Coote v Murray [2012] NZHC 3200 (28 November 2012)

Last Updated: 10 December 2012

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2011-442-000122 [2012] NZHC 3200

BETWEEN COLIN HOWARD COOTE First Plaintiff

AND KATE LARA COOTE Second Plaintiff

AND KATCOL INVESTMENTS LIMITED Third Plaintiff

AND JOHN NOEL MURRAY First Defendant

AND CHRISTOPHER JOHN ROYDS Second Defendant

AND GENE EDWARD COOPER Third Defendant

AND DANIEL JOHN WILLIAM HUNT Fourth Defendant

AND WEST YATES Fifth Defendant

AND FLETCHER VAUTIER MOORE TRUSTEES LIMITED

Sixth Defendant

Hearing: 28 November 2012 (Heard at Nelson)

Appearances: A R J Bowers for Applicant (Third Defendant)

D Kalderimis for Respondents (First Plaintiff and Third Plaintiff) (Other counsel excused)

Judgment: 28 November 2012

ORAL JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to security for costs]

COOTE V MURRAY HC NEL CIV-2011-442-000122 [28 November 2012]

Introduction

[1] The plaintiffs, in 2005, made some substantial investments which led to losses of $470,000 principal. By this proceeding they seek from six defendants recovery of those sums together with interest and general damages and costs.

[2] One of the six defendants, Mr Cooper, applies for an order for security of costs against the first and third plaintiffs, Mr Coote and Katcol. Mr Coote and Katcol say that the application filed in the shadow of trial (to commence 29 April

2013) is egregiously late and should be dismissed on that ground alone. For reasons

I will come to, I agree with them.

[3] Mr Coote and Katcol says that the application should also be dismissed on other grounds. They say:

(a) The second plaintiff, Mr Coote’s wife is jointly liable with her co- plaintiffs in relation to the earlier causes of action for any costs award and on all causes of action, if unsuccessful, is likely to have a joint costs order against her. In the absence of suggestion that Mrs Coote would be unable to pay Mr Cooper’s costs, the application lacks merit.

(b) The threshold test under High Court Rule 5.45 – Mr Coote’s and

Katcol’s inability to pay costs – is not made out on the evidence.

(c) An award of costs would be unjust having regard first to Mr Coote’s bona fide and meritorious claim and, secondly, to the fact that Mr Coote’s and Katcol’s weakened financial position was caused by the very conduct of the defendants which is the subject of this litigation.

I have summarised what are grounds set out in different detail in Mr Kalderimis’s

submissions.

[4] Had I not been finding for the respondents on the delay ground alone, I would likely have found for them on a combination of the first and second additional points which I have just referred to. It is therefore unnecessary that I make any findings particularly in relation to the merits and the causation issues raised by the third ground as those matters will fall for determination at trial. It is appropriate that I not make findings in relation to them.

Delay

_{[5] The relevant chronology is this:}

18 March 2011 – this proceeding was filed

13 May 2011 – Mr Cooper files his defence

10 June 2011 – the Court directs that any application for security by any party should be filed by this date

14 June 2011 – Mr Royds (the second defendant) makes an application

_{for an order that the plaintiffs provide security for costs}

3 August 2011 – opposition to that application is filed – the plaintiffs and

_{Mr Royds resolve the security issue by agreement}

October 2011 to July 2012 – the plaintiffs’ solicitors pursue Mr Cooper

and his then legal advisors for the completion of discovery and inspection and pleadings (this before Mr Bowers is engaged)

22 June 2012 – unsuccessful settlement conference – the Court gives trial directions and directs that any interlocutory applications be filed by 23

_{July 2012}

13 July 2012 – Mr Cooper’s solicitors, by letter, ask the plaintiffs to make a “sensible” security offer

_{20 July 2012 – Mr Cooper files this application}

[6] This has plainly been a delayed application. It matters not that the final timetable of 25 June 2012 provided for the filing of interlocutory applications in general. What makes this application grossly late is the fact that security was identified as an issue as early as June 2011 and that security was resolved as between plaintiffs and second defendant on 3 August 2011.

Security for costs under r 5.45 High Court Rules

Rule 5.45 itself

[7] Rule 5.45 provides for the making of orders for the giving of security for costs. Rule 5.45(1)(b) contains what is generally referred to as the “threshold requirement” (namely that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful), Rule 5.45(2) provides that a Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs. That discretion is not to be fettered by constructing

principles from the previous cases: McLachlan Ltd v MEL Network Ltd.[1]

Delayed applications

[8] Rule 5.45 does not address the situation of a delayed application. Any aspect of delay is a factor to be brought into account in the exercise of the discretion. On their facts, applications for security for costs made at a very late stage in a proceeding are often unsuccessful - Oceania Furniture Ltd v Debonaire Products Ltd.[2]

[9] Cases where delay has been fatal to an application for security are often those where the application has been made very close to the hearing date or where the

applicant has stood by allowing the plaintiffs to incur considerable expense without even an informal request in relation to security.[3]

[10] I draw on Clifford J’s judgment in Oceania Furniture for relevant considerations as to delay which include:

(a) Whether the application was made as soon as the defendant became aware or could with reasonable enquiry have become aware of the plaintiff’s likely inability to meet costs;

(b) Whether there has been needless delay in the application, particularly if it was designed to prejudice a plaintiff;

(c) Whether and, if so, to what extent there has been prejudice to the plaintiff – such as where a plaintiff has expended substantial sums to bring a proceeding to the brink of trial.

[11] Similar considerations apply where an early application for security for costs is granted but a late application for increased security is made before trial.[4]

[12] None of these considerations is decisive. Oceania Furniture is a case where the Judge accepted that relevant financial information had only very recently come to the knowledge of Oceania Furniture but the application for security was nonetheless declined within the Court’s discretion.

The future-looking nature of security

[13] I adopt what MacKenzie J said in Pickard v Ambrose:[5]

It will not generally be appropriate to make an order for security for costs which have already been incurred by the defendant.

[14] Any security award in this case could not justly include allowance for steps taken before Mr Cooper’s 20 July 2012 application. That, of itself, would significantly reduce the logical starting point for any assessment of an award in this case. Any sum then awarded is not automatically assessed at 100 per cent of the relevant, say 2B, calculation. An appropriate award, certainly as I approach matters, might be in the range of 66 per cent to 75 per cent but might be even as little as 33 per cent having regard to all the circumstances of a particular case.

[15] The arranging of security, at whatever level, will involve distraction and inconvenience to a party in the midst of preparation for trial. When delay in making a security application has that effect, it is not decisive whether the delay can be attributed to the fault of the applicant or is otherwise inadequately explained by the applicant. Justice of itself may reasonably require that the respondent not be inconvenienced as trial approaches. Justice may also require that a plaintiff who has not been on notice of a security issue when incurring of the expense involved in pleadings, interlocutory stages, and in the lead-up to trial, in order to be ready for trial, should not then find itself at the brink of trial faced with a financial hurdle that may delay or even rule out trial.

Other considerations

[16] The very late nature of this application is on the facts of this case of itself decisive against the making of a security order. But the justice of refusing an order does not rest simply in this case on the lateness of the application. Adopting the considerations identified by Clifford J in Oceania Furniture, this applicant must fail also for additional reasons or a combination of those reasons.

[17] First, the application has not been made when the applicant with reasonable enquiry could have first become aware of the plaintiffs’ inability to meet costs. That possibility had clearly been identified by counsel in June 2011 leading to the Court’s specific (and relatively unusual) early direction as to any security application. The fact that another defendant responded to the timetable with an application and was apparently able to secure some arrangement of itself indicates that this applicant could have been reasonably aware, at least on reasonable enquiry, of financial

difficulties facing the plaintiffs. The situation is underscored by authorities relied on by Mr Bowers which indicate that the Court may draw the inference where a security application has been settled that the plaintiffs are indeed unlikely to be able to meet an award of costs. That there had been such a settlement in August 2011 should have led this applicant to make an application at that time if such was to be pursued. The Court’s timetable direction should have reinforced that in the mind of the defendants and their counsel.

[18] In the course of argument, Mr Bowers sought to explain the lateness of the application and the apparent failure to take into account the settlement of the other security application in 2011 by reference to the possibility that Mr Cooper had not been served with a copy of the Royds security application. There is no evidence to that effect. The onus to explain delay and justify delay is upon the applicant who has delayed. I am not prepared to assume in the absence of evidence that a solicitor’s firm required to serve a copy of pleadings on all parties who have given addresses for service, which Mr Cooper had, has failed in that obligation. Accordingly, having regard to Clifford J’s approach in Oceania Furniture I do not find that this applicant has met the expectation that applicants will promptly pursue an application for security when they have knowledge of, or reasonable access to, information as to the plaintiffs’ financial situation.

[19] Secondly, to the extent I have already referred to the proximity of trial in this case I have, in a sense, taken into account MacKenzie J’s second consideration as to the prejudice which is or may occasioned through a late application. The parties, in this case, are in the midst of preparing for trial and exchanges of briefs have been taking place. It would plainly be a distraction and a potential prejudice to these respondents to now have to set about dealing with security.

[20] Mr Bowers has identified a separate proceeding against Mr Coote as a justification for the late security application in this proceeding. It is put in this way succinctly by Mr Bowers in his written submissions provided for the hearing:

Simply put, the fact that Rabobank has sought summary judgment against Mr Coote recently for over $600,000 prompted the third defendant to make this application and is the reason for the delay.

(my emphasis added)

[21] There are similar passages in the other papers filed in the proceeding. Of itself, I do not find the initiation of the Rabobank proceeding an event of such significance as to alter Mr Cooper’s previous ability to bring an application. But in any event, the Rabobank summary judgment application which was awaiting its hearing at the time this security application was made, was subsequently stayed pending the outcome of this proceeding.

[22] Mr Cooper’s fear (at the time that he filed this application) that Mr Coote would have summary judgment entered against him by Rabobank, and therefore increased enforceable indebtedness, will not come to pass. I accept the force of Mr Kalderimis’s submission that once the Rabobank proceeding was stayed so that there was no early prospect of a judgment being enforced by Rabobank against any of these plaintiffs, the impact of the pending Rabobank summary judgment hearing effectively fell away. Mr Kalderimis referred me to the almost identical set-out of the application Mr Cooper filed in this proceeding when compared to the form of application made by Mr Royds in June 2011. Mr Cooper’s single addition of narrative to that application was a reference to the pending hearing of the Rabobank summary judgment application. That has been overtaken by subsequent events. There is no longer a pending hearing and judgment will be reached in this case and costs orders made appreciably before any enforcement of any judgment obtained in the Rabobank proceeding could occur. As I have said, I mention this aspect of the Rabobank proceeding for completeness. It is not central to the decision I have come to.

[23] Thirdly, the application for security is not made against Mrs Coote, the second plaintiff. Mr Kalderimis urged me to dismiss the application for this reason

alone. Given Mr Cooper’s apparent acceptance that the security against Mrs Coote could not be justified, Mr Kalderimis invited the Court to view this case as coming within the category of cases in which security against one plaintiff should be denied because there is no suggestion that another plaintiff who is likely to be jointly liable for any costs awards will be unable to meet the costs award: see Ariadne Australia

Ltd v Grayburn.[6]

[24] Mr Bowers asked the Court to accept that the omission of Mr Coote from the application should not be viewed as any implicit acceptance of Mrs Coote’s financial ability. He explained the situation by reference to the Rabobank proceeding which is against Mr Coote alone. As the relatively recent issuing of that proceeding was being asserted by the applicant as justification for the late security application, Mr Bowers considered that the Court could therefore be asked to excuse the lateness of the application in relation to Mr Coote (now facing the Rabobank claim) but not in relation to Mrs Coote (not so facing).

[25] In the circumstances, I do not regard this as a case in which to apply the approach referred to in Ariadne Australia. My dismissal of the application does not rest on that approach.

Conclusion

[26] I find that this application should be dismissed. Having regard to the delay factor alone, the case should now proceed to trial without the distraction of security arrangements.

[27] Costs must follow the event. Counsel for the plaintiffs has accepted that 2B is the appropriate categorisation but, pursuant to an indication in his written submissions, has submitted that this is an appropriate case for the Court to award increased costs pursuant to the provisions of r 14.6.3(b).

[28] Mr Bowers did not make submissions on the point in reply. I therefore turn briefly to consider the discretion involved. Clearly the respondents are entitled to no

less than 2B costs. The question is whether in terms of r 14.6.3(b) the Court should consider an approach such as an uplift on the 2B award by say 50 per cent. As applied to this case, the application of r 14(6)(3)(b) essentially involves the proposition that the applicant has brought upon the respondents unnecessary expense through pursuing an application that lacks merit.

[29] Having regard to the failure of the third defendant to bring this application at an appropriate time the application in my view was always doomed by reference to the delay factor alone without consideration of all the other issues.

[30] It is a case in my judgment for increased costs. In my judgment an increase of 25 per cent above a 2B award would be appropriate. The lack of merit in this case turns on the delayed nature of the application more than upon a complete absence of substance. This distinguishes the case somewhat from the more usual run of cases of increased costs where the application lacked substantive merit.

Orders

[31] I order:

(a) The application of the third defendant for an order that the plaintiffs provide security for costs is dismissed;

(b) The third defendant is to pay in any event the first and third plaintiffs’ costs associated with the application on the basis of a 2B award together with an uplift of 25 per cent. There is a certificate for the

_{reasonable costs of travel and accommodation of counsel.}

Solicitors:

A R J Bowers, Barrister, 15 Brooklands Road, Atawhai, Nelson 7010

Chapman Tripp, PO Box 993, Wellington 6140

Associate Judge Osborne

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[1] _{McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA) at [13] and [14].}

[2] Oceania Furniture Ltd v Debonaire Products Ltd HC WG CIV 2008 485 1701, 24 April 2009 (Clifford J).

[3] J Delaney Security for Costs (1989) at 124–127 and 174–175 (providing examples from

_{Australian jurisdictions).}

[4] _{Lanocorp Pacific Pty Ltd v Farmers Corner Ltd HC CH CP117/00, 14 June 2001 (Fraser J).}

[5] Pickard v Ambrose HC Wellington CIV-2003-091-000143, 13 August 2009, at [9] (the subject of an appeal sub. nom. Ambrose v Pickard CA548/2009 [2009] NZCA 502, which was allowed in part, but with the Court of Appeal apparently accepting the reasoning of McKenzie J on this

point – at [30]–[32]).

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