Ballantyne Trustees Limited v Papprill Hadfield & Aldous Solicitors Nominee Company Limited [2016] NZHC 713 (18 April 2016)

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UNDER	the Companies Act 1993
IN THE MATTER OF	GOOSE BAY RANCH HOLDINGS LIMITED (IN LIQUIDATION)
BETWEEN	BALLANTYNE TRUSTEES LIMITED AND OTHERS Applicants
AND	PAPPRILL HADFIELD & ALDOUS SOLICITORS NOMINEE COMPANY LIMITED First Respondent
AND	D D CRICHTON AND ANOTHER Second Respondents

Hearing:	11 April 2016
Appearances:	M J Tingey for Applicants A B Darroch for First Respondent M E Parker for Second Respondents
_Judgment:	_{18 April 2016}

[1] Both the first and second respondents have made application for orders in relation to previous costs, security for costs and particular discovery.

BALLANTYNE TRUSTEES LIMITED AND OTHERS v PAPPRILL HADFIELD & ALDOUS SOLICITORS NOMINEE COMPANY LIMITED [2016] NZHC 713 [18 April 2016]

[2] Goose Bay Ranch Holdings Ltd (GBRH) is in liquidation. It was put into liquidation by this Court on 27 November 2009. Keiran Horne and David Crichton were appointed as liquidators, having been appointed interim liquidators in March

[3] GBRH owned a 314 hectare rural property at Goose Bay. The property was mortgaged to Papprill Hadfield & Aldous Solicitors Nominee Company Ltd (the Nominee Company), the first respondent in this proceeding. The mortgage secured a loan of $1,450,000 which had been obtained on the basis of a registered valuation of

$4,450,000. In 2009, following the appointment of interim liquidators, GBRH did not meet its interest payments to the Nominee Company or repay the principal. GBRH in October 2009 failed to comply with a notice under the property issued by the Nominee Company under the Property Law Act 2007.

[4] The Nominee Company conducted a mortgagee sale, by a deadline sale process. The Nominee Company sold the property in February 2010 for $1,130,000. GBRH owes the Nominee Company a residual debt of some $420,000.

[6] Initially, on 1 April 2014, the applicants filed a statement of claim by which they sought two orders:

(a) an order pursuant to s 165 Companies Act 1993 (the Act) granting leave to the applicants as shareholders of GBRH to bring proceedings in the name of and on behalf of GBRH against the Nominee

¹The background in the following three paragraphs is reproduced from my judgment in Ballantyne Trustees Ltd v Papprill Hadfield & Aldous Solicitors Nominee Company Ltd [2015] NZHC 2294 at [1] – [3].

²The respondents have taken issue with the applicants’ pleading that Seng Bou Keung is a shareholder as “trustee of the GBR Trust” – by reason of the other conclusions reached in the judgment, it is unnecessary for the Court to further consider the shareholding issue.

(b) an order pursuant to s 284 of the Act giving directions to the liquidators to bring proceedings in the name of and on behalf of GBRH against the Nominee Company.

[7] The form of proceeding was subsequently regularised when the applicants filed a notice of application for the stipulated orders. The application came to hearing in September 2015 and I gave judgment that month.³

[8] I dismissed the application in its entirety. The evidence adduced had not satisfied me that a prudent business person in the conduct of his or her own affairs would commence the claim proposed by the applicants.

[77] ...I am not satisfied that the interests of GBRH will be served by commencing the proposed proceeding. In fact, unless the applicants were to obtain expert evidence which dramatically alters the overall picture, the proposed litigation is fraught with risk of failure. Upon failure GBRH would be left with significant additional debt, unless the shareholders establish such a substantial security fund as will definitely cover all costs outcomes.

[78] The applicants’ proposed claim is fraught with difficulty. Its likelihood of success at this point appears extremely limited. On the evidence a significant likelihood of success has not been demonstrated.

[10] By s 7.49 High Court Rules, a party affected by an interlocutory decision may, instead of appealing against the decision, apply to the Court to vary or rescind the decision if the applicant considers that the decision was wrong.

[11] The applicants, promptly after the delivery of my judgment, made an application for variation or rescission (the rescission application).

[12] As one ground of application, the applicants assert that my judgment failed to give appropriate weight to some valuation evidence. They also particularly focussed

on three matters which explained an inadequacy of the applicants’ evidence as filed

(a) expert valuation evidence would have been available to support their application;

(c) the reason the applicants had not adduced such evidence on the initial application was that they had acted in reliance on the advice of their former barrister.

[14] As a result of the dismissal of the applicants’ previous application on 28

October 2015, I gave judgment for costs and disbursements to be paid by the applicants.⁴The applicants were ordered to pay each set of respondents $28,834.99.

[15] The applicants did not promptly pay the costs, either before the applicants filed the rescission application or after the respondents filed their notices of opposition.

[16] Close to three months after the costs judgment issued, the defendants, by their three-fold interlocutory application, sought orders that the rescission application be stayed until the costs judgment was met.

[17] By their Notice of Opposition dated 9 February 2016 the applicants opposed the making of the other (security and discovery) orders sought by the respondents but, in relation to the unpaid costs, recorded that they “agree to pay the unpaid costs order by 1 March 2016.”

[18] I was informed by counsel at the commencement of this hearing that the respondents’ solicitors had recently received payments in relation to the costs. Counsel for the respondents calculate that there appears to have been a mathematical error in relation to the sum paid in that the payment to each respondent was $200 short of the sum ordered. No payment was made on account of the interest which runs on judgment debt pursuant to r 11.27, High Court Rules. Mr Parker, for the second respondents, calculated the unpaid interest at $658.76.

[19] For the first respondent, Mr Darroch was instructed not to pursue the stay application further in the light of the substantial payment received. For the second respondents, Mr Parker was instructed to proceed on the application.

[20] Rule 7.48 High Court Rules authorises a Judge to enforce interlocutory orders, including through a stay of the proceeding pending compliance (by the party in default) with an interlocutory order. Kidd v van Heeren is authority for the application of r 7.48 to a situation of default and payment of costs awarded on an interlocutory application.⁵Water Treatment Products Limited (in liq) v Falloon is an example of a case where, on application of Kidd v van Heeren and in the exercise of the jurisdiction under r 7.48, this Court made an order staying a proceeding pending payment of interlocutory costs previously ordered.⁶

[21] The jurisdiction to make such an order exists in this case. The issue remaining in relation to the second respondent’s application is whether the Court should make such an order as a matter of discretion. By reference to the unpaid costs, I am satisfied that it should.

[22] A primary focus of the rescission application is upon what the applicants view as their failure to present appropriate expert evidence in support of their original application, with that situation having come about through the failure of prior counsel to provide adequate advice. Such grounds are not likely to lead to any reversal of the costs order already made. It is appropriate that full payment of the

[23] For the applicants, Mr Tingey noted in his submissions that he is unaware of cases in practice where a creditor for costs has insisted on payment of interest to the date of satisfaction of the costs order. I do not view it as just between the parties to attach weight to what Mr Tingey may view as common practice. By r 11.27 the judgment debt automatically carries interest from the time the judgment is given. If a cost debtor delays payment and the costs creditor asserts its right to payment of interest, it is not for the Court to view the demand for interest as somehow unreasonable let alone illegitimate. The total short-payment ($858.76 including costs and interest) may be a modest sum but this fact, to some extent, reinforces the appropriateness of having payment enforced now – the respondents’ entitlement to levy the interest under an enforcement process (as expressly permitted by r 11.27(3) High Court Rules) is scarcely likely to be economic.

[24] In his submissions, Mr Tingey was able to confirm that it is his understanding that the balance costs (including interest) will be paid as demanded. The understanding was not put into the form of an undertaking.

[25] In all the circumstances, I find it to be just that there be an order of stay and such an order will be made.

[26] Both the first and second respondents apply for orders for security for costs. The respondents rely on three grounds:

(a) the applicants had failed to pay the costs orders without explanation as to the reason for delay;

(b) the litigation has been largely directed by Mr Keung who has been bankrupted on two previous occasions, including once in relation to unpaid costs orders; and

(c) the other applicants have limited personal interest in the proceeding and there is no information as to their financial positions and/or ability to pay costs if required.

[27] The respondents assert that the interests of the parties are balanced in favour of an order of security for costs against the applicants having regard to the lack of merit in the applicants’ complaints as recognised by the Court’s previous judgment.

[28] The applicants oppose the application for security for costs. They identify five grounds of opposition:

(b) they were going to pay the existing costs order (and since have, except in relation to the balance identified above);

(c) the litigation is the proceeding of all the applicants in their capacities as shareholders of GBRH and is not “largely directed by Mr Keung”;

(d) there is no evidence that the applicants as a group will be unable to meet a costs order; and

(e) the applicants have a strong case, having regard to the further valuation evidence now adduced.

[29] The notice of opposition, while denying that jurisdiction to make a costs order existed, indicated that the applicants would be providing security of $10,000 for the costs each respondent (which has since been attended to by a payment into their solicitor’s trust account on stakeholding).

[30] The Court is empowered to make orders for security for costs by r 5.45 High

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

(iii) is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation

(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.

(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

[31] The provisions for security, although referring expressly to “plaintiff”, are available in relation to applicants as in this case, because under r 1.3 High Court Rules, plaintiff “means the person by whom or on whose behalf a proceeding is brought.”

[32] Rule 5.45(1) establishes threshold tests. The threshold invoked by the respondents in their applications for security was that under r 5.45(1)(b), namely that there is reason to believe that the applicants will be unable to pay the respondents’ costs if unsuccessful.

[33] As Mr Keung is an applicant in this proceeding, the threshold test under r 5.45(1)(b) is established. His financial record, including his relatively recent (second) bankruptcy following a failure to pay an earlier costs judgment, creates reason to believe he would be unable to pay the respondents’ costs if unsuccessful.

[34] The applicants as a group, however, refer to the fact that Mr Keung has four co-applicants. Of that situation, the Court of Appeal in Ariadne Australia Ltd v Grayburn said:⁷

Where, as here, two parties are suing in the same interest with the same solicitors and counsel there will ordinarily be only one set of costs. In those circumstances if one of the two can pay the costs no security will be needed; otherwise security from the one who can best provide it will meet the case.

[35] In the case of Mr Keung the respondents are able to point to compelling evidence relating to financial circumstances. In relation to the other applicants the single fact invoked in the notice of opposition was the failure of the applicants as a group to pay the costs order made some three months earlier, before the Christmas vacation. Mr Darroch and Mr Parker invite the Court to draw the inference that the delay in paying the costs order evidences a financial difficulty on the part of the applicants generally.

[36] I do not find that such an inference can be safely drawn. There is no evidence that a demand for payment had preceded the filing of the application for security for costs. The delay is consistent with the need for the solicitors to appropriately apportion the costs responsibility and to collect portions from the various applicants before making payment.

[37] Mr Keung’s co-applicants, however, have not adduced evidence to indicate that they will, in fact, be able to pay any ordered costs. The situation before the Court is one in which the threshold for security is established against Mr Keung but not against his co-applicants.

[38] The present situation is properly distinguished from the situation described by the Court of Appeal in Ariadne. The Court of Appeal referred to a situation in which “one of the two [plaintiffs] can pay the costs”. In this case, in the absence of any evidence as to the co-applicants’ financial abilities, a matter within their peculiar knowledge, the Court is unable to reach such a conclusion.

[39] The threshold test for an order that Mr Keung provide security is, therefore, satisfied. The exceptional case identified in Ariadne is not established.

[40] In their submissions for the respondents, counsel relied also on the fact that Calmwater Enterprises Pty Limited (the fourth named applicant) is a corporation incorporated outside New Zealand within the qualifying class of plaintiffs identified by r 5.45(1)(a)(ii). That matter was not identified as a ground of the security

applications. When there was no opportunity to direct a notice of opposition towards it, it is inappropriate to further consider that ground and I do not do so.

[42] The submissions of counsel may be starkly contrasted. Counsel for the respondents submit that the merits of the present claim are “negligible to non- existent” having particular regard to the conclusions in my September 2015 judgment. On the other hand, Mr Tingey for the applicants notes the fresh evidence now filed by the applicants in the form of reports by two registered valuers and one real estate agent, each of whom give evidence as experts. Collectively their evidence critiques valuation information which was available at the time of the mortgagee sale and the process adopted in relation to the mortgagee sale.

[43] As the respondents have yet to be called to file any evidence in opposition, the Court does not have the benefit of a testing of the applicants’ evidence by a comparison with a response from other experts.

[44] On any view, the state of expert evidence now relied upon by the applicants in the present application is substantially advanced from that in the previous application. The present application is not one in which the Court may safely conclude that the claim is altogether without merit. I take my observations no further than that having regard to the duty the Court will have to consider the merits on a more fully informed basis at the hearing of the leave application.

[45] Access to justice considerations can arise when an order of security may have the effect of bringing an applicant’s claim to a dead halt. In this case the applicants have not stated in evidence that a security order would have that effect. There is no basis on the evidence for me to conclude that it will.

Even had there been a risk of such effect, I would have had to balance that possible effect against the fact that the applicants had already had and exercised one opportunity to obtain leave and had failed. This is not a case where access to justice for the purpose of a leave application has not occurred. It did occur. What the applicants now seek is a second opportunity to access justice.

[46] The origin of the claim against the respondents lies in the acceptance by Mr Crichton and Ms Horne of their appointment as liquidators of GBRH. The impugned mortgagee sale was completed some six years ago. The preparation of the liquidators’ response to the leave application will likely involve greater complications and expense, including the research and evidence required from experts, than would occur in relation to proceedings commenced soon after the relevant event. There are no funds in GBRH to which the liquidators have resort for their costs in this litigation. They have a legitimate interest in obtaining a full measure of protection for their costs and disbursements should the application be declined.

[47] Counsel did not suggest that other factors which the Court frequently takes into account on a security application arise in this case. Most of the focus of submissions turned to the amount of security which would be appropriate if ordered.

[48] The respondents seek an order that the applicants provide for each of the first and the second respondents a total of $25,000 security. For the applicants Mr Tingey submits that a sum of $10,000 per respondent (now held on a stakeholding) is a sufficient level of security.

[49] Mr Tingey submitted that for security purposes it is appropriate to treat each step in this proceeding as being appropriately assessed on a 2B basis.⁸On that basis Mr Tingey would initially allow:

[50] Mr Tingey would then allow “further costs for the preparation of affidavits in response”. Without referring to disbursements, Mr Tingey submits that $10,000 becomes a sufficient sum for security, particularly having regard to the fact that some of the attendances on the lead application will duplicate attendances on the unsuccessful application.

[51] Counsel for the respondents identify $25,000 as an appropriate sum for security. That may be compared to the $28,344.99 ordered to be paid by the applicants on account of each respondents’ costs in the unsuccessful application.⁹

[52] In my costs judgment on that application, I found a 2C award¹⁰would be the appropriate base for calculations but then uplifted by 75 percent having regard to both the “excessive time” required¹¹and the lack of merit.¹²On that approach the

2C calculation was $15,944.50, the uplift $11,958.38 and the total to the completion of the hearing was $27,902.88. The respondents incurred no expenses on account of witnesses as (in the absence of expert evidence from the applicants) the respondents did not see fit to brief expert witnesses.

[53] The likelihood in this case is that there will be somewhat similar appearances to those involved in the previous hearing. It is likely again that a 2C award will be

_{appropriate having regard to the amount of time likely to be required
for opposition}

⁹Ballantyne Trustees Limited v Papprill Hadfield & Aldous Solicitors Nominee Company Ltd,

documents (including particularly evidence). Having regard to the extent of the expert evidence now deployed by the applicants, it is likely that the Court will again order increased costs pursuant to r 14.6(3)(a) High Court Rules. By the nature of the lead application there is something of a mini-trial involved as the quality of the competing evidence comes to be assessed.

[54] Mr Tingey has not allowed, in his estimate of security, for the disbursements which the respondents will incur in briefing their experts in two disciplines (real estate and valuation). The applicants have seen it as appropriate to brief one real estate expert and two valuation experts. The affidavit of the real estate expert alone runs to 139 paragraphs. The reports of the expert valuers are respectively 12 and 21 pages of closely typed material. Even if the respondents co-operate and retain common experts in real estate and valuation matters, the fees may well exceed

[55] On a realistic pre-estimate, the costs and disbursements for which the applicants are likely to be liable (if unsuccessful) will substantially exceed the

$25,000 figure requested by each of the respondents. While the Court often orders by way of security a sum which falls short of the pre-estimated costs and disbursements, I view this case as one which appropriately calls for a figure close to if not the full pre-estimate, having regard to the fact that this is a second application following the failure of a first application which was found to lack merit.

[56] I will accordingly be making an order for further security so that the total sum secured for each of the first and second respondents is $25,000. It is appropriate that there be an order in relation to a stay – Mr Tingey did not suggest otherwise. It is also appropriate that additional security be provided in a single tranche, as the leave application has already been allocated a hearing date for 6 June 2016.

[57] The respondents focus their applications for particular discovery on the advice which the applicants allege was given to them by counsel in relation to their

previous leave application. The current leave application identifies as the first ground of the rescission application that the applicants acted in reliance on advice of their former counsel. In his affidavit, Mr Keung deposes in detail to having received such advice from counsel. He says that counsel “repeatedly advised us that expert evidence was not necessary”, that counsel “reiterated his view” on 9 July 2015 and further reiterated the advice in response to an email sent by Mr Keung on 10 July

2015. Mr Keung exhibits, in relation to counsel’s advice, a letter dated 11 August

[58] The respondents seek particular discovery of documents concerning the substantive advice the applicants received from their legal advisors from the commencement of their claim until the present application was made.

[59] Mr Tingey has criticised the breadth of those applications, which in their terms would require discovery of documents relating to all advice given to the applicants rather than solely advice in relation to the calling of expert evidence. Counsel for the respondents, in their submissions, accepted that any order for discovery should be focused on advice as to expert evidence. I proceed on the basis that the applications are so narrowed.

[60] For the applicants, Mr Tingey did not challenge the respondents’ fundamental proposition that the Court has jurisdiction to order a particular discovery in relation to an interlocutory proceeding where appropriate. The order for particular discovery sought by the respondents is akin to an order for tailored discovery which may be made in ordinary proceedings under r 8.8, High Court Rules. By analogy under r

1.6, High Court Rules, it is appropriate to dispose of the present application in terms of r 8.8. I approach the applications on that basis.

[61] The applicants oppose any order of discovery of counsels’ advice (that is beyond the documents which Mr Keung has exhibited) upon the basis that other such documents are legally privileged and privilege has not been waived. This issue was the subject of detailed submissions of counsel.

[62] For the respondents counsel invoke the concept of implied waiver which existed both at common law and is now recognised by s 65 Evidence Act 2006.

(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or

(b) institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.

[64] The applicants have waived the privilege that attached to counsel’s advice because in issuing this proceeding they have put the privileged matter (the contents of counsel’s advice) in issue in the proceeding. The issue is – did counsel so advise the plaintiffs?

[65] Once the ambit of the respondents’ applications was narrowed, Mr Tingey first maintained the argument that privilege had not been waived. But he then took me in detail through Mr Keung’s affidavit in order to demonstrate that the single discoverable document was counsel’s 11 August 2015 letter (which has already been exhibited by Mr Keung). The thrust of Mr Tingey’s analysis was that a fair reading of Mr Keung’s affidavit indicated that the remainder of counsel’s relevant advice had been oral.

[66] To support the conclusion that there was no other relevant advice in writing

... in order to address your concerns we have asked [counsel] to send us his correspondence in relation to this matter. We have reviewed in particular the correspondence arising out of the letter dated 3 November 2014 regarding evidence. From that review, we confirm that [counsel] did not provide advice in relation to the need for evidence arising out of that letter in his correspondence with Mr Keung.

[67] As a matter of the natural interpretation of Mr Keung’s affidavit evidence supported by Mr Tingey’s letter I accept that it appears probable that counsel’s advice is contained in no other correspondence. In response to a question from the bench, Mr Tingey confirmed that his firm’s review of counsel’s file extended to considering the file notes of counsel and those also did not record advice given.

[68] It is somewhat tempting to accept the invitation of Mr Tingey to effectively dispense with a normal discovery procedure given the extent to which the existence of relevant documents has been touched on in Mr Keung’s affidavit in support of the application and in Mr Tingey’s 29 February 2016 letter. But such an approach would cut across the procedure recognised as usually appropriate for the completion of discovery.

[69] Rule 8.5, High Court Rules, provides for the making of discovery orders at case management conferences (in relation to ordinary proceedings). In particular r 8.5(1) provides:

(1) A Judge must make a discovery order for a proceeding unless he or she considers that the proceeding can be justly disposed of without any discovery.

[70] Once it is established that documents exist within a particular category and are reasonably needed for the purposes of the litigation by the parties, the first step (unless there is a different means of justly disposing of the proceeding) is to order discovery by the relevant party. That involves the party having prepared, filed and served an affidavit of documents pursuant to r 8.15 High Court Rules. The required

affidavit ensures that the relevant parties (in this case the applicants) depose specifically in the context of discovery to their diligent search for all documents required under the discovery order and provide the list of the documents required to be discovered.

[71] It is not an answer to a request for a discovery order that the party says that they have completed such search or that no other relevant documents exist. The default regime under r 8.5(1), imposing an obligation on the Court to make a discovery order, is to be viewed as at least in part providing to the other parties to litigation a degree of reasonable assurance through an affidavit provided specifically in the discovery context.

[72] I am not satisfied that this proceeding can be justly disposed of without making an order which requires discovery of counsel’s advice in relation to expert evidence.

[73] That is not to say that the affidavit to be filed will lead to the production or inspection of any additional documents. On the basis of the evidence so far filed, there may well be no additional documents. But that does not cut across the appropriateness or justice of ordering discovery.

[76] Counsel accepted that costs would be appropriately dealt with on a 2B basis. Given the three-fold content of the application and the permutations of the potential result, counsel requested that I reserve the incidence of costs as there may be no straight-forward way of applying the usual principle that costs follow the event.¹³

[77] Having regard to the orders I am to make, my preliminary view is that costs must follow the event in favour of the applicants in the normal way. If there is

disagreement between counsel submissions are to be filed (maximum four pages). Mr Darroch and Mr Parker are to first file and serve submissions to be followed within five working days by Mr Tingey’s submissions.

(a) The applicants shall pay to the second respondents within 10 working days the outstanding costs (inclusive of interest) of $858.76 (the outstanding costs).

(b) In the event the outstanding costs are not so paid, the proceeding as against the second respondents will be stayed at the election of the second respondents, such election to be exercised by memorandum filed and served within 10 working days after the date specified at (a) above.

(c) The two sums of $10,000 previously paid into the applicants’ solicitor’s trust account are to be held by the applicants’ solicitors as security for the costs of this proceeding pending further order of the Court.

(d) The applicants shall, by 29 April 2016, give further security for the costs and disbursements of this proceeding by paying an additional

(e) In the event the payment required by order (d) is not made by the specified date the proceeding will be stayed at the election of either respondent, such election to be exercised by memorandum filed and served by 16 May 2016.

(f) The applicants shall within 10 working days give tailored discovery of all documents in their control (including their former counsel’s file and including counsel’s notes and the applicants’ own notes or other written communications) which record counsel’s advice in relation to the need for preparation or presentation of expert evidence to support their proceeding commenced on 1 April 2014, such discovery to be given in the form of an affidavit of documents signed by each of the applicants or their director (or, in the case of Averill Head and Bruce Head, by one of them).

(g) Documents concerning the advice identified at (f) are to be included in part 1 of the Schedule to the affidavit and not in part 2.

(h) In the event the applicants so discover documents not previously made available to the respondents, the applicants shall, at the same time as serving the affidavit of documents upon the respondents, provide by way of inspection photocopies of the additional documents, reserving to counsel for the respondents the right to request physical inspection of originals.

[79] I reserve the incidence of costs and the costs and disbursements of the respondents applications.

High Court of New Zealand Decisions

Ballantyne Trustees Limited v Papprill Hadfield & Aldous Solicitors Nominee Company Limited [2016] NZHC 713 (18 April 2016)