Gillette v Green [2018] NZHC 1957 (2 August 2018)

Last Updated: 17 August 2018

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2017-442-42 [2018] NZHC 1957

BETWEEN	NATHAN DANIEL GILLETTE Plaintiff
AND	THOMAS GREEN First Defendant ROOFPOWER INSTALLATIONS LIMITED Second Defendant

Appearances:	Plaintiff in person Ms A Goodison for first and second defendants
Judgment:	2 August 2018

INTERLOCUTORY JUDGMENT OF ASSOCIATE JUDGE JOHNSTON IN RESPECT OF DEFENDANTS’ APPLICATION FOR ORDER FOR SECURITY FOR COSTS

[On the papers]

Introduction

[1] The plaintiff, Mr Nathan Gillette, sues the defendants, Mr Thomas Green and Roofpower Installations Limited (RIL), claiming damages in relation to losses he says he incurred as a result of commercial arrangements between the parties entered into during the first half of 2016.

[2] The proceeding was originally commenced (in the District Court) on 13 April 2016. It has been beset by interlocutory skirmishing. Very little progress has been achieved. Now the defendants apply for an order for security for costs.

GILLETTE v GREEN [2018] NZHC 1957 [2 August 2018]

Background

[3] In early 2016 RIL, which was in the business of supplying and installing solar energy systems, had been operating for about two years. As I understand it the company was established by Mr Green who was its shareholder and director and may have been the only person engaged in the business. RIL advertised for a sales person. Mr Gillette — an American citizen — was living and working in Singapore. He applied for the job. There were negotiations between Mr Green and Mr Gillette. Towards the end of January 2016 the parties entered into two agreements. The details are unimportant. Essentially, Mr Green and Mr Gillette entered into an agreement for the sale and purchase of up to 49 per cent of RIL’s shares and RIL and Mr Gillette entered into a contract of employment. Mr Gillette obtained a visa to live and work in New Zealand with the support of Mr Green and RIL. He arrived here on 22 February 2016 and says that he began working at RIL on 24 February 2016. Things did not go well. In mid-2016 Mr Green and Mr Gillette fell out. By then Mr Gillette had acquired 49 per cent of RIL’s shares from Mr Green and paid Mr Green nearly
$100,000 for this shareholding. He had not formally been appointed as a director but he may well have become a de facto director. As I understand it RIL had become moribund. The shares in the company were worth next to nothing. Mr Green appears to have arranged for the transfer of the company’s assets to a new company.

[4] In his statement of claim Mr Gillette pleads that:

(a) in terms of s 174 of the Companies Act 1993 he was treated oppressively;

(b) in terms of s 12 of the Fair Trading Act 1986 the defendants acted deceptively or misleadingly in relation to the proposed employment arrangements;

(c) in terms of s 9 of the Fair Trading Act 1986 the defendants acted deceptively or misleadingly in relation to the business’ potential;
(d) in terms of s 6 of the Contractual Remedies Act 1979 (now s 35 of the Contract and Commercial Law Act 2017) the defendants misrepresented the business’ potential.

[5] Since the proceeding was commenced:

(a) the proceedings have been transferred to this Court from the District Court;

(b) Mr Gillette has successfully pursued independent proceedings in the Employment Relations Authority;

(c) Mr Gillette has unsuccessfully applied for freezing orders in this Court;

(d) Mr Gillette has been partially successful in an application for further and better discovery against the defendants and for third party discovery;

(e) costs applications have been heard and disposed of;

(f) pleadings have been amended;

(g) there have been numerous case management conferences.

[6] In a minute dated 29 June 2018 I made directions for the filing and service of any application for an order for security for costs, any notice of opposition and submissions. I directed that submissions should be limited to 10 pages. I had in mind trying to contain the scope of the argument in order to ensure it was focussed on the real issues. What has transpired is that both parties have filed extensive affidavit evidence canvassing the background in detail and attaching a great deal of documentation. In short my attempt to encourage the parties to focus on the issues has been singularly unsuccessful.

[7] The defendants’ application dated 15 June 2018 is made pursuant to r 5.45 of the High Court Rules which provides:

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

(a) that a plaintiff—

(i) is resident out of New Zealand; or

(ii) is a corporation incorporated outside New Zealand; or

(iii) is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

(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.

(3) An order under subclause (2)—

(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i) by paying that sum into court; or

(ii) by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and

(b) may stay the proceeding until the sum is paid or the security given.

(4) A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(5) A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.

(6) References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[8] The defendants advance their application pursuant to r 5.45(1)(b) that is to say on the basis that there is reason to believe that the plaintiff will be unable to pay any costs order made against him if he is unsuccessful.
[9] The defendants acknowledge that even if I conclude that there is reason to believe that, I have a residual discretion in terms of r 5.45(2) as to whether or not to make an order having regard to whether it is just in all the circumstances to do so.

[10] The first question, then, is whether there is reason to believe that the plaintiff, if he were to be unsuccessful in this claim, would be unable to meet a costs order. In order to assess that it is necessary to give some preliminary consideration to what the amount of a costs order in this case might be. In my assessment this case is likely to occupy 3 days. Scale costs on a 2B basis — the most likely outcome if the plaintiff were to be unsuccessful — will be in the region of $55,000. Thus the question resolves itself into whether there is reason to think that the plaintiff may not be able to meet a costs order of that magnitude.

[11] Ms Goodison directs me first to paragraph [8] of Mr Green’s affidavit dated 15 June 2018 sworn in support of the defendants’ application. There, Mr Green gives evidence that at a meeting he had with Mr Gillette on 22 June 2016 Mr Gillette told him that he would need to beg for money from his family in order to survive. That meeting took place over two years ago. Moreover, Mr Gillette’s comment was made at a time when he was trying to persuade Mr Green, and through him FIL, to pay him. There is room to infer that he may have been exaggerating for effect.

[12] Second, Mr Green points out that Mr Gillette said in an affidavit dated 24 August 2017 filed in support of his application for further and better discovery that he is in significant debt. So are many people who would have no difficulty finding
$55,000 to meet a costs award.

[13] Finally, Mr Green says that he was in Court on 11 May 2018 for the hearing of Mr Gillette’s application for further and better discovery and during the course of that hearing Mr Gillette stated that he was acting for himself because his lawyers were costing too much money. That is far from conclusive. Mr Gillette may have decided that his lawyers were charging him too much irrespective of his own financial position.

[14] The evidence then as to Mr Gillette’s financial position is not strong. That said Ms Goodison correctly submits that the evidence does not have to establish
impecuniosity on a plaintiff’s part. All that is necessary is that it is reasonable to conclude that there is an issue as to whether or not the plaintiff will be able to meet a costs award.

[15] On balance my conclusion is — by a very fine margin — that there is sufficient material before the Court to enable the defendants to meet that fairly low threshold.

[16] That brings me to the second issue which is whether it is just in all the circumstances to make an award as sought by the defendants.

[17] In her written submissions Ms Goodison helpfully covered the key factors to which the Courts have had regard in addressing this issue. I propose to focus on three: the merits of the plaintiff’s claim, the extent to which any impecuniously on the plaintiff’s part is as a result of the actions of the defendants, and the issue of delay.

The merits of the claim

[18] For the defendants Ms Goodison invites me to conclude that the plaintiff’s case is weak. Based purely on the pleadings, without the benefit of hearing the evidence or argument, the sense that I have is that the case is not especially strong. The cause of action based on oppression pursuant to s 174 of the Companies Act appears to relate in part to events which preceded the plaintiff becoming a shareholder. However, there are also allegations that Mr Green, who had control of the company, preferred himself to the plaintiff in terms of the payment of drawings or salary. I do not think that the plaintiff’s claim can be dismissed out of hand. The second cause of action for misleading and deceptive conduct in relation to the employment contract may well be one which is within the exclusive jurisdiction of the employment relations institutions and indeed in this case may already have been aired before the Employment Relations Authority. The third cause of action for misleading and deceptive conduct in relation to the sale and purchase of shares raises credibility issues. As Ms Goodison points out the plaintiff faces some hurdles, for example many of the alleged representations appear to be expressions of optimism relating to the company’s future. However, again, it does not appear to me that the plaintiff’s claim can be dismissed as being hopeless at this stage. The fourth cause of action is a repetition of the third but based on the Contractual Remedies Act.

The cause of the plaintiff ’s (presumed) impecuniosity

[19] The Courts have said that where the plaintiff has what appears to the Court to be a viable claim and where the reason for his, her or its impecuniosity is the defendant’s actions as complained of in the proceeding, they will be slow to make an order for security for costs which will have the effect of preventing the plaintiff from proceeding. The sense I have in this case is that the plaintiff’s financial position was not a strong one even before he engaged with the defendants and that it is now worse as a result of the events canvassed in his claim. It does not follow that the orders sought by the defendants should necessarily be declined, but I think for myself that in such a situation the Court ought to be very wary of making an order which it perceives will prevent the plaintiff from pursuing the claim.

Delay

[20] To my mind, delay is a critical factor in this case. This proceeding has now been on foot for over two years. Both parties have no doubt expended considerable resources in pursuing and defending it, not always in the most effective way I might add. The defendants acknowledge that they were alerted to issues around the plaintiff’s financial position at a much earlier stage in the proceeding. As a result, matters have progressed to the point where the case is ready for trial and both parties have already expended considerable resources in reaching this point. It appears to me that it would be unfairly favouring the defendants to make the order they seek, which I perceive may well prevent the plaintiff proceeding to trial, given the length of the delay.

The balance here

[21] As Ms Goodison submits, in the end, the issue in any application for an order for security for costs is to strike the right balance between the interests of the parties.

[22] In my view, most of the factors in this case are fairly evenly balanced. The plaintiff’s case is not obviously meritorious but nor is it capable of being dismissed out of hand. My perception is that an order for security for costs at this stage may well prevent the plaintiff proceeding with his claim and there is therefore at very least a
prospect that the very actions about which he complains in his claim will prevent him from having it aired. The factor which to my mind tips the balance is the defendants’ delay in making this application. By delaying their application the defendants have compounded the plaintiff’s impecuniosity. The net effect is that although the proceeding is now close to being ready for trial, a successful application for an order for security for costs at this stage may prevent the plaintiff from bringing his case before the Court.

[23] In my judgement, the balance in this case falls in favour of the plaintiff. I am not prepared to make the orders sought by the defendant. Their application is dismissed.

[24] The plaintiff is self-represented and accordingly is not entitled to an order for costs.




Associate Judge Johnston

Solicitors:

Zindels, Nelson for first and second defendants