Roberts v Robbies Bar & Bistro Franchising Limited [2012] NZHC 354 (1 March 2012)

Last Updated: 7 March 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-001853 [2012] NZHC 354

BETWEEN ALAN JOHN ROBERTS AND LOLA NEROLI ROBERTS

Plaintiffs

AND ROBBIES BAR & BISTRO FRANCHISING LIMITED First Defendant

AND PAUL MARTIN KOFOED Second Defendant

Hearing: 1 March 2012

(Heard at Christchurch)

Counsel: J M Shingleton for Plaintiffs

M S Henderson for Defendants

Judgment: 1 March 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE AS TO SECURITY FOR COSTS

Introduction

[1] The proceeding is set down for trial commencing 28 May 2012. The defendants made this application after the case management conference at which the trial was allocated.

The application for security

[2] This is the defendants’ application for an order that the plaintiffs provide

_{security for costs.}

ROBERTS V ROBBIES BAR & BISTRO FRANCHISING LIMITED HC CHCH CIV-2010-409-001853 [1

March 2012]

[3] The application was made on 1 September 2011 on the basis there is reason to believe that the plaintiffs will be unable to pay their costs if the plaintiffs are unsuccessful in the proceeding. The defendants, through Mr Kofoed (who is a director of the first defendant), have explained that the events on which they principally rely for evidence on the threshold test came to their attention late and promptly led them to make this application. I will return to that evidence shortly.

[4] The defendants, in suggesting that the plaintiffs may be unable to meet an award of costs, rely almost solely on the fate of two proceedings which entities associated or controlled by the plaintiffs issued. One a High Court proceeding; one a District Court proceeding.

[5] The High Court proceeding was transferred by the plaintiffs in that case to the Disputes Tribunal following a judicial settlement conference.

[6] The District Court claim was transferred by the plaintiffs to the Disputes Tribunal without consultation after the defendants had filed their initial response in the District Court.

[7] The way in which the defendants have put their application in this regard is this:

He [Mr Roberts] transferred the High Court claim to the Disputes Tribunal following a Judicial Settlement Conference stating the cost to prosecute that claim was too great and because the First Defendant would not make a settlement offer.

He transferred the District Court claim to the Disputes Tribunal also once the Defendant (the same First Defendant as in this proceeding) served a Notice of Response.

[8] Mr Kofoed in his affidavit in support referred to the High Court proceeding. He deposed that Alan (Roberts) had decided not to proceed with the High Court claim because of the cost. In relation to the District Court claim he refers in his evidence to the simple facts as recited in the notice of application.

[9] Mr Roberts filed the evidence in support of the plaintiffs’ opposition to the application for security. He says in relation to the High Court proceeding that costs

were indeed one of the factors which led to the transfer but that that was because it became clear that costs were outweighing the potential benefits of a successful claim. He deposes that he agreed to settle the High Court claim, but on the mutual understanding that the matter would be dealt with at a lower Court level. It is a matter of record that he thereafter discontinued the High Court proceeding.

[10] In relation to the District Court proceeding Mr Roberts deposes simply that the Disputes Tribunal was the proper forum for that dispute.

[11] The second proceeding is, indeed, given the quantum ($8500 plus ongoing losses) that has been sought in the Disputes Tribunal, within the jurisdiction of the Tribunal. The proceeding that had been transferred from the High Court was brought to a level just within the jurisdiction of the Disputes Tribunal. Faced with the challenge to the financial position of the plaintiffs, Mr Roberts elected to give some evidence as to their financial position. He exhibited to his affidavit of 11

October 2011 a one-page statement prepared by Ainger Tomlin, a firm of chartered accountants, in which estimates of net assets and a forecasted taxable income as at

30 September 2011 is given for various entities including the plaintiffs themselves; trusts associated with them; and their company, Westfield Holdings Limited. Mr Roberts deposes that he and his wife had significant commercial assets as indicated in the Ainger Tomlin statement. He deposes also that Mr Kofoed is well aware that the Roberts had litigated with many parties over the years without the issue of payment of costs arising. He goes on to respond to other aspects of Mr Kofoed’s evidence.

Jurisdiction

[12] The jurisdiction to award security for costs arises under r 5.45 High Court

Rules. What the Court commonly refers to as the threshold test arises under r

5.45.1(b) –

5.45 Order for security of costs

(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a) ...

(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.

[13] The Courts have repeatedly emphasised, usually in reliance upon the observations of the Court of Appeal in A S McLachlan Ltd v MEL Network Ltd,[1] that all matters in relation to security for costs are within the discretion of the Court and that the discretion is not to be fettered by constructing principles from the facts of previous cases. Nonetheless, it is important at the first stage of the consideration, namely the threshold test, to focus carefully on what the evidence as to a plaintiff’s

financial position is.

Submissions as to threshold

[14] For the defendant, Mr Henderson asked the Court to draw an inference from the transfer of the two proceedings to the Disputes Tribunal as to a possible limitation in the Roberts’ financial circumstances. He further submitted that I should see those transfers as showing a disregard by the Roberts of the costs of the proceedings, by which I took Mr Henderson to suggest that a similar disregard might be shown towards obligations to meet costs awarded in favour of other parties including the defendants in this proceeding.

[15] Mr Shingleton submitted in relation to the transfers that the defendants were seeking to draw too much out of Mr Roberts’ two decisions to transfer other proceedings. I accept entirely Mr Shingleton’s submission in this regard. The decisions taken by the Roberts are understandable strategic decisions in relation to litigation which could, objectively speaking, have easily become a burden to the Roberts if continued in this and the District Court. In both cases the application of normal legal costs to the proceedings and the consequences of recovery if successful on only a 2B or even a 1A basis could have led the Roberts to going backwards financially. I accept that that is only one possible conclusion but it indicates the sort of strategic decision-making that is likely to apply to cases which involve relatively

_{small sums. It is far too long a bow to draw to conclude that the transfers constitute}

evidence that Mr and Mrs Roberts may be unable to meet the costs of the defendants in this case if the Roberts are unsuccessful. I also attach little weight to the suggestion that the Roberts’ conduct shows a general disregard for costs. There is, in fact, a tenable case for saying that it points in quite the contrary direction – the Roberts may well have been alert to the implications of costs, not only for themselves but possibly for all involved. The transferring of the two proceedings is simply far too equivocal to lead the Court to draw a conclusion of the nature urged by Mr Henderson.

[16] The authorities clearly indicate that there is no inference to be automatically drawn by the Court if a plaintiff chooses not to put detailed financial information before the Court. There is more room for the Court to draw some support for a conclusion of financial difficulty if the objective circumstances relied upon by the defendants are compelling. In this case, I do not find the objective circumstances relied on by the defendants to be compelling and, if necessary, I would have found that there was no particular reason for the Roberts in this case to go to the point of disclosing anything particular about their financial circumstances. As it is, I mention briefly what they did disclose. It is understandably, given that it is coming from their chartered accountants, a document predicated upon the limits of knowledge that those accountants have. It contains the standard disclaimer that it does not purport to reflect an audited assessment of the plaintiffs’ financial position. It does show across the range of the Roberts’ interests assets which appear to be of a very significant magnitude. But when one focuses on the assets that by their nature would be in the Roberts’ names personally, which are listed under the heading of ―partnership activities‖, the asset list is much shorter. It totals some $1,445,000. Ainger Tomlin state these to be net assets.

[17] Mr Henderson appropriately referred to the evidence of Mr Kofoed who has identified a report of liquidators of a company which is one of the Roberts’ principal debtors. The report indicates that a very substantial proportion of what is identified in the Ainger Tomlin net assets list as ―loans to others - $825,000‖ is probably, if not certainly, irrecoverable. I would therefore treat the net assets statement as being no more than some indication that there may be some significant assets within the personal control of the Roberts. It remains some indication that if these defendants

become creditors through a costs award there may well be assets against which to enforce judgment, if necessary.

Conclusion as to threshold

[18] Accordingly I find, in this case, that there is no substantial reason to believe that the plaintiffs will be unable to pay the costs of the defendants if the plaintiffs are unsuccessful in this proceeding. It then strictly becomes unnecessary to move to the more general considerations on which the Court might conclude it is just in all the circumstances to award security pursuant to r 5.45(2). I make these brief comments in relation to more general observations.

Observations as to discretion generally

[19] The request of the applicants was that the Court fix security based on a 2B calculation in relation to costs in the sum of $37,600 and in relation to disbursements in the sum of $1,107.80, a total of $38,707.80 which counsel suggested be rounded down to $37,000. Effectively, it was a request for 100 per cent of a 2B calculation calculated from the date of commencement of the defence. Had I awarded security it would not have been with regard to any attendances that pre-dated the application for security. In that regard, I adopt what was said by McKenzie J in Pickard v

Ambrose[2]: -

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

On that basis, the items which might have been taken into account in arriving at an appropriate security sum would have been in the order of $18,700, including disbursements.

[20] The second factor I would have taken into account in this case would have been that the application was made at a late stage of the proceeding. It was made on

1 September 2011, following the last case management conference before trial. It was made after an indication was given for both parties that no further interlocutory applications were expected. I accept Mr Kofoed’s explanation that the reason for the late application was that the detail of the transfers to the Disputes Tribunal may have only been clear to him shortly before the application was made. It would still be appropriate that the Court has some regard to the lateness of the application in approaching the quantum of any award given that the plaintiffs proceeded up to 1

September 2011 without any notice of a security issue.

[21] Finally, it is not the Court’s practice to calculate a 2B award and to automatically require security in that full sum. Common awards might see a plaintiff providing security for proportions of the 2B award such as 50 per cent or 66 per cent. If security in this case had been given on a forward-looking basis at 50 per cent, the award would have been in the order of $9,000.

[22] Bringing these various matters together reinforces my conclusion at the threshold test level. Even had there been a basis for concluding that the plaintiffs might struggle to meet an award of costs at some level, the Court would scarcely be justified in anticipating that these plaintiffs would have a difficulty in covering an award of $9,000 or so. The extent of realisable assets extends far beyond such a modest figure.

Outcome: orders

[23] The application is dismissed.

[24] The case has appropriately been previously categorised on a 2B basis and costs must follow the event. The defendants are to pay the costs of this application

_{on a 2B basis together with disbursements to be fixed by the Registrar.}

Associate Judge Osborne

Solicitors:

Malley & Co, PO Box 16-595, Christchurch 8441 – [e-mail]

Corcoran French, PO Box 13001, Christchurch - [e-mail]

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

[2] Pickard v Ambrose HC WG 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 accepting the reasoning of McKenzie J on this point – at [30]– [32]).