Hey v Hey [2021] NZHC 591 (22 March 2021)

Last Updated: 12 May 2021

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2020-412-000009 [2021] NZHC 591

UNDER	the Declaratory Judgments Act 1908 and the Trustees Act 1956
IN THE MATTER	of the BMA and DCL HEY FAMILY TRUST
BETWEEN	DOROTHY CATHERINE LOUISE HEY Plaintiff
AND	ALISTAIR WILLIAM HEY Defendant

Hearing:	17 March 2021 (by AVL)
Appearances:	C J G Lucas for Plaintiff M J Hammer for Defendant
Judgment:	22 March 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 22 March 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

HEY v HEY [2021] NZHC 591 [22 March 2021]

Introduction

• [1] This judgment concerns an application by the defendant (Alistair) that the plaintiff (Dorothy) provide security for costs.¹ The application is opposed.

Background

• [2] Dorothy is an 89 year old widow who lives alone. She survives on her pension with no alternative means of support or source of funds (save perhaps funds that might be available if successful in this proceeding).

• [3] Dorothy and her late husband, Brian Hey (Brian), had two children namely, Alistair and Christopher Hey (Christopher). For a long time Christopher was estranged from the family.

• [4] By Deed of Trust dated 25 May 2006 (the Deed), Brian and Dorothy established the BMA & DCL Hey Family Trust (the Trust). The trustees were Brian, Dorothy and Alistair. The “Appointer” was defined as Brian and Dorothy “or the survivor of them”. The discretionary beneficiaries included Brian, Dorothy, Alistair and any child of Alistair, but did not include Christopher.

• [5] Brian died on 27 February 2007. He left a last will under which he purported to transfer his powers as an Appointer under the Deed to Alistair. Whether he could do so by the terms of the Deed is central to the dispute between Dorothy and Alistair. Dorothy argues that upon Brian’s death the powers to remove and appoint trustees of the Trust vested solely in her.

• [6] The only asset of the Trust is a house at 4 Coach Court, Cromwell. That is where Dorothy resides. Disputes arose between Dorothy and Alistair when Dorothy wished to sell the property and relocate to Dunedin. On 25 August 2016, Dorothy purported to remove Alistair as a trustee. Later, having reconciled with Christopher, she purported to appoint him as a trustee of the Trust.

¹ High Court Rules 2016, r 5.45.

• [7] Alistair believes that Dorothy intends to vest the Coach Court property in herself to the exclusion of him and his children. He refuses to sign documents removing his name from the title of the Coach Court property thereby preventing Dorothy and Christopher from dealing with the property.

• [8] Dorothy filed this proceeding in February 2020. She seeks declarations:

(a) she has validly exercised her powers as Appointer to remove Alistair and appoint Christopher as a trustee of the Trust; and

(b) to vest the Coach Court property in her and Christopher as trustees of the Trust.

• [9] In his amended statement of defence and counterclaim, Alistair pleads:

(a) that Brian’s nomination of him as an Appointer under the Deed was valid and, accordingly, Dorothy’s purported removal of him as a trustee was invalid;

(b) as an affirmative defence, rectification of the Deed to give effect to an intention “that [Dorothy] would have co-control of the Trust with either [Brian] or [Alistair]”;

(c) by way of counterclaim, Dorothy has purported to exercise her powers for the improper purposes of divesting the Trust of its assets:

(i) for her own benefit;

(ii) for the benefit of Christopher who was intentionally excluded from the Trust; and

(iii) without consideration and to the detriment of other discretionary beneficiaries being Alistair and his children; and

(d) also by way of counterclaim, that Brian and Dorothy had represented to Alistair that in exchange for contributions by him to them and to the Coach Court property, the property would pass to him and his children upon their deaths such that Dorothy is estopped from exercising her powers under the Deed to:

(i) remove Alistair as a trustee;

(ii) appoint Christopher as a trustee; and

(iii) divest the Trust of its assets to herself.

• [10] Since the proceeding was filed there have been several case management events. The parties have completed discovery and inspection, attended an unsuccessful judicial settlement conference, had an interlocutory matter relating to interrogatories determined by the Court² and, exchanged briefs of evidence. Dorothy’s reply briefs of evidence are yet to be exchanged. The parties are waiting for a trial date.

The principles

• [11] This application is brought under r 5.45 High Court Rules 2016 which relevantly provides that the Court may, if it thinks it would be just in all the circumstances,³ order a plaintiff to give security for costs where there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in its claim.⁴

• [12] There are potentially four questions the Court must ask itself in considering this application. For reasons that follow, it is only necessary to consider the first two questions. The questions are as follows:

² Hey v Hey [2021] NZHC 263.

³ High Court Rules, r 5.45(2).

⁴ Rule 5.45(1)(b).

(a) is there reason to believe that Dorothy will be unable to pay the costs of Alistair if she is unsuccessful?

(b) is it just in all circumstances to make an order for security for costs?

(c) if so, in what form and quantum should the security be ordered?

(d) should a stay be ordered if security is not paid?

• [13] Whether an order for security for costs would be just in all the circumstances and, if so, what quantum should be paid are discretionary considerations and the Court’s discretion is not fettered by constructing principles from facts of previous cases.⁵ The following may be relevant factors to the exercise of discretion:

(a) balancing the interests of the plaintiff and defendant is the overriding consideration, which includes the plaintiff’s right to access to justice;⁶

(b) so far as possible, the Court will endeavour to assess the merits and prospects of success of the claim. However, there is a very real limit as to how far such an enquiry can go, particularly at an early stage in the proceeding;

(c) where the plaintiff’s impecuniosity results from the defendant’s actions, it may be unjust to order security for costs;

(d) whether there is any aspect of delay in applying for security costs and the extent to which the delay prejudiced the plaintiff;⁷ and

(e) whether the proceeding is being funded by a non-party concerned with making a commercial profit from funding litigation.⁸

5. Keemati Ltd v Mr Civil Ltd [2020] NZHC 3496 at [20] citing A S McLauchlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA) at [15].

⁶ At [20]. (footnotes omitted)

7. Andrew Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.45.03(4)].

⁸ Houghton v Saunders [2013] NZHC 1824 at [19] and [106].

Is there reason to believe Dorothy will be unable to pay the costs of Alistair if unsuccessful?

• [14] It is accepted that Dorothy does not have the resources to pay an adverse costs order.

Is it just in all the circumstances to make an order for security for costs?

• [15] It is on this aspect that Alistair’s application falters. I consider the matters advanced for and against the application under the headings below.

Balancing of interests

• [16] Requiring a plaintiff to provide security for costs when it has no prospect of doing so may result in injustice. It has been held an order having that effect should only be made after careful consideration and in a case in which the claim has little chance of success recognising that access to the courts for a genuine plaintiff is not to be lightly denied.⁹

• [17] However, it has also been recognised that the interests of defendants require them to be protected against unjustified litigation, particularly where it is overcomplicated and unnecessarily protracted.¹⁰ In this context, Ms Hammer says the fee arrangement between Dorothy and her lawyers is relevant.

• [18] Dorothy’s lawyers have agreed to act on a no win no fee arrangement. Ms Hammer submits this means Dorothy’s claim is being funded by her lawyers and the Court has recognised that in such circumstances a defendant is entitled to be protected by an order for security for costs.¹¹ She submits the prospect of an adverse costs order encourages parties to conduct their cases sensibly and only pursue issues where they have a good chance of success. There is, she submits, a greater risk that a plaintiff and their lawyer will not conduct themselves responsibly where the plaintiff does not have to pay the lawyer unless the claim succeeds. She expresses concern as

⁹ A S McLachlan Ltd v MEL Network Ltd, above n 5, at [15].

¹⁰ At [16].

¹¹ Houghton v Saunders, above n 8, [106], [107] and [129].

to how Dorothy has conducted her case to date giving several examples where she says Alistair has been put to unnecessary costs, including, for instance, the filing by Dorothy of 40 pages of submissions for this application.

• [19] Ms Hammer also contends if, because of the making of an order that she provide security for costs, Dorothy is unable to pursue her claim that will not result in hardship because Alistair will act as a reasonable trustee and find a resolution to relocate her to Dunedin. She refers to an offer that has been made to settle which was rejected by Dorothy without reasons.

• [20] I do not consider Dorothy’s lawyers are litigation funders in the sense recognised in Houghton v Saunders.¹² That case did not involve litigation funding in the context of a conditional fee agreement for the provision of legal services.

• [21] Mr Lucas submits a contingency fee arrangement between lawyer and client is not relevant in determining whether an impecunious client should be required to pay security. He referred to Shackles v The Broken Hill Pty Co Ltd which concerned security for costs applications against plaintiffs who were funded by solicitors with whom retainer agreements had been entered into under which the solicitors might recover substantial sums in addition to their costs.¹³ The defendants alleged that as the proceedings were brought for the benefit of the solicitors they should raise appropriate security. Relevant in the present context Byrne J said:¹⁴

In my opinion it is not correct to say that the solicitors are the persons for whose benefit the litigation has been brought. In any litigation the solicitors acting for a plaintiff stand to benefit from its prosecution. This is no less true in the case where the fee agreement is such that the solicitors are entitled to be paid only in the event of success. It cannot be suggested in the former case that the solicitors stand to benefit from the litigation in the sense that a shareholder in a corporate plaintiff does. Solicitors who undertake to act for an impecunious client at risk to themselves are in principle in no different position. Indeed, it has been said that by so acting they are performing a commendable public service, consistent with the best traditions of the legal profession ...[T]he fact that, and one interpretation of the fee agreement, it may be possible for a rapacious solicitor to recoup a substantial and unearned benefit does not in my view require me to conclude that such a result will be or is likely to occur in this case. I declined to draw any such conclusion. I believe that I should, in the absence of any evidence to the contrary assume

¹² Houghton v Saunders, above n 8.

¹³ Shackles v The Broken Hill Pty Co Ltd [1996] VicRp 76; [1996] 2 VR 427 (VSC).

¹⁴ At 430.

that [the solicitors] will conduct themselves in this litigation in accordance with the highest traditions of the profession in this State and in P.N.G. It need hardly be said that if they should fall short of this standard there is abundant power in the appropriate court of P.N.G. and in this court to ensure that the interests of their clients are protected.

• [22] Ms Hammer submits the law has moved on since Shackles but did not refer to authority that supported such a view. Contrary to her submission, in Kain v Wynn Williams & Co, which concerned a conditional fee agreement entered into between a law firm and its former clients, the Court of Appeal found that “Officers of the court do not need to be subject to a strict rule against champerty in order to uphold their duties to the court”.¹⁵

• [23] Ms Hammer raises specific concerns about how this litigation has been conducted but such concerns may be dealt with by effective case management, costs awards or in the exercise of the Court’s disciplinary authority over its officers. The example she raised concerning the lengthy submissions filed for Dorothy is a case in point. Mr Lucas was required to review and resubmit his submissions and did so.

• [24] I do not accept either the making of an order for security for costs will not result in hardship for Dorothy. The relationship between Dorothy and Alistair has broken down. It is entirely unrealistic to expect her to have faith that he will act in her interests.

Delay

• [25] Delay is a factor in this case. This application was made on 29 January 2021 (11 months after commencement of the proceeding) by which time the parties had finalised their pleadings, undertaken discovery and inspection, attended an unsuccessful judicial settlement conference and trial preparation is well underway. Had an application for security for costs been made upon the commencement of the proceeding Dorothy may well have taken a different course towards its resolution.

¹⁵ Kain v Wynn Williams & Co; [2012] NZCA 563 at [43] and see also [45]; [2012] NZCA 563; [2013] 1 NZLR 498. Leave to appeal from this decision was refused by the Supreme Court in Kain v Wynn Williams & Co [2013] NZSC 26. I disclose I appeared as counsel in this case.

• [26] Alistair argues he did not know until recently that Dorothy was impecunious. I do not accept that submission. Alistair knew that Dorothy had no means of support other than her pension and would not have been able to fund litigation of this kind. The suggestion that there was a possibility Christopher was assisting to fund the litigation cannot be correct when Alistair says in his affidavit, “Christopher is a local mechanic and I do not consider he would have access to the funds required to see this matter through to trial, and/or to pay an award of costs”.

Merits

• [27] Ms Hammer’s submissions did not dwell on the merits. She responsibly accepts Dorothy has a reasonably arguable case but also submits that Alistair’s counterclaims are strong and Dorothy faces credibility issues at trial.

• [28] Mr Lucas wished to present more detailed submissions on the merits and invited me to make an express finding favourable to Dorothy’s chances of success. I decline to do so for two reasons. First, it appears to me that the case presents many factual issues which require determination about which it would not be responsible to express an opinion. Secondly, I do not consider the legal position concerning “fraud on a power” is as straightforward as Mr Lucas suggests.

• [29] I approach the exercise of my discretion on the basis that Dorothy’s case is reasonably arguable.

Cause of Dorothy’s impecuniosity

• [30] Ms Hammer submits just because Alistair did not accede to Dorothy’s demands and allow her access to the assets of the Trust it cannot be assumed Alistair caused Dorothy’s impecuniosity.¹⁶ I agree with Ms Hammer’s submission. Dorothy cannot pay costs because she survives on a pension and choose to put the Coach Court property into the Trust. Those circumstances existed well before her falling out with

16. Birnie Capital Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29 October 2010 at [31].

Alistair. There is nothing to suggest that Dorothy’s financial position has worsened through Alistair’s refusal to accede to her demands.

Other factors

• [31] There are other factors that weigh in the balance against ordering security for costs. Fundamentally, I do not see what will be achieved by doing so. The consequence of ordering security will likely be that the proceeding will be stayed. The core issues in dispute will remain unresolved and no one will be able to deal with the Coach Court property. Alistair’s wish that the property pass to him and/or his children will remain unrealised. Upon Dorothy’s death it would be expected that the position presently advanced by Dorothy would be taken up either by her executors or Christopher. It is in no one’s interest to delay resolution of this proceeding.

• [32] Related to this, there is force in Mr Lucas’s submission that where both parties share a common interest in obtaining declarations as to their rights as trustees it is entirely artificial to order payment of security for costs against one party simply because they have taken the initiative to commence the proceeding.

• [33] Finally, I consider Dorothy’s claim is a relatively straightforward matter concerning the construction of the Deed whereas most of the trial time is likely to relate to Alistair’s counterclaims.¹⁷

Conclusion

• [34] It is conceded that Dorothy’s claim is fairly arguable. I consider the making of an order that Dorothy provide security for costs in a sum that is meaningful would likely prevent her from pursuing this claim and result in injustice as well as hardship. There has been delay by Alistair in pursuing this application and the explanations provided for that delay lack merit. To order security is not in the interests of either party as it will simply delay a resolution of the issues in dispute, possibly for years. The potential injustice to Dorothy in making an order she pay security for costs

¹⁷ Turf Industries (1979) Ltd v Bondor (NZ) Ltd HC Auckland CP 936-91, 26 September 1991 at 3.

exceeds the potential injustice to Alistair from any inability to recover legal costs. The balance falls heavily in favour of refusal of the application.

Result

• [35] The application for security for costs is dismissed.

• [36] Costs are reserved. Counsel are to confer to reach agreement on costs and if they cannot do so they may submit memoranda within 21 days. Memoranda are not to exceed five pages.

• [37] It was agreed by counsel that Dorothy’s reply evidence is to be filed within two weeks of release of this judgment and I so order.

• [38] The Registrar is to liaise with counsel to allocate a hearing date on the basis of a four day hearing.

O G Paulsen Associate Judge

Solicitors:

Lucas & Lucas, Dunedin Frazer Barton, Queenstown