BURTON v JENNINGS [2020] NZHC 1423

BURTON v JENNINGS [2020] NZHC 1423 [23 June 2020]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2019-409-000441[2020] NZHC 1423IN THE MATTER of an equitable interest in property by way ofconstructive trustBETWEEN ALYCIA HELEN LOUISE BURTONPlaintiffAND BELINDA HELEN JENNINGS, STEPHENJENNINGS and HATHERLEYLOUGHNAN TRUSTEES LIMITED astrustees of THE JENNINGS GORT FAMILYTRUSTDefendantsHearing: 8 June 2020Appearances: S J Bee for PlaintiffP M Smyth for DefendantsJudgment: 23 June 2020JUDGMENT OF ASSOCIATE JUDGE PAULSENThis judgment was delivered by me on 23 June 2020 at 2.30 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Introduction[1] This ruling concerns the defendants' application for security for costs.1 In thisproceeding, the plaintiff (Ms Burton) claims that the defendants hold a property atTelegraph Road, Burnham (the property) on constructive trust for her. She relies uponthe principles in Lankow v Rose.2[2] Ms Bee sensibly acknowledges the threshold for granting an order for securityfor costs has been established and that in exercise of the court's discretion security forcosts will be required. Ms Burton is resident out of New Zealand and it is just in allthe circumstances that security for costs be provided.3 I am only required to decidewhat represents an appropriate amount of security and what form of security would besatisfactory.The litigation background in context[3] The first and second-named defendants (the Jennings) and the third-nameddefendant, Hatherley Loughnan Trustees Limited, are the trustees of the Jennings GortFamily Trust. The Jennings are also the parents of Caleb Jennings (Caleb). Ms Burtonmarried Caleb in 2012. Caleb died in October 2018.[4] The defendants own the property as trustees. In early-2015, Ms Burton andCaleb were looking to purchase a house. In discussions with the Jennings, it wasdecided to place a relocatable house on the property for them. A loan was taken outby Caleb and the Jennings to fund the purchase, relocation and refurbishment of therelocatable house (the loan).[5] In 2016, Ms Burton moved overseas to pursue her career. There werediscussions between Ms Burton and Caleb about ending their relationship. Ms Burtonsays the separation did not occur. She returned to New Zealand for a time after Caleb'sdeath but has returned to live in Australia and the United States where she has1 High Court Rules 2016, r 5.45.2 Lankow v Rose [1995] 1 NZLR 277 (CA).3 High Court Rules, r 5.45(a)(i).established a business. She says for taxation reasons she cannot now return to NewZealand.[6] Ms Burton pleads she made substantial contributions, directly and indirectly,to the property. These contributions are said to include payments towards the loan andthe cost of utilities/insurance, liaising with contractors, the performance of work(including clearing land, building fences and painting) and ensuring the houseachieved code compliance. In addition, Ms Burton's father did work on the property.These contributions were made, Ms Burton pleads, in the reasonable expectation thatshe and Caleb would have an interest in the property. Ms Burton says the Jenningspromised to gift the property, knew of the work that she and Caleb did on the property,repeatedly made it clear to her and Caleb that the property would be theirs and knewalso that she and Caleb considered themselves the beneficial owners of the property.It would be unjust, Ms Burton contends, if the defendants did not acknowledge herinterest in the property. Ms Burton seeks a declaration that the property is held onconstructive trust for her or, alternatively, for an order compensating her for apercentage of the value of the property as the court sees fit. It appears, from Ms Bee'ssubmissions, that the quantum of the claim exceeds $70,000.[7] The defendants deny that Ms Burton has an interest in the property. They donot accept she made a direct financial contribution to the property. They will argueMs Burton had no reasonable expectation of an interest in the property and the benefitsshe received from her occupation of it exceed the value of any contributions. Theycontend that Ms Burton's claim fails to recognise the property is owned by trusteesand not by the Jennings personally. They consider it significant the loan was borrowedby the Jennings and remains outstanding.[8] Mr Smyth submits that the issue in this case boils down to this; does the valueof the relocated house exceed the amount of debt the Jennings's incurred to acquireand relocate the house? The Jennings will contend it does not and there is no "equityof value to be claimed" by Ms Burton.Informal attempts to settle the amount of security[9] There were discussions between counsel as to an appropriate amount to beprovided by Ms Burton as security for costs. They reached agreement and filed a jointmemorandum on 8 November 2019 stating Ms Burton would provide security of$25,000 to be lodged with the court pending which the claim would be stayed.Ms Burton is holding $25,000 in an account with ANZ Bank. Mr Smyth then decidedthat $25,000 was an inadequate amount and the defendants resiled from the agreement.There was toing and froing between counsel and the court and delays while counselattempted to sort the matter out. When they could not do so, this application was filed.The appropriate amount of security[10] The Judge's task in terms of r 5.45(3) is to direct security in a sum which theJudge considers sufficient. The amount of security involves exercising discretionrather than a mathematical process.4 It involves the court doing what it thinks fit inall the circumstances and will not necessarily be fixed by reference to a likely costsaward.5 The circumstances that are relevant may include, but are not limited to, theamount or nature of the relief claimed, the nature of the proceeding including thecomplexity and novelty of the issues, the estimated duration of trial and, the probablecosts payable if the plaintiff is unsuccessful.[11] The parties have divergent views on what is sufficient in this case. Mr Smythargues that Ms Burton should be ordered to provide security in an amount thatapproximates scale costs. He argues that any discount on likely scale costs should besmall reflecting the weakness of Ms Burton's case. Ms Burton is agreeable to pay$5,000 by way of security. However, in her written submissions, Ms Bee noted thatMs Burton has $25,000 available to her that can be used for the purpose.[12] Mr Smyth has calculated the defendants' likely scale costs as $54,984(including expert's fee). This is calculated on a 2B basis and assumes the hearing willtake four days with each party calling two or three witnesses as well as an expert4 Sharp v Pillay [2017] NZHC 647 at [17].5 McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [27].valuer. Mr Smyth criticises the statement of claim which is, he submits, "replete withevidence". He also submits there will likely be additional costs incurred as thestatement of claim will need to be repleaded and there is the possibility of anapplication to strike-out the claim. Ms Bee submits the calculation of scale costs isexcessive as this is not a complex case, the quantum of the claim is modest, the hearingis likely to take only three days and discovery will not be extensive.[13] I was referred to several decisions of the court as a guide to an appropriatediscount on scale costs. In most instances, the security ordered was around two-thirdsof scale costs. Mr Smyth argues the size of the discount generally reflects the court'sassessment of the strength of a plaintiff's case. He acknowledged outliers among thedecisions which could be explained on other grounds. For instance, a greater discountmay be given if due to the impecuniosity of a plaintiff a substantial order might closethe courtroom door on its claim.[14] Ms Bee argues that a relevant factor to be considered is whether an order mayprevent Ms Burton from pursuing her claim, noting the importance of enabling accessto justice. She submits that requiring Ms Burton to provide a substantial sum assecurity will cause her hardship and that even an order of $25,000 might impede herability to bring her claim. Ms Burton's business has suffered due to the COVID-19pandemic and she may need to draw on her cash reserves. Ms Bee also refers to, asanother factor to consider, the relative ease of enforcing a costs award againstMs Burton in Australia. Ms Bee accepts that the court must look at the merits of thecase, but argues that can be no more than an impression at this early stageAnalysis[15] I consider that Mr Smyth's assessment of the defendants' scale costs is higherthan reasonable. This is a small claim and not complicated in either a factual or a legalsense. It has not been categorised for costs purposes but if appropriately a category 2case, it is unlikely that each step, particularly discovery and inspection, will becalculated at band B. I also consider that a four day trial is unwarranted when thedisputed factual matrix is relatively narrow. I consider that the trial should be nolonger than three days.[16] As to the merits of the claim, as Ms Bee correctly submits this can only be amatter of impression. Much will depend upon whether Ms Burton can prove thecontributions she says she made to the property and that those contributions increasedthe value of the property.6 Some of what Ms Burton advances in her statement ofclaim as contributions to the property do not appear to be so. There is plainly a live-issue whether Ms Burton could have a reasonable expectation of an interest in theproperty. That said, I do not accept Mr Smyth's assessment that the claim is so weakit may be summarily struck out. I do not accept either the issue is whether the valueof the house exceeds the amount of the loan. The court will be concerned with abroader consideration of whether Ms Burton's proved contributions added value to theproperty as a whole exceeding the benefits she received from her occupation andenjoyment of the property. The authorities also establish that it will not be a completeanswer to the claim that the property is owned by the defendants as trustees.7[17] I do not accept Ms Bee's submission that the making of an order that Ms Burtonprovide security may cause her hardship that could prevent her from pursuing theclaim. Her affidavit of means indicates that she has a good income and a significantbusiness. I accept that due to the COVID-19 pandemic she may have to draw on hercash reserves, but it is confirmed that she presently has available to her $25,000 toprovide security. I do not accept either the submission as to the ease of enforcing acosts award against Ms Burton in Australia. No meaningful submissions werepresented to support this contention, and, in any event, Ms Burton apparently leads aperipatetic lifestyle in Australia and the United States making enforcement of a costsaward both difficult and expensive.[18] Based on the factors discussed I accept that Ms Burton could reasonably beexpected to provide security within a range of $25,000 to $35,000. I am adopting thelower figure. Largely overlooked by counsel is the agreement which was notified tothe court that Ms Burton would provide $25,000 as security for costs. Mr Smythemphasised that the decision to resile from the agreement was made reluctantly afterhe had taken advice as to his ethical obligations. I accept that was the case. However,6 Wakenshaw v Wakenshaw [2017] NZCA at [25], Vervoort v Forrest [2016] NZCA 375, [2016] 3NZLR 807 at [74] – [75].7 Vervoort v Forrest, above n 6 at [51] – [72].the sum of $25,000 was within the range of what the parties, acting reasonably, mightagree would be provided as security. Mr Smyth, presumably, had instructions fromthe defendants to accept that sum. There was no change of circumstances that I amaware of that justified the defendants seeking further security for their costs.Agreements reached between counsel on such matters should be honoured.Importantly, Ms Burton apparently acted on what was agreed and has $25,000available to provide as security for costs. She also incurred unnecessary costs onfurther negotiations and court attendances. It would be wrong that the defendants nowobtain an order that she provide security in a greater sum.The form of security[19] Counsel proceeded on the basis that security would be provided by Ms Burtonmaking payment of that sum to be held pending the determination of this proceedingand I consider that appropriate.Result[20] Ms Burton is to provide by way of security for the defendants' costs,disbursements and expert witnesses' fees the sum of $25,000. This sum is to be paidinto court by Ms Burton (or on her behalf) within 21 days of the date of this decisionand held on interest-bearing deposit pending further order of the court.[21] In the event that Ms Burton fails to comply with the order in [20], thisproceeding shall be stayed until the said sum of $25,000 is paid into court.[22] As far as costs are concerned, my initial impression is that costs should liewhere they fall. However, I will reserve costs and in the event that either party wishesto seek costs they may apply by memorandum within 14 days. Any reply memorandashall be filed seven days thereafter.[23] Subject to Ms Burton complying with the order in [20], this case will be calledfor a teleconference at 2.30pm on 23 July 2020. Counsel shall file preferably a jointmemorandum by no later than 21 July 2020 addressing all schedule 5 High CourtRules matters._______________________O G PaulsenAssociate JudgeSolicitors:Saunders & Co, ChristchurchSmyth & Co, Christchurch