Reid v Castleton-Reid [2016] NZHC 1609 (18 July 2016)

High Court of New Zealand

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Reid v Castleton-Reid [2016] NZHC 1609 (18 July 2016)

Last Updated: 29 August 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-003009 [2016] NZHC 1609

BETWEEN	ROSS RONAYNE REID Plaintiff
AND	BARRY ROSS LAURENCE CASTLETON-REID Defendant

Hearing:	4 July 2016
Appearances:	Ms S Abdale for Plaintiff Ms Matthew for Defendant
Judgment:	18 July 2016

_{JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

This judgment was delivered by me on

18.07.16 at 3 p.m., pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

REID v CASTLETON-REID [2016] NZHC 1609 [18 July 2016]

[1] This matter comes before the court for determination of the defendant’s

application seeking an order for security for costs against the plaintiff pursuant to r

5.45 of the High Court Rules.

Background

[2] The plaintiff was at one time a wealthy man, having been the proprietor, together with his brother, Emslie, of a housebuilding firm that was reasonably well known in Auckland called “Reidbuilt Homes Ltd”. It would now appear that he does not have much money at all. He has been living in Australia for approximately nine years.

[3] The defendant is the adopted son of the plaintiff and his late wife, Esme. Following the death of Esme, the defendant received in terms of her will two properties in Verbena Road, in Birkenhead, Auckland. One of the properties was the former matrimonial home which the parties have referred to by the name they gave to it, “the castle”. The other property was an apartment also in Verbena Road. As well, the defendant was the residuary beneficiary under the estate of his late mother, Esme.

[4] During her lifetime, Esme acquired substantial property from the Hallmark Trust, which the plaintiff and his brother Emslie established for the benefit of their wives and families in or about 1986. In 2007, following the sale of a commercial property, the trustees paid a capital distribution to Esme of approximately

$1,800,000. That sum was initially paid into a bank account of the plaintiff and was then eventually transferred into a joint account of Esme and the plaintiff. In April 2008, the plaintiff and Esme transferred $1,750,000 into a term deposit account where it remained until after Esme’s death.

[5] In March or April 2009, the plaintiff requested the defendant to open a shareholding account with Craigs Investment Partners (“shareholding account”). The account would be held in the defendant’s name but the plaintiff was to have management rights which would enable him to carry out share transactions. It seems

that the plaintiff may also have requested the defendant to open an account with ASB

bank under similar conditions (“ASB account”).

[6] There were a number of key transactions which were carried out in relation to these two accounts. On 2 April 2009, the day after the term deposit had matured, the plaintiff transferred $1,700,000 to the shareholding account. Additionally, the plaintiff transferred approximately $477,000, derived from the sale of shares that had been held in Esme’s name, into the shareholding account on 8 July 2008. Therefore, in excess of $2.2 million in total was transferred into the share trading account by the plaintiff.

[7] A significant sum of money was apparently also withdrawn from the account. On 25 September 2009, the plaintiff transferred $800,000 out of the shareholding accounts to his daughter, Dee-Ann. Further sums totalling approximately $376,000 were withdrawn from the account and used to purchase an apartment in Vincent Street, Auckland. This occurred in approximately November 2009. The plaintiff also withdrew certain amounts for his own use totalling approximately $575,000.

[8] The purpose of this arrangement is a matter of dispute between the parties. The plaintiff asserts that the payment of the funds into the defendant’s shareholding account was part of an “arrangement” under which the defendant agreed to hold the shares on trust for the plaintiff. The shares were allegedly intended to become the defendant’s on the plaintiff’s death. The defendant was to be the “nominal owner”, and the defendant would open a special bank account with the ASB in his name, through which the plaintiff would trade the shares and have access to the share trading funds. This was allegedly an oral arrangement. The plaintiff claims that the share trading activities which he carried out were profitable and that they generated profits in the amount of approximately $1.1 million.

[9] The defendant denies this allegation, and says that he was told by his father that the funds would be his “inheritance”, and would be his to spend as he pleased. His father was given authority to manage the share trading account for him. It was intended that that account would be the source for and recipient of profits from share trading activities.

Issues

[10] The first issue that arises in this case is whether the court may make an order for security for costs against the plaintiff, who is legally aided. Section 45 of the Legal Services Act 2011 provides that such an order may only be granted in “exceptional circumstances”. In order to determine whether there are “exceptional circumstances” in this case, it is necessary to make some assessment of the strength of the plaintiff’s case. I will return to this issue below.

[11] A second and related issue to consider is whether the court has jurisdiction to make an order for security for costs. Two bases are put forward upon which the defendant says such an order can be made: first, that the plaintiff is resident outside New Zealand;¹ and secondly, that there is reason to believe that the plaintiff will be unable to pay costs if his claim is unsuccessful.²

[12] The third and fourth issues concern the discretionary elements which are influential when the court considers whether or not to make an order for security for costs. In the context of this case, the issues are:

(a) the plaintiff contends, in effect, that there is no risk that he will be unable to pay security for costs because his brother has agreed to provide financial support for the case, including by meeting any costs orders;

(b) the plaintiff contends that if there is a risk of non-payment of costs arising from his impecuniosity, the defendant is responsible for that state of affairs and therefore an order ought not to be made.

The strength of the plaintiff ’s case

[13] The strength of the plaintiff’s case is a matter which is relevant not only to the issue of ordering costs against a legally aided party, but also to the other issues identified above. It is therefore convenient to address this matter first, before

_{considering whether there are grounds to grant the defendant’s application.}

¹ _{High Court Rules, r 5.45(1)(a)(i).}

² High Court Rules, r5.45(1)(b).

[14] The key considerations in this case are the terms on which the plaintiff paid the money into the ASB and shareholding accounts; and whether the plaintiff’s share trading activities through Craig’s Investment Partners, again in the name of the defendant, were for the benefit of the defendant or whether the plaintiff retained the beneficial interest in the money and the proceeds of investment.

Plaintiff ’s contentions

[15] The position that plaintiff takes is best described by reproducing one of the key paragraphs from the statement of claim:

9. In and around the end of March 2009, the Plaintiff proposed the following arrangement with the Defendant (with whom he and his family were living at the time at 47 Verbena Avenue, and whom the Plaintiff trusted), the terms of which were as follows:

(i) The Plaintiff would purchase shares with most of his cash assets and put these shares in the Defendant’s name, as nominal owner to facilitate the signing of transfers during the Plaintiff’s long absences in Australia.

(ii) These shares and share proceeds and profits were to be held by the Defendant on behalf of the Plaintiff.

(iii) The Defendant would open a special bank account with the ASB Birkenhead in the Defendant’s name through which the Plaintiff would trade the shares and have access to the share trading funds

(iv) In recognition of this service, the Plaintiff promised the Defendant that upon his death, as the shares and proceeds of the share trading account were already in the Defendant’s name, they would become his.

[16] Counsel for the plaintiff submitted that the allegations in the statement of claim ought to be treated as being provable and provisionally correct for the purposes of the present application. No authority was put forward which would justify such an approach. Counsel also suggested that there were limits to the extent to which the court would investigate the merits of the plaintiff’s claim at this stage of proceedings. I agree with that proposition, as long as it is understood that the court has an obligation in any case to carry out some assessment of the merits, notwithstanding the necessary limitations to which that enquiry would be subject,

particularly in a case of some complexity or at a stage in the proceeding where it is not possible to carry out a realistic assessment of the merits.³

[17] Whether or not the arrangement that the parties entered into was as the plaintiff claims in his statement of claim will depend upon the assessment that the court makes of the evidence, including the extensive email exchanges between the parties. Some of those emails are set out below.

Defendant’s contentions

[18] Counsel for the defendant, Ms Matthew, made extensive reference to the email correspondence which, in her view, supports the contention that the plaintiff told the defendant that the shares were his. She gave the following examples:

(a) In an email dated 23 April 2010, the plaintiff claimed to have put the funds from his wife's “estate” in the defendant’s name to avoid estate duties;

(b) In his affidavit, the defendant made reference to email correspondence between the defendant and the plaintiff on 3 May 2010, in which the defendant wrote to the plaintiff stating:

Originally you said you were putting money in my name, that you wish to manage it for me but that I could use it as I saw fit. ... You confirmed this a second time to Lisa when she was resisting taking out a mortgage on the apartment for you. She says that your exact wording was “you can use it as you please”.

(c) After a further email from the plaintiff in which the plaintiff claimed to have some entitlement to the funds which he referred to as “the estate monies”, the defendant replied:

You said, to me and then to Lisa – the money is yours, I will manage it for you, you can use it as you see fit. (Or as Lisa told me “use it as you please”). I interpreted this as the money is mine and should I ever, for good reason, need to draw from it I could do so. You also said you would use it for your own expenses which was completely reasonable. Did you or did you not say this to Lisa and I.

³ A S McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA) at [21].

(d) In his reply, among other things, the plaintiff wrote:

I can accept having said that the money is yours but it would always have to be on the basis that I have first call on it surely. Seeing as how it is my money Yes?

[19] I interpolate that the plaintiff submitted that this amounted to an admission that he had stated that the money belonged to the defendant – and an attempt to retract that statement.

[20] Further email exchanges which the defendant relied upon included the following:

(a) An email from the plaintiff to the defendant headed “What I said”

which reads:

You’ve asked me to confirm what you now say you both understood me to have said at the time of setting up the share trading.

When I converted the entire estate assets into M.A.P. shareholding in your name it was on the clear understanding that I manage the account.

Yes, I did say that they would be yours, or are to be yours, or words to that effect to both of you.

No, I did not say when this was to be. – There was still too much to be done at the time. I had yet to negotiate probate.

And no, I did not then, nor at any time since, say, or in any way imply, that you were free, from day one, to sell off as many of these shares as you chose to at any time you felt like it.

[21] There was other email material that the defendant relied upon, too. It is not necessary to traverse all of the evidence in the context of this application for security for costs. The above extracts provide a sample of the exchanges which the defendant regards as supporting his position.

Discussion

[22] In order to assess the merits of the plaintiff’s claim it is necessary to consider the context and circumstances in which he entered into the alleged arrangement with the defendant. This may throw some light upon his contention that the arrangement,

which on its surface might be seen as an outright gifting of money to his son, was intended to have quite a different effect.

[23] It is necessary to start with one of the explanations that the plaintiff has given for setting up the share trading arrangement, which was that because he was going to be absent from New Zealand quite often, it would be easier if someone who was present in New Zealand were to sign share transfers.

[24] The observation may be made that transferring a large sum of money, in excess of $1.5 million, to his son to facilitate the ease of making transfers is a surprising way of going about solving the problem. Exactly the same results could have been achieved by giving his son a power of attorney, presumably. However I would accept that considerations of that kind do not necessarily mean that the plaintiff’s account of why he set up the arrangement is not to be accepted, merely because there are unusual or inexplicable aspects to the explanation.

[25] Understanding the intentions of the plaintiff was not made any easier by the fact that he also put forward at least one other explanation as to why it was desirable to put the defendant in the position where he was the apparent owner of the shareholding account, even though the plaintiff retained control of the trading activities. The other explanation emerges from his statements expressing concern about the possible reintroduction of death duties in New Zealand. Such an explanation would tell against the plaintiff because it would mean that he saw the need to accomplish a transfer of property during his lifetime – which is more or less what the defendant says the arrangement was intended to achieve anyway. It would be consistent also with that type of objective, that once the fund was in the hands of the defendant, any payments out to the plaintiff would be documented as advances.

[26] The withdrawals that the plaintiff had made from the share trading account were, at the insistence of the defendant (the plaintiff says), presented as loans to prevent the defendant from having any difficulty with the Inland Revenue Department. The plaintiff says that he went along with that. He signed acknowledgements of debt in regard to the payments that were made to him. It is not clear what particular purpose would be served vis-a-vis the Inland Revenue

Department by structuring the payments to the plaintiff in this way. But the more significant point is that it is inconsistent with the plaintiff’s present assertion, that he was the beneficial owner of the shareholding account at the same time as he was acknowledging indebtedness to the defendant for advances made to him from that account. I am aware that the plaintiff attempts to explain this anomaly by putting forward an argument that he only signed the acknowledgement of debt as a result of the defendant’s undue influence on him. No particularisation is put forward of just how undue influence arose and was brought to bear. I do acknowledge that the plaintiff is elderly and no doubt was looking to his son for assistance in managing his life and that he trusted his son to look after his best interests. It must be said, though, that the limited evidence which is available to the court does not paint a picture of the defendant pressuring the plaintiff to sign acknowledgements of debt and it is difficult to see why the plaintiff would have gone along with that, if in fact he never had any intention of giving his money to the defendant.

[27] A further significant point that is to be taken into account is that it would seem inconsistent with the terms of an outright gift that the plaintiff would retain rights to operate the shareholding account and to make decisions about investments. If the money was not his, why would he have any interest in doing so and why would the defendant agree to his father being permitted to engage in activities which put the defendant’s property at risk?

[28] On the other hand, there is the fact that the plaintiff raised for discussion with the defendant and sought an assurance that the defendant would make funds for his day to day living expenses available. Why, if the funds in the share trading account were the plaintiff’s and not the defendant’s, would it be necessary for the plaintiff to seek such a concession from the defendant?

[29] Then there is the communication on 3 May 2010, when the plaintiff expressly acknowledged in an email that he had told the defendant that the money was his. This was, of course, wholly inconsistent with the version of the events that the plaintiff now puts forward under which he was the owner of the funds, and not the defendant.

[30] A related matter which the defendant raises is whether the funds were at all times actually the property of his late mother and not the plaintiff. On 20 January

2015, the trustees of the Hallmark Trust, Mr Emslie Reid and Mr Riechelmann, purported to pass a resolution as trustees in relation to funds which had been received by the Hallmark Trust when it sold a commercial property in Orewa. This resolution recorded that payments of $2,360,000 were paid to the account of the plaintiff and Esme by two instalments dated 20 December 2005 and 21 June 2007, with the latter being the larger amount at $2,200,000.

[31] The purpose of the resolution was as follows:

The trustees now wish to formally record the Final Capital Distribution made to Esme Dede Reid as described above.

[32] No doubt the resolution was intended to remove any doubts about the propriety of the distribution to the plaintiff who, along with Esme, was the recipient of the payment. The plaintiff, though, was never a beneficiary of the trust and was therefore not entitled to receive any beneficial interest in the trust funds by way of distribution. If the resolution correctly describes the position then it could be questioned on what basis the plaintiff had any beneficial interest in this sum, even if he did acquire the legal ownership of it through survivorship. My conclusion, though, is that the court cannot come to any reliable conclusion on this matter because of the limited information placed before it and the necessarily summary arguments which the parties addressed concerning the interlocutory application for security for costs. It may be though that the ultimate outcome of this case will be that the plaintiff is viewed as having no beneficial interest in the money paid out from the Hallmark Trust. If the money belonged to Esme, any dealings on the part of the plaintiff may ultimately be analysed as the actions of a party representing Esme and her estate with the plaintiff actually acquiring no beneficial interest in the property and therefore having no basis upon which to sue the defendant to recover the money for his own benefit.

[33] As part of its assessment of the strength of the plaintiff’s case, the court will be required to assess the credibility of the parties. There is one substantial contra- indication concerning the veracity of the plaintiff. The fact is that the plaintiff forged

his brother Emslie’s signature on a document in or about August 2014. Ms Abdale for the plaintiff objected to the actions of the plaintiff being described as forgery because they were not intended to fraudulently confer upon him a pecuniary advantage, which is one of the elements of the offence of forgery under the Crimes Act 1961. I consider that that argument is beside the point. The fact is that the plaintiff, with the apparent object of misleading one or more persons who might read the document, purported to sign it as Emslie. The signature was dishonestly affixed to the document, whatever name the plaintiff might now care to give to his actions.

Argument that the plaintiff waived his entitlement to the shareholding account

[34] Ms Matthews contended that, notwithstanding any claim that the plaintiff might have had, the plaintiff has expressly relinquished any such claim in writing.

[35] The plaintiff wrote, and signed a document stating:

I...hereby revoke and relinquish all and any claims which I may have, or be deemed to have, against the estate of my late wife Esme Dede or against his [sic] son and heir Barry Ross Laurence Castleton Reid.. Signed this 1^st date of March 2012.

[36] He signed this document at a time when he was not having any direct communications with the defendant, so it cannot be said that any undue influence was being exercised when this document was signed.

[37] Argument concerning this aspect of the matter was very limited. It may be that the plaintiff is ultimately found to have relinquished any rights of ownership that he had in the shareholding account. It is not clear how that could have come about as a result of his entering into a binding contract to that effect because of the apparent absence of any consideration for his doing so. If the argument is to be put on the basis of an estoppel or something of that kind, it is not clear whether reliance and detriment was caused to the defendant by relying upon the statements that the plaintiff made.

[38] The position regarding this statement is unclear and it is not possible at this stage of the proceeding to come to a clear view about whether or not the statement

had the effect of extinguishing any interest that the plaintiff might have had in the shareholding account.

Conclusions about overall strength of the plaintiff ’s claim

[39] Aspects of the alleged arrangement are anomalous and inconsistent with the objectives of the scheme which the plaintiff has put forward. There is a good chance that the court will take the view that the plaintiff has not been able to establish that he owned a beneficial interest in the money which was paid into the shareholding account; or that any beneficial interest was lost after the money had been placed into that account.

[40] However, my conclusion is that although the claim which the plaintiff brings is not a strong one, it cannot be described as hopeless.

Legal aid

[41] The grant of legal aid is relevant in two ways to the present dispute. First, the fact that the plaintiff has sought and obtained a grant of legal aid provides some evidence of impecuniousness.

[42] But additionally, the effect of the grant of legal aid is that it brings into question whether an order for security for costs would be justified under r 5.45. Going directly to the heart of the proposition, if there are no circumstances in which it is reasonably imaginable that a costs order would be made against the plaintiff, then there would be no requirement to provide for security for the payment of such an order and it would be wrong to make an order for security for costs.

[43] Making an order in those circumstances would not only suit no legitimate objective recognised by the High Court Rules but it would also impede access on the part of the plaintiff to the court, if as is usually the case, the order for security for costs is accompanied by an order for stay of proceedings.

[44] I conclude that looking into the future from this point in the litigation, it is difficult to foresee an order for security for costs actually being made because of the following matters.

[45] No order for costs is allowable under s 45 of the Legal Services Act (“the Act”) other than where there are exceptional circumstances. That section provides as follows:

45 Liability of aided person for costs

(1) If an aided person receives legal aid for civil proceedings, that person's liability under an order for costs made against him or her with respect to the proceedings must not exceed an amount (if any) that is reasonable for the aided person to pay having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.

(2) No order for costs may be made against an aided person in a civil proceeding unless the court is satisfied that there are exceptional circumstances.

(3) In determining whether there are exceptional circumstances under subsection (2), the court may take account of, but is not limited to, the following conduct by the aided person:

(a) any conduct that causes the other party to incur unnecessary cost:

(b) any failure to comply with the procedural rules and orders of the court:

(c) any misleading or deceitful conduct:

(d) any unreasonable pursuit of 1 or more issues on which the aided person fails:

(e) any unreasonable refusal to negotiate a settlement or participate in alternative dispute resolution:

(f) any other conduct that abuses the processes of the court.

(4) Any order for costs made against the aided person must specify the amount that the person would have been ordered to pay if this section had not affected that person's liability.

(5) If, because of this section, no order for costs is made against the aided person, an order may be made specifying what order for costs would have been made against that person with respect to the proceedings if this section had not affected that person's liability.

(6) If an order for costs is made against a next friend or guardian ad litem of an aided person who is a minor or is mentally disordered, then—

(a) that next friend or guardian ad litem has the benefit of this section; and

(b) the means of the next friend or guardian ad litem are taken as being the means of the aided person.

[46] The presumption is that there will be no order for its costs made where the person is legally aided. However in exceptional circumstances the court can depart from that presumption. There is no explicit statement of such a presumption in the legislation. That is, though, the effect of the terms of s 45.

[47] Alternatively, the section may be read as stating that orders for costs against legally aided litigants will be infrequently made and only then in exceptional circumstances which lie well outside the run-of-the-mill cases. That raises the question, though, of what type of exceptional circumstances will suffice.

[48] The apparent policy consideration underlying the enactment of s 45 is that the Act is designed to assist impecunious persons to bring proceedings which they might not otherwise be able to afford. The objectives of the Act are not limited in its effect in assisting legally aided persons to retain lawyers, instruct counsel and engage experts etc. The objectives also extend to the question of whether the legally aided person will be able to pay costs after the hearing has concluded. There would be little point in enacting legislation which authorised the payment of public funding to enable a person to obtain the assistance of a lawyer in order to bring proceedings, while at the same time not doing anything to shield the legally aided person against an order for costs which they will not be able to satisfy. The consequences of a litigant being exposed to costs, which might include debt enforcement actions, could be enough to deter him or her from taking up a grant of legal aid. For that reason, the effect of the legislation is to extend to the legally aided person a conditional exemption from paying party and party costs that would otherwise be ordered against him or her.

[49] However, the legislation envisages that there may be cases where legally aided persons misuse the grant of legal aid by conducting litigation in a manner which abuses the processes of the court. Instances of the type of conduct in contemplation are to be found in subs 3(a)-(f).

[50] Therefore, while it is open to the court to determine, in effect, that the legally aided person has lost the protection against costs orders under s 45, it is permitted to do so only where exceptional circumstances justify such a conclusion. If the court were too ready to categorise the relevant circumstances as being “exceptional”, the policy underlying the section would be undermined.

[51] In this case, the defendant considers that the claim which the plaintiff brings against him enjoys no prospects of success. In other words, the defendant considers that if the case goes to trial, it is highly probable that the plaintiff will fail. However, even if it ultimately transpires that the plaintiff ’s case fails, the provisions of s 45 make it clear that that on its own will not be sufficient to support a conclusion that there are exceptional circumstances which would justify the making of a costs order against the plaintiff.

[52] Subsection 3(d) makes it clear that the issues on which the plaintiff failed must have been such that the legally aided person behaved in an unreasonable fashion. Unreasonable conduct could arise in a number of ways. It might be considered that the plaintiff had acted unreasonably by insisting that a claim be brought in the first place. The court making a decision under s 45(2) would have to try and place itself in the position of the party at the time when the decision was made to initiate or continue a proceeding. Retrospective reasoning based only on the fact that the case turned out to be an unsuccessful one would not be enough on its own to attract the operation of s 45. It may be influenced too heavily by the advantage of hindsight. In making a decision under s 45(2), proper weight needs to be given to the consideration that the outcome of litigation is inherently a difficult matter to predict.

[53] The court is required to balance giving effect to the objective of the Legal Services Act to promote access to justice⁴ against the harm that can be done if a litigant who has been armed by state funding misuses his or her position. Such a person could cause considerable damage to his or her opponent in litigation

_{particularly by bringing complex and expensive litigation which calls for a}

⁴ Legal Services Act 2011, s 3.

proportionate expenditure by the opposite party in obtaining assistance in the formulation and advancing of his or her case when it comes to court.

[54] Given the conclusions that I have set out earlier regarding the strength of the plaintiff’s case, I would not be prepared at this point to predict that the court would come to the view that the plaintiff by bringing the case has behaved in such an unreasonable fashion that his conduct must be regarded as exceptional and therefore falling within the province of s 45(2).

Principles relating to orders for security for costs

[55] In case my view regarding the effect of the Legal Services Act is wrong, I will also consider whether an order for security for costs is warranted according to the principles which usually govern such applications.

[56] Where it is established that the plaintiff is resident overseas, the court has jurisdiction to make an order for security for costs and it is not necessary to also prove that there is reason to believe he would be unable to afford to pay an order for costs of this claim is unsuccessful. The leading authority concerning cases where the plaintiff resides overseas is Aquaculture Corporation v McFarlane Laboratories

(1984) Ltd⁵ which is summarised in the following terms in McGechan on

Procedure:⁶

In Aquaculture Corp v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ

467 (HC), McGechan J laid down the following approach to the giving of security by a plaintiff resident overseas:

(a) There is no inflexible principle that such a plaintiff with no assets within the jurisdiction should normally be ordered to give security.

(b) The Court’s discretion is to be exercised by taking into account all the circumstances of the case and arriving at the conclusion which will do justice between the parties.

(c) The ease, convenience, and cost of enforcing a costs judgment in the plaintiff’s country of residence are primary considerations. New Zealand Courts have taken the view that the whole point of ordering security against an overseas plaintiff is to avoid the costs and difficulties of overseas enforcement. This represents something of a rejection of “the modern approach”, said now to be adopted in

⁵ _{Aquaculture Corporation v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC).}

⁶ Wild and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR5.45.06].

Australia and the UK, of not ordering security if the judgment could easily and inexpensively be registered in the country in which the plaintiff resides: Phipps v Healthcare Otago Ltd HC Dunedin CP39/95, 25 March 1999; Okeby v Family Court at Napier (1998)

12 PRNZ 159 (HC).

(d) Otherwise the principles applicable to applications for security by a plaintiff resident overseas are those applicable under r 5.45(1)(b).

[57] It therefore would appear that where a plaintiff is resident overseas, it is to be inferred that there will be inherent difficulties in enforcing a judgment of a New Zealand court directing the plaintiff to pay costs. That being so, I would agree with the submission for the defendant that it is not necessary for the defendant when proceeding under r 5.45(1)(b) to establish a likely inability to meet an order for costs made in New Zealand.

[58] However the financial circumstances of the plaintiff can be relevant at the next stage of the enquiry. That is to say, a person resident outside the jurisdiction may contend that they cannot give security because they are impecunious and that because they have a good claim, it would be unjust in all the circumstances for them to be blocked from access to the court only because they are unable to provide security. Further or alternatively, a person in that position might be able to contend in that his/her impecuniosity results from the events upon which the cause of action is based. That is to say, they may be able to establish that it was the defendant itself which caused the relevant impecuniosity and therefore that party ought not to be able to take advantage of the plaintiff’s lack of financial resources.

Plaintiff ’s place of residence

[59] A person will be resident overseas if his usual or ordinary place of abode is overseas. This question is one of fact and degree depending upon the way that the person’s life is ordered.⁷

[60] While there was no concession on the point, I agree that the position is correctly stated in the submissions of Ms Matthews where she said:

He has described himself on the papers as residing in Townsville, Queensland, Australia, and has acknowledged, in his notice of opposition

⁷ Bolton v NZ insurance Co Ltd (1993) 7 PRNZ 71 (HC) at 71.

(paragraph 3 (i)), that his “primary residence is in Australia”. It goes on to state that he lives in New Zealand only for 3 to 4 months of the year, during which time he lives with a relative. Although he claims to be in receipt of New Zealand superannuation, he has provided no evidence of this, despite being challenged on it by the defendant in his affidavit evidence. He is presently in Australia.

[61] I consider that the plaintiff is in terms of r 5.45(1)(b) is residing overseas. There is therefore jurisdiction under that rule to make an order for security for costs.

Plaintiff ’s impecuniosity

[62] The question of impecuniosity was also raised by the plaintiff. In case my conclusions are not correct concerning s 45 I will consider this aspect of the matter in any case.

[63] The first aspect of the plaintiff’s impecuniosity which I will consider is the effect that impecuniosity may have on the ability of the plaintiff to meet an order for costs. That aspect of the matter is relevant to the alternative ground upon which the application for security for costs is made.⁸ The plaintiff is admittedly impecunious. There is therefore jurisdiction to make an order for security for costs on that ground, additionally to the ground that he is resident out of New Zealand.

[64] The second way in which impecuniosity is relevant is that it means that the plaintiff will not be able to meet any security for costs order. In those circumstances, the usual result would be that the proceeding is stayed and the plaintiff will not be able to bring his claim.

[65] The applicable principle in cases of this kind was stated by the Court of

Appeal in the following terms:⁹

[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.

⁸ _{High Court Rules, r 5.45(1)(b).}

⁹ A S McLachlan Ltd v MEL Network Ltd, above n 3.

[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.

[66] However, it would be unjust if a plaintiff was prevented from bringing his claim on the grounds of impecuniosity where the actions of the defendant, which are the basis for the claim brought against it, were the cause of the impecuniosity.

[67] The plaintiff contends that the cause of his impecuniosity in this case was the actions which are the subject of the claims that the plaintiff makes in the proceeding. While this issue is indeed relevant to the question of costs in the circumstances of this case, I consider that the position which the defendant has advanced is the correct one. There is no doubt that at one point the plaintiff was the owner of an apartment in Townsville which apparently cost $1 million. This was partially funded by the

$500,000 which was withdrawn from the shareholding account that I have mentioned earlier in this judgment. The balance was sourced by way of a secured loan of $500,000 approximately. Unfortunately the loan went into arrears, a mortgagee sale took place and the plaintiff lost his property. It would appear that the cause of his impecuniosity, therefore, was that the plaintiff entered into an improvident transaction whereby a man in his 80s or 90s with no source of income apart from superannuation assumed a debt to a bank of $500,000. That is the real cause of his poverty. As well, the fact that he voluntarily relinquished control of

$1.75 million in circumstances where the transaction was not properly structured and documented, leading to a dispute arising from what appears to be a bona fides contention on the part of the defendant that he now owns the property, was imprudent and a contributing cause to his present financial plight.

[68] Were it open to the court to make an order for security for costs, my view is that this factor would not defeat such an application.

Emslie’s undertaking to finance the claim

[69] Because I have concluded that there is a reasonable prospect of an order being made under s 45 of the Act, on that ground alone, the application for security for costs ought to be dismissed. In case I am wrong on that issue, I will go on to

consider the effect of the apparent willingness of the plaintiff’s brother to financially

support the litigation.

[70] If the fact that the brother was funding the litigation were sufficient assurance to the defendant on the question of costs, it would follow that an order for security for costs is unlikely.

[71] The plaintiff has deposed that his brother Emslie has in fact been financially supporting him to bring this claim against the defendant. In commenting on the application for security for costs, Emslie in an affidavit which he has filed on his own behalf, has stated:

5. I agree that there is no reason for the court to make the orders for security for costs. I confirm that I will continue to provide financial support for Ross in respect of these proceedings, including in the event that a costs award is made against them. I also confirm that I have sufficient financial resources to do so.

[72] The willingness of Emslie Reid to continue providing financial support to his brother is relied upon by the plaintiff as displacing the need for any security for costs order. While it was not put in exactly these terms, the position which the plaintiff apparently adopts is that if he is unsuccessful in the litigation, any costs award will not remain unmet because his brother has indicated willingness to meet such an award and has the funds to do so.

[73] The defendant takes the view that there is no enforceable obligation on the brother to meet any costs award. The defendant notes that the brother has not agreed to provide security for costs and nor has he ever offered a guarantee of the plaintiff’s costs obligations. I agree with that position. While I therefore agree in principle with the remarks of Kos J in Highgate On Broadway Ltd v Devine to the effect that the presence of a litigation funder is a factor which can be taken into account when

considering whether an order for security for costs ought to be made,¹⁰ resolving the

issue comes down to exactly what is meant by a “litigation funder” which is a point

_{to be discussed below.}

¹⁰ Highgate On Broadway Ltd v Devine [2013] NZHC 2288, [2013] NZAR 1017 at [22(d)].

[74] The only viable basis upon which the plaintiff’s brother could be made liable for an order for costs would be if the court were to make such an order. The court can only make such an order where the cost provider substantially controls the litigation or is likely to benefit from the proceeding.¹¹ Because of the uncertainty in that regard, the court cannot be confident that an order would be made against Emslie Reid to pay the costs of the defendant in the event that the plaintiff’s claim

fails. There does not seem to be a jurisdiction recognised in authority for the court to make such an order simply because the non-party has offered to meet the costs and there is no particular reason why the court should as part of the purported exercise of its cost jurisdiction make orders for the enforcement of offers of this kind. It would be open to the parties to enter into an enforceable agreement, perhaps by way of a deed of guarantee. Emslie Reid however has not expressed a willingness to do that. In the absence of such an enforceable agreement, it would not be unreasonable for the defendant to look to the court to protect its interests by making a costs order. Conversely, there does not seem to be any justifiable basis upon which the court would decline to order costs against the plaintiff because of the statement that Emslie Reid has made.

[75] Further, while the non-party, Emslie Reid, has offered to meet costs, he has not made an offer to provide security for costs. The defendant is entitled to take the view that an offer without accompanying security is of no assistance.

[76] In any case, the status of the brother as a litigation funder, against whom potentially an order for costs could be made, expired at the point when the Legal Services Agency granted legal aid to the plaintiff. It is at least implicit in the evidence which has been filed that there will no longer be any requirement for the brother to continue providing financial resources so that the litigation can continue. Any reason why that might be so could have been pointed out by the plaintiff in the evidence which he filed, but the affidavits are silent on the point. Further, while I acknowledge that the brother has expressed willingness to meet any order for costs,

_{such a gratuitous undertaking would be difficult to enforce, particularly in light of}

¹¹ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR

145 at [25(3)].

the changed obligations in regard to costs that follow upon a grant of legal aid being made.

[77] If the foregoing reasoning is correct, it follows that making a security for costs order would be justified. Therefore the circumstance of Emslie Reid expressing willingness to meet the costs of the litigation in the informal way that he has does not provide the plaintiff with a ground for opposing an order for security for costs.

[78] However, given the outcome of the argument concerning the effect of s 45 of the Act, the court is required to decline the application for security for costs on other grounds.

Summary of conclusions

[79] The court’s conclusions are as follows.

[80] First, there is jurisdiction to make an order for security for costs under either of the grounds set out in rr 5.45(1)(a)(i) or 5.45(1)(b) of the High Court Rules.

[81] Because the plaintiff is legally aided, no order for costs can be made against him in a civil proceeding unless the court is satisfied that there are exceptional circumstances.¹²

[82] Exceptional circumstances are concerned with aspects of the case that relate to whether there has been any misuse of the processes of the court. The fact that there is a substantial chance that the plaintiff may be unsuccessful with his litigation does not amount to “exceptional circumstances” within the meaning of the section.

[83] While the plaintiff’s claim is not strong, it is not so obviously doomed to fail that it would be unreasonable for the plaintiff to continue with it, such that “exceptional circumstances” exist which would justify the making of an order for costs against the plaintiff as a legally aided person. That being so, there can be no

_{justification for making a security for costs order.}

¹² High Court Rules, s 45(2).

[84] The alleged relinquishment of the plaintiff’s case has not been established as a clearly arguable defence to that claim. Therefore, that does not affect the prospects of success on the part of the plaintiff and is not to be taken into account.

[85] Had it been open to the court to make an order for security for costs, notwithstanding the provisions of s 45, the making of such an order would not have been defeated on the grounds that the defendant was responsible for the impecuniosity of the plaintiff. The plaintiff is responsible for his present financial state.

[86] The offer by the Emslie Reid to pay any costs order that might be made against the plaintiff would not have been, in all the circumstances, a sufficient reason to dispense with security for costs, had the court considered that notwithstanding s 45 such an outcome was justified.

[87] If it were otherwise appropriate to consider making an order for security for costs, my conclusion would have been that the claim which the plaintiff brings is not so weak that the court ought to make an order for security to protect the defendants from unjustified litigation.

Costs

[88] Notwithstanding the careful submissions which Ms Matthews made in this complex area, the defendant has failed in its application for an order for security for costs. In my view, costs ought to follow the event. An award of costs under category 2B is justified and there will be an order accordingly, together with a

_{direction that disbursements as fixed by the Registrar are to be payable as well.}

J.P. Doogue

Associate Judge