow & Partners, PO Box 2882, Auckland

Copy to: R E Harrison QC, PO Box 1153, Auckland 1140

P J Dale, PO Box 130, Shortland Street, Auckland

WEST HARBOUR HOLDINGS LTD V WAIPAREIRA INVESTMENTS LTD HC AK CIV-2011-404-005801 [28 November 2012]

Introduction

[1] Waipareira Investments Limited (Waipareira) applies for security for costs and for an order discharging consent orders previously made by the Court. The applications are opposed by West Harbour Holdings Limited (West Harbour).

[2] These proceedings and the applications arise out of Waipareira and West Harbour’s failed joint venture, the vehicle for which was Marina Resort Limited (Marina Resort). Marina Resort has taken no steps in these proceedings.

Factual background

[3] These proceedings have already been the subject of an unsuccessful application for summary judgment (and related relief) by West Harbour against Waipareira. In a comprehensive judgment delivered on 11 July 2012 Woodhouse J declined West Harbour’s applications for summary judgment and related relief. I take the background from the helpful summary in that judgment.

[4] In May 2007 Waipareira lent $2 million to West Harbour. The lending was secured by a mortgage over townhouses owned by West Harbour at Clearwater Cove. In May 2008, at about the time the mortgages were due to be repaid, West Harbour and Waipareira entered a joint venture agreement for a proposed development in another area of Clearwater Cove. Marina Resort was incorporated as the vehicle for the joint venture.

[5] The joint venture was provided for in written agreements signed by the parties on or about 18 May 2008, namely a heads of agreement and a shareholders’ agreement.

[6] The development proposed in the heads of agreement related to 16 existing residential units. Of those seven were owned by West Harbour, and six by Mr Ivil (the director of West Harbour) or other parties who were closely associated with Mr Ivil and West Harbour. Three were owned by third parties. There was also a future development plan to proceed in two stages. Stage one was to add a third floor to the

16 unit block by building a further 19 units to be utilised as hotel suites. Stage two was the construction and operation of (or licensing the operation of) a 15 to 20 storey hotel and apartment block.

[7] The capitalisation of Marina Resort was to be achieved by:

(a) Waipareira releasing West Harbour from the townhouses’ loan of approximately $2 million;

(b) West Harbour agreeing to credit Marina Resort with the equivalent sum of $2 million;

(c) Marina Resort acknowledging a debt to Waipareira for the same sum of $2 million; and

(d) West Harbour’s capital contribution to the joint venture was to be the net value arising from Marina Resort’s acquisition of the 13 units from West Harbour on the following terms:

Marina Resort to pay West Harbour for 13 units: $7,810,000.00

Less deposit (release of West Harbour debt to Waipareira for

the town houses loan and Marina Resort’s acknowledgement

of debt to Waipareira for the same amount: $2,038,838.00

Less total of mortgage debt to third parties secured over the

13 units: to be refinanced by Marina Resort: $3,720,000.00

Capital to Marina Resort from West Harbour: $2,051,162.00

[8] Although the joint venture has not been pursued, the capitalisation has been recorded in a balance sheet for Marina Resort. Marina Resort has also received the rental income from the 13 units which it has applied to meet interest payments on the existing mortgages over the 13 units (although the units and mortgages are still held in West Harbour’s name). West Harbour has not paid any interest to Waipareira on the $2 million debt secured by the townhouse mortgages since May 2008.

[9] The completion of the transactions and the conveyancing associated with the capitalisation of Marina Resort has not occurred. It seems the parties agreed to defer the conveyancing settlement of the joint venture to enable the body corporate to pursue a claim to the Weathertight Homes Tribunal (WHT). The WHT dismissed all relevant claims in August 2011. The refinancing by Marina Resort of the mortgages over the 13 units has not happened. Waipareira has not provided West Harbour with a discharge of the townhouse mortgages. It is the discharge of those mortgages that West Harbour seeks in the current proceedings (together with other declarations and related orders and damages).

Procedural background

[10] These proceedings were issued on 20 September 2011 in response to notices issued by Waipareira under the Property Law Act 2007. West Harbour sought orders by way of interim relief restraining Waipareira from exercising its power of sale in respect of the townhouse mortgages. On 21 September Allan J recorded a number of interim undertakings Waipareira had provided, including an undertaking not to exercise any of its rights as mortgagee under the townhouse mortgage until 21

January 2012.

[11] The application was allocated a defended hearing for 27 October 2011.

[12] On 20 October 2011 counsel for Waipareira filed a memorandum advising that Waipareira no longer opposed the making of the orders sought in paragraphs 1.1 to 1.4 of the plaintiff’s application. The fixture for 27 October 2011 was accordingly vacated and orders were made by consent as follows:

1.1 An injunction requiring, pending the further order of this Honourable Court, the first defendant and the second defendant to comply with and engage in contractually agreed disputes processes under clause 10 of the Heads of Agreement between the plaintiff and the first and second defendants executed on 18 May 2008 and under clause 22 of the Shareholders Agreement between the plaintiff and the first defendant executed on 18 May 2008 in relation to the matters of

dispute between the plaintiff and the first defendant identified in paragraphs 15 – 20 and 24 of the statement of claim in the proceeding;

1.2 An injunction prohibiting, pending the further order of this Honourable Court or the substantive determination of this proceeding as the case may be, the first defendant, its employees or agents from taking any further steps to exercise a power of sale or any other power exercisable by it as mortgagee in the event of default (including advertising, listing or promoting the Townhouses for sale) under the Townhouses Mortgage (being registered mortgage 7388576.1) more particularly described in paragraph 5 of the statement of claim herein;

1.3 An injunction prohibiting, pending the further order of this Honourable Court or the substantive determination of this proceeding as the case may be, the first defendant, its employees or agents from taking any further steps to exercise a power of sale or any other power exercisable by it as mortgagee in the event of default (including advertising, listing or promoting Apartments 13 and 15 for sale) under the Apartments Mortgage (being registered mortgage 8615701.3) more particularly described in paragraph 14 of the statement of claim herein;

1.4 Reserving the costs of and incidental to the application and the orders thereon.

[13] The case was then to be reviewed on 6 March 2012 and directions made for its disposition. Prior to the scheduled review, counsel filed a joint memorandum on

5 March 2012 asking for that conference to be vacated for at least a month, noting that counsel for Waipareira had advised of its intention to apply for security for costs and counsel for West Harbour had foreshadowed an amended statement of claim. Then, on 29 May 2012, West Harbour applied inter alia, for leave to seek summary judgment and made an application for summary judgment.

[14] The application for summary judgment was allocated a fixture on 28 June

2012. As noted, that application was heard and determined by Woodhouse J in a judgment issued on 11 July 2012.

[15] In a joint memorandum to the Court dated 30 May 2012 counsel recorded that it was agreed Waipareira would take no further steps in relation to any proposed exercise of its powers of sale as mortgagee between the date of the memorandum and

28 June 2012, the date for the summary judgment hearing. That memorandum was filed notwithstanding that order 1.2 in [12] above applied until further order of the Court in any event. It may be that counsel overlooked the order.

[16] In his judgment declining summary judgment Woodhouse J recorded:[1]

[114] West Harbour sought interim injunctions restraining Waipareira from exercising a power of sale or any other power exercisable under the townhouses mortgage and the apartments mortgage. Undertakings in that regard had earlier been given by Waipareira. Mr Dale confirmed that they continue.

(emphasis added).

Then later, in relation to the further orders sought by West Harbour the Judge recorded:

[117] The orders sought in paragraphs 1.5 and 1.6[2] of the application are dismissed following the further undertakings of the first defendant that it and its employees and agents shall not, without leave of the Court, take any steps or further steps to exercise a power of sale or any other power exercisable by a mortgagee in the event of default under the mortgages described in paragraphs 5 and 14 of the first amended statement of claim [the townhouse mortgages]. The first defendant has leave to seek a variation of the terms of

this undertaking in case the terms do not properly reflect what was intended. The plaintiff has leave to apply further in respect of the undertaking, as recorded, if the plaintiff considers it does not adequately protect the plaintiff’s position.

(emphasis added).

The application for security for costs

[17] The application for security for costs is made under r 5.54. In A S McLachlan v MEL Network Ltd the Court of Appeal confirmed the approach to be taken to an application for security for costs is as follows:[3]

[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.

[15] 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.

[18] The first issue is whether the Court can be satisfied there is reason to believe that West Harbour will be unable to pay Waipareira’s costs if unsuccessful. This is usually referred to as the “threshold test”. In this case it is not in issue. Woodhouse J noted in his judgment that on the basis of the evidence available to him it appeared on a provisional basis at least, that West Harbour was insolvent. As one might expect Dr Harrison QC, counsel for West Harbour, realistically conceded that the “threshold test” was satisfied in that West Harbour, as things currently stand, was likely to be unable to pay Waipareira’s costs if unsuccessful in the proceeding. In light of that concession, it is unnecessary to consider the side issue of West

_{Harbour’s claim against Mr Tamihere in separate proceedings.}

[19] The real issue is whether, in the exercise of its discretion and having considered all relevant circumstances, the Court should order security.

[20] Counsels’ arguments focused particularly on the following three considerations:

(a) West Harbour’s prospect of success in the substantive proceedings

(the merits);

(b) whether it could be said West Harbour’s impecuniosity resulted from

Waipareira’s actions; and

(c) whether an order for security would effectively prevent West Harbour from proceeding with its claim.

The merits

[21] As Dr Harrison noted, West Harbour has to face the fact it failed in its application for summary judgment before Woodhouse J. However, he submitted that that decision must be read in context, namely that West Harbour had the very high hurdle to overcome of establishing Waipareira had no arguable defence. Dr Harrison noted that West Harbour did not accept the judgment and further that, in West Harbour’s view, the judgment failed to recognise the overall equities between the parties, particularly Waipareira’s alleged breach of the agreement to complete settlement. Dr Harrison submitted that it was difficult to understand why the equitable (or indeed contractual) outcome as between the two joint venture parties should now, even if the joint venture was incapable of performance, frustrated, or open to cancellation, be that West Harbour’s initial contribution was to be treated as implemented (and lost) while the other party’s initial contribution could be wound back in full and preserved for it alone.

[22] Woodhouse J categorised this issue as the parties’ reciprocal obligations. It is clear the Judge considered an analysis of those obligations firmly favoured Waipareira. The Judge noted that:

[87] ... The primary things that Waipareira is entitled to, in exchange for discharge of the townhouses mortgage, are refinancing of the mortgages over the 13 units, before or contemporaneously with transfer of title to those units to Marina Resort, and transfer of title to the units from West Harbour to Marina Resort. This includes things that need to be done by Marina Resort. This, in my judgment, does not modify West Harbour’s reciprocal obligations; it does not modify West Harbour’s obligation to be ready, willing and able to settle. In this case, in terms of the agreements the parties entered into, West Harbour’s ability to settle, and probably its readiness to settle, happens not only to require transfer of title to the units, but also the refinancing to be done in a direct sense by Marina Resort.

[88] I am further satisfied that West Harbour is not ready and it is not able to secure to Waipareira a refinancing of the mortgages and transfer to Marina Resort of the title to the 13 units subject to new mortgages. These obligations are quite possibly incapable of being performed at this date, and the position appears to have been no different when this proceeding was commenced. ...

[23] The reality is that until the conveyancing aspect was settled and West Harbour was able to transfer the 13 units subject to new mortgages to Marina Resort, West Harbour was not in a position to perfect its initial contribution. As Woodhouse J found, until that occurred Waipareira was not bound to discharge the mortgage. There was also the related issue of the remedial work required in relation to the units.

[24] Next, Dr Harrison noted the conveyancing settlement was due to be completed on 30 June 2011. He submitted that would have occurred had Waipareira not wrongfully repudiated that arrangement. He noted that Waipareira had withdrawn the repudiation. However, Mr Dale’s point in response, which I accept, was that settlement was delayed to enable the body corporate to pursue the Auckland Council and Fletchers in the WHT for damages alleging water tightness issues in relation to the units. The delay was to suit the West Harbour (and its associated parties) interests.

[25] On the issue of the merits generally, it is worth noting that the judgment of Woodhouse J was a comprehensive judgment rather than a short-form judgment just recording an arguable defence. The Judge considered and rejected the substantive arguments raised by West Harbour. While I accept that West Harbour does not accept the judgment and there is no res judicata in relation to the findings on the

summary judgment application, they are persuasive at this stage of the proceedings

on the issue of the merits of West Harbour’s claim.

Did Waipareira cause West Harbour’s impecuniosity?

[26] Next, Dr Harrison submitted that there is a reasonable possibility West Harbour’s impecuniosity was caused by Waipareira’s actions, namely the refusal to discharge the townhouse mortgages. However, that is in large part the other side of the same “merits” coin discussed above. Woodhouse J found there was good reason for Waipareira refusing to provide a discharge and was arguably not obliged to provide a discharge. I see no reason to take a different view. If Waipareira was entitled to act as it has, then it cannot be said it has caused West Harbour’s current financial position. West Harbour’s current financial position appears to be as a consequence of under-capitalisation, adverse market conditions, and the failure of the body corporate’s claim in the WHT, rather than through any action of Waipareira.

Delay

[27] I note that, although not raised, delay is not an issue in this case. West

Harbour has not actively pursued these proceedings. Further, it was put on notice on

5 March 2012 that security for costs would be sought.

The effect of an order

[28] The last ground for opposing security for costs is the argument that to grant it would effectively prevent West Harbour from proceeding with its claim against Waipareira.

[29] Dr Harrison referred to the following comments of the Court of Appeal in

A S McLachlan v MEL Network Ltd:

[15] 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.

[16] 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.

Dr Harrison also relied on the application of the principle in Fletcher v Hull.[4] In Fletcher v Hull Gilbert J declined to make an order for security for costs finding inter alia that, while facing difficulties with some aspects of their claim, the plaintiffs had reasonable prospects of succeeding at least in part. He was also concerned that, as individuals, the plaintiffs might be denied access to justice if an order for security for costs was made. He considered it did not seem fair they should be denied the opportunity of pursuing the claim. If they were unable to do so they would both be adjudicated bankrupt.

[30] There are two important distinctions in this case. First, West Harbour has had an opportunity for its claim to be considered by the Court on its application for summary judgment. It failed. Next, and importantly, West Harbour is a limited liability company. It has shareholders and may have interested creditors. The trustees of the Livi Trust are West Harbour’s shareholders. There is nothing in the affidavit filed on West Harbour’s behalf in opposition to this application to disclose what steps, if any, have been taken to obtain funding from its shareholders or of any approach to interested creditors or other parties who may benefit from West Harbour’s claim in these proceedings. Whether such shareholders or creditors can or should fund the litigation is a proper consideration: Nikau Holdings Ltd v Bank of

New Zealand;[5] and Attorney-General v Transport Control Systems NZ Ltd:[6]

The means of shareholders and creditors for whose benefit an action is in truth being brought are a relevant consideration under the section, as is shown by the Donald case and another case cited in argument that has reached this Court in recent years, ...

Although Attorney-General v Transport Control Systems was decided under the

_{Companies Act 1955, the principles are equally applicable. The investors in West}

Harbour have chosen to use the vehicle of the company to pursue its business. That company may well now be insolvent.

[31] West Harbour’s claim faces a number of difficulties. I am not satisfied that it can truly say its financial position is as a consequence of the actions of Waipareira. There is no information as to why the parties supporting West Harbour cannot provide funds. It would be unjust to effectively allow West Harbour to have a free run at Waipareira without Waipareira having some security. I am satisfied it is just to require West Harbour to provide security for its claim.

Quantum

[32] The last issue is the quantum of security. That is also a discretionary consideration. Mr Dale has calculated the scale costs on two different bases as between $101,888 (calculated on a 2C basis for a 10 day hearing) and $150,528 (calculated on a 3C basis for a 10 day hearing). He suggested a compromise figure for security at $100,000.

[33] Dr Harrison submitted that if security for costs was to be awarded, $100,000 was too high. He also suggested a staged approach for security.

[34] I accept that a trial of in excess of five days is likely to be required for a fixture in this case although I consider it to be less than the 10 days argued for by Mr Dale. Also, without wishing to constrain Woodhouse J, who is to fix costs on the failed summary judgment application, I propose to use category 2 as the appropriate basis to assess costs, at least for present purposes. Further, while I accept time band C may be appropriate for the pleadings, discovery, inspection and preparation generally, I do not consider it necessary for the other interlocutory steps or conferences. On that basis, my estimate for costs on a category 2 basis for a seven day hearing is $92,000 approximately. I consider a figure of $75,000 to be appropriate for security in the circumstances. I do not consider it should be staged. If West Harbour wishes to pursue its claim, it should pay the security and bring its proceeding on for hearing.

Orders

[35] West Harbour is to provide security for costs in the sum of $75,000 by 18

January 2013 by paying that sum to the Registrar of this Court. In the event West Harbour fails to do so West Harbour’s claim will be stayed. In that event I reserve leave for Waipareira to apply to strike-out the plaintiff’s claim and to enter judgment on the counterclaim. In the event West Harbour provides security as directed, the Registrar is to allocate a review conference in February 2013.

The application to set aside the consent order

[36] Waipareira advanced the following grounds to support the discharge of the consent orders:

West Harbour has disposed of or purported to have disposed of a launch

_{which it relied on to support its undertaking as to damages;}

Waipareira has, since 20 October 2011, become aware that West Harbour has

_{significant pre-existing liabilities;}

West Harbour has incurred significant new liabilities; and

Waipareira is concerned at the amounts owing to it under the apartments 13 and 15 mortgage.

[37] Dr Harrison made the point that the consent orders referred to in the application were effectively subsumed or superseded by the orders made by Woodhouse J in his judgment on the basis of the undertakings given on behalf of Waipareira to the Court. I agree. Dr Harrison also made the point that the application for injunction had not been substantively argued and determined because Waipareira provided the undertaking. If Waipareira is to be released from the undertakings, (which would be the case if the application was granted), then West Harbour must be entitled to have its application for injunction argued on the merits. Again, I agree that logically that must be the position.

[38] Mr Dale recorded that, strictly speaking, Waipareira was not seeking to resile from the consent orders, but only that West Harbour maintain the position in relation to supporting the undertaking as to damages required to support the orders. If it was not able to do that then a variation would be required.

[39] In his notes for the hearing Mr Dale acknowledged the application was arguably academic. If security is not provided then the proceedings will be stayed and ultimately struck out so Waipareira will be released from its undertakings and interim orders discharged. I agree.

[40] The appropriate course is to adjourn this application. If West Harbour complies with the order for security then the application can be renewed and, if necessary, West Harbour’s application for interim orders considered on its merits. If West Harbour fails to provide security then the proceedings will likely be dismissed and this application will not need to be determined. I adjourn the application to be called at any review conference allocated in accordance with [35] above.

Costs

[41] The focus of the hearing before me was primarily on the security for costs issue. In the circumstances I award costs to Waipareira Ltd on that application on a

2B basis together with disbursements. I reserve the issue of costs on the application

_{to discharge the consent order.}

Venning J

---

[1] West Harbour Holdings Ltd V Waipareira Investments Ltd & Marina Resort Ltd HC Auckland

_{CIV-2011-404-5801, 16 August 2012.}

[2] 1.5 An injunction prohibiting, pending the further order of this Honourable Court or the substantive determination of this proceeding as the case may be, the first defendant, its

employees or agents from taking any further steps to exercise a power of sale or any other power

exercisable by it as mortgagee in the event of default (including advertising, listing or promoting the Townhouses for sale) under the Townhouses Mortgage (being registered mortgage

7388576.1) more particularly described in paragraph 5 of the first amended statement of claim herein; 1.6 An injunction prohibiting, pending the further order of this Honourable Court or the substantive determination of this proceeding as the case may be, the first defendant, its employees or agents from taking any further steps to exercise a power of sale or any other power exercisable by it as mortgagee in the event of default (including advertising, listing or promoting Apartments 13 and 15 for sale) under the Apartments Mortgage (being registered mortgage

8615701.3) more particularly described in paragraph 14 of the first amended statement of claim herein.

[3] A S McLachlan v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA).
[4] _{Fletcher v Hull [2012] NZHC 859.}
[5] _{Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430.}
[6] Attorney-General v Transport Control Systems NZ Ltd [1982] 2 NZLR 19 (CA) at 20.