CONRAD v THOMSON [2022] NZHC 2845

CONRAD v THOMSON [2022] NZHC 2845 [2 November 2022]IN THE HIGH COURT OF NEW ZEALANDROTORUA REGISTRYI TE KŌTI MATUA O AOTEAROATE ROTORUA-NUI-A-KAHUMATAMOMOE ROHECIV-2022-463-40[2022] NZHC 2845UNDER the Land Transfer Act 2017,section 143(2)(b)IN THE MATTER OF an application to sustain a caveatBETWEEN CLEO SONIA CONRADApplicantAND DESMOND RONALD THOMSONRespondentHearing: 4 October 2022Appearances: David G Hayes for the ApplicantPriscilla Kirk for the RespondentJudgment: 2 November 2022JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR[Security for costs]This judgment was delivered by me on 2 November 2022 at 11:00ampursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Hunwick Law Limited, Hamilton, for the ApplicantO'Sullivan Clemens (J W Murray/P Kirk), Rotorua, for the RespondentCounsel:David Hayes, New Zealand Commercial Law Corp Ltd, Hamilton, for the ApplicantIntroduction[1] Desmond Thomson, the respondent in this proceeding, applies for security forcosts against the applicant, Cleo Conrad.Background[2] Ms Conrad lodged a caveat over the title to 274 Spencer Road, Lake Tarawera,Rotorua (the Caveat). Mr Thomson applied to lapse the caveat. Ms Conrad, in turn,on 2 June 2022 applied to the Court for an order that the Caveat not lapse. The Courtmade an interim order on 13 June 2022 that the Caveat not lapse pending further orderof the Court.[3] Mr Thomson has applied for security for costs against Ms Conrad.Mr Thomson's security for costs application is to be heard and determined prior to thesubstantive hearing. This judgment determines Mr Thomson's application.[4] The background to the Caveat is that in 1997, Ms Conrad was residing in theUnited Kingdom. Ms Conrad has deposed that she was looking for an investmentproperty to purchase in New Zealand. Ms Conrad's mother, Ms Bailey, advisedMs Conrad that she had found the Lake Tarawera property. Ms Conrad says sheagreed for Ms Bailey to purchase the property for her as bare trustee for her interestsfor $268,000. She subsequently transferred that sum to New Zealand to enablesettlement on 10 November 1997, in the expectation that Ms Bailey would be the onlyperson named on the title.[5] Ms Conrad claims that a month after settlement she became aware thatMr Thomson, who was at that time Ms Bailey's de facto partner, had coercedMs Bailey into agreeing to name him on the title with her. She says it was never herintention for Mr Thomson to have any interest in the property. Instead of insisting hebe removed from the title, however, Ms Conrad had Ms Bailey execute a loanagreement for a loan secured over the property and that was intended to protect herinterest in the property.[6] Ms Conrad says she later discovered that Ms Bailey and Mr Thomson hadexecuted a property relationship settlement, whereby Ms Bailey's name was removedfrom the property's title and only Mr Thomson's name was left. She says, however,that by the time she discovered this, Ms Bailey and Mr Thomson had resumed theirrelationship. Ms Conrad claims she did not challenge Ms Bailey's name being takenoff the title at that time because she did not want to subject Ms Bailey to any unwantedconflict with Mr Thomson.[7] Ms Conrad now says Mr Thomson has mortgaged the property without herpermission, and in the full knowledge that he and Ms Bailey were each only on theproperty title as a bare trustee for Ms Conrad's interests. She says she is concernedMr Thomson may attempt to claim the property as his own, and she has caveated thetitle to protect her position.[8] For his part, Mr Thomson says there is no contractual relationship between heand Ms Conrad, that he is not holding the property on trust for her and that he ownsthe property in his own right.[9] Mr Thomson deposes that he and Ms Bailey separated in February 2009 andon 22 December 2010 they entered into a Separation and Relationship PropertyAgreement and Contracting Out Agreement setting out the division of their assets.Mr Thomson deposes that he acquired the property in his own right under theSeparation Agreement.Interlocutory application for an order for security for costs[10] Mr Thomson seeks an order for security for costs in the sum of $20,315.00 orsuch other sum as the Court considers sufficient, or the giving of security for that sum.11 Interlocutory application on notice for security for costs by the respondent of the substantiveapplication dated 10 August 2022 at [1].[11] The grounds on which the order is sought are:2a. On 2 June 2022, the Applicant applied against the Respondent for anOrder that a Caveat not to Lapse.b. The respondent has filed a Notice of Defence.c. The Application that A Caveat not Lapse has been set down for ahearing 6 October 2022.d. The Applicant is resident out of New Zealand; ande. There is reason to believe that the Applicant will be unable to pay thecosts of the defendant if the Applicant is unsuccessful in theApplicant's proceeding.f. It is just in all the circumstances, for an order to be made against theApplicant that they give security for costs.Affidavit of Desmond Thomson dated 10 August 2022[12] Mr Thomson has made an affidavit in support of his application for securityfor costs. He deposes that Ms Conrad resides in Queensland, Australia. He says he isaware that Ms Conrad was bankrupt from 6 October 2010 until 27 September 2013and that she has not provided any evidence about her current financial circumstances.He says further that he does not believe Ms Conrad's claim has any merit — he has nocontractual relationship with Ms Conrad and he does not accept that there is any trustrelationship between them.3[13] Mr Thomson says he is 80 years old, retired and reliant on his superannuationfor income. He says he has already had to incur significant legal fees in thisproceeding. He says he is entitled to protection against being drawn into unjustifiedlitigation and that an order for security for costs is therefore reasonable and necessary.He says he believes he will be successful in the substantive proceedings, and that inthat event he would seek costs against Ms Conrad based on a 2B scale. He estimatesMs Conrad would owe him costs in the amount of $20,315.00. His sought order forsecurity for costs is calculated on that basis.42 At [2].3 Affidavit of Desmond Ronald Thomson in support of interlocutory application for order forsecurity for costs dated 10 August 2022 at [7]–[11].4 At [12]–[16].Notice of opposition[14] Ms Conrad opposes Mr Thomson's application for security for costs on thefollowing grounds:5(a) An application to sustain a caveat is merely the caveator respondingto an application under s 143(1)(b) Land Transfer Act 2017 to lapse acaveat, and therefore cannot be reasonably be regarded ascommencing a proceeding. As such the Applicant here is effectively adefendant; and a defendant should not be subject to an order forsecurity of costs.(b) The Respondent's case is unlikely to succeed, as he admits in his ownevidence that he did not provide any monies towards the purchase ofthe property; and it has been confirmed in sworn evidence before theCourt that the Applicant provided all the monies.(c) If the fundamental common law principle of "money in – money out"was applied, the Applicant has sufficient interest in the property, - thatis registered in the Respondent's name, - to fully secure theRespondent for the security for costs that he seeks in his application.Affidavit of Cleo Conrad dated 23 August 2022[15] Ms Conrad has made an affidavit in support of her notice of opposition. Shedeposes that Mr Thomson has always known that she paid for the Lake Taraweraproperty, and that it was always to be held on trust — the caveatable interest she claimswas therefore always known to him. She says the last time she specifically discussedher ownership of the property with Mr Thomson was in February 2009, when she toldMs Bailey and Mr Thomson that she wanted to sell it and apply the funds to pay outthe mortgage over a different property. She says Mr Thompson reacted quite violentlyto the proposal and left soon afterward, leaving the matter unresolved.6[16] Ms Conrad says it was not until some years later that she learned Mr Thomsonhad "coerced" Ms Bailey into taking her name off the title pursuant to a purportedrelationship property settlement. She says further that Thompson is being deliberatelyuntruthful as he has always known that neither he nor Ms Bailey have ever had anyownership interest in the Lake Tarawera property. She says that it is incorrect to saythat her Australian bankruptcy affects her interest in the Lake Tarawera property —5 Notice of opposition to application by the respondent for security of costs of the substantialapplication dated 26 August 2022 at [3].6 Affidavit of Cleo Sonia Conrad dated 23 August 2022 at [1]–[5].it has been subject to a trust for her two children since their births, which pre-dates thebankruptcy, and it was accordingly never a part of her bankrupt estate.7Affidavit of Maxwell Conrad dated 23 August 2022[17] Ms Conrad's husband, Maxwell Conrad, has also made an affidavit in supportof her notice of opposition. He says he was present at the 2009 meeting betweenMs Conrad and Mr Thomson, and that he can confirm Ms Conrad's ownership of theLake Tarawera property was discussed. He says there is no doubt in his mind thatMr Thomson knew Ms Conrad had always owned the property.8[18] Mr Conrad also confirms he is aware that Ms Conrad provided all the fundsfor the purchase of the Lake Tarawera property, and that it was always agreed that itwould be held on trust exclusively for Ms Conrad and her interests. He says it wasnever intended that Mr Thomson ever have any ownership interest in the property.9Reply affidavit of Desmond Thomson dated 15 September 2022[19] Mr Thomson has made an affidavit in reply to Ms Conrad and Mr Conrad'saffidavits. He deposes that issues arose between 2006 and 2009, after the Conradspurchased a Gold Coast property for $13.5 million. He says it transpired that theConrads were unable to afford the property and they eventually sold it for a loss of$4.5 million. He says this led to the Conrads' bankruptcy. He says that was thebackground to the discussion that took place in 2009, to which both Ms Conrad andMr Conrad alluded.10[20] Mr Thomson deposes that at the 2009 meeting, the Conrads told Ms Bailey thather Queensland property would need to be sold to meet the Conrads' debts and toensure they would not be made bankrupt. He says he was incredulous that Ms Baileyshould lose her home as a result of the Conrads' poor investment choices. He stresses,however, that at that meeting there was no mention of the Lake Tarawera property atall. He denies the allegation that he coerced Ms Bailey into signing the relationship7 At [5]–[13].8 Affidavit of Maxwell Damian Conrad dated 23 August 2022 at [1]–[3].9 At [4].10 Further affidavit of Desmond Ronald Thomson dated 15 September 2022 at [1]–[9].property agreement. And he says the Lake Tarawera property cannot have been thesubject of a trust for Ms Conrad's two children, because neither was born at the timethe Conrads say the alleged trust was set up.11Mr Thomson's submissions[21] Priscilla Kirk, for Mr Thomson, submits that when a plaintiff is resident outsideNew Zealand, the Court may order security for costs against them. Primaryconsiderations in the exercise of the discretion are the ease, convenience, and costs ofenforcing a costs judgment in the plaintiff's country of residence. She says there willbe very few situations where the Court will have a reason not to order security from asolvent foreign plaintiff that is more compelling than the need to protect a defendantagainst a barren costs order.12[22] Ms Kirk says further that a central question is whether there are reasonablegrounds for thinking that Ms Conrad will not be able to pay the costs of litigation ifshe is unsuccessful. She submits that there will need to be credible evidence ofsurrounding circumstances from which it may reasonably be inferred Ms Conrad willbe unable to pay costs.13[23] Ms Kirk says that once it has been established that a plaintiff is non-residentor there is reason to believe a plaintiff is unable to pay a defendant's costs, then thejurisdiction to order security is available. The quantum of security should be such sumas the Court thinks fit in the circumstances. And a stay of proceedings pendingpayment of the security is the ordinary course.14[24] Ms Kirk turns to consider each of these legal points in terms of the presentfacts. She submits that it is an agreed fact that Ms Conrad resides in Queensland,Australia. She says that, notwithstanding the Trans-Tasman Proceedings Act 2010,enforcement of a costs order in Australia would be significantly more costly thanenforcing a costs order in New Zealand. With Mr Thomson being 80 years old and11 At [10]–[13] and [19].12 Submissions of counsel for the respondent in relation to application for security for costs dated3 October 2022 at [14]–[19].13 At [20]–[24].14 At [25].reliant on his superannuation income, issuing proceedings to recover costs in Australiawill be stressful and difficult. An order for security for costs now would protectMr Thomson from a barren costs order later.15[25] Next, Ms Kirk submits that it is reasonable to infer Ms Conrad will be unableto pay Mr Thomson's costs. She says Ms Conrad was bankrupt from 6 October 2010until 27 September 2013, and that Ms Conrad has so far refused to address the issueof security in a reasonable and cost-effective way. She points out that Ms Conrad hasprovided no evidence about her current financial circumstances and that she does notappear to have any interest in property in New Zealand.16[26] Ms Kirk says Mr Thomson has already had to incur significant legal fees inorder to file his notice of defence and to make this application. She says he is entitledto protection against being drawn into unjustified litigation. And she submits there isno evidence that an order for security in the sum of around $20,000 will preventMs Conrad from pursuing any claim she believes she may have.17[27] Ms Kirk says Ms Conrad's claim is meritless, discloses no reasonably arguablecause of action, is frivolous or vexatious, and is otherwise an abuse of the Court'sprocesses. She submits that there is a concern that if the Caveat is allowed to remain,it will be relied upon by Ms Conrad to pressure Mr Thomson into paying her fundsdespite her not having any real claim to the property.18[28] Pointing to a likely sum of $20,315.00 in 2B costs, Ms Kirk says Mr Thomsonseeks that amount be ordered be as security. She says it is appropriate that Ms Conradbe required to pay that sum before Mr Thomson incurs any further legal fees.19Ms Conrad's submissions[29] David Hayes, for Ms Conrad, submits Ms Conrad should not be denied her dayin court simply because of Mr Thomson's reliance on her past bankruptcy. He says15 At [34]–[38].16 At [39].17 At [40]–[42].18 At [43]–[47].19 At [48]–[50].Mr Thomson is inappropriately seeking to stifle Ms Conrad's claim on the basis of heralleged impecuniosity. He says further that Mr Thomson cannot seek security for costsbecause, similar to the context of applications to set aside bankruptcy notices, he hasarranged for a notice to remove the Caveat — Ms Conrad's application that the Caveatnot lapse is simply a response that preserves the existing position. It does not qualifyas the commencement of a proceeding.20[30] Mr Hayes says that, in reality, it is Mr Thomson that commenced theproceedings. He knew that legal proceedings would be the response to his request toremove the Caveat. Accordingly, Ms Conrad is not a "plaintiff" within the meaningof r 5.45 of the High Court Rules 2016. Further, Mr Hayes submits, the strength ofthe case favours Ms Conrad. He submits a full hearing will be required the assess theevidence.21[31] Finally, Mr Hayes submits that the claimed security of $20,135.00 is excessivefor this type of hearing. He says no security for costs should be ordered at this time.22Legal principles[32] Rule 5.45 of the High Court Rules provides:5.45 Order for security of costs(1) Subclause (2) applies if a Judge is satisfied, on the application of adefendant,—(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 theCompanies Act 1993) of a corporation incorporated outsideNew Zealand; or(b) that there is reason to believe that a plaintiff will be unable topay the costs of the defendant if the plaintiff is unsuccessfulin the plaintiff's proceeding.20 Submissions of counsel for application regarding security for costs dated 3 October 2022 at [1]–[12].21 At [13]–[19].22 At [20]–[21].(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 ismade to give security for costs as directed for a sum that theJudge 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 securitygiven.(4) A Judge may treat a plaintiff as being resident out of New Zealandeven though the plaintiff is temporarily resident in New Zealand.(5) A Judge may make an order under subclause (2) even if the defendanthas taken a step in the proceeding before applying for security.(6) References in this rule to a plaintiff and defendant are references tothe person (however described on the record) who, because of adocument filed in the proceeding (for example, a counterclaim), is inthe position of plaintiff or defendant.[33] In determining applications under r 5.45, the Court will generally follow thesesteps:23(a) Has the applicant satisfied the court of the threshold under r 5.45(1)?(b) How should the court exercise its direction under r 5.45(2)?(c) What amount should security for costs be fixed at?(d) Should a stay be ordered?[34] The decision to order security, and the quantum of such security, are at theCourt's discretion. It is generally not to be to be fettered by constructing "principles"from the facts of previous cases.24 But the Court is to balance the competing interests— being the defendant's interest in protection from a costs order that is incapable offulfilment and the plaintiff's right of access to justice.25 Courts will be slow to make23 Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].24 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [14].25 Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2837 at [4].an order for security that will stifle a genuine claim.26 This balancing exercise is theCourt's overriding consideration.27[35] The Court should assess whether there is:28 credible (that is, believable) evidence of surrounding circumstances fromwhich it may reasonably be inferred that the [party] will be unable to pay thecosts. This does not, of course, amount to proof that the [party] will, in fact,be unable to pay them.[36] The Court will assess the claim's merits and prospects of success, to the extentthat is possible at an early juncture.29 The Court will also consider the extent to whichthe plaintiff's impecuniosity may have been caused by the defendant's conduct.30[37] A plaintiff's unwillingness to pay previous judgment debts weighs in favour ofan order for security.31 But whether a plaintiff has been a responsible litigant issecondary to the issue of whether the lack of merit of the claim justifies security thatwould prevent the claim from proceeding.32[38] Quantum of security is discretionary and is assessed in the round. It need notbe fixed by reference to likely cost awards.33 It is to be what the Court thinks fit in allthe circumstances.34[39] A Court will generally stay a proceeding until the security ordered is given.3526 Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 at [3].27 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [24(c)].28 Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 (SC) at 519;NZ Kiwifruit Marketing Board v Maheatataka Coolpack Ltd (1993) 7 PRNZ 209 (HC) at 212; andStephenson v Jones [2013] NZHC 638.29 Meates v Taylor (1992) 5 PRNZ 524 (CA); and Lee v Lee [2019] NZCA 345 at [73].30 Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457 (HC).31 Taylor v Adair [2018] NZHC 1975 at [30]–[31], citing Burden v Dixie Cummings New Zealand[2016] NZHC 729 at [22]; and Mawhinney v Auckland Council [2014] NZHC 3207.32 Wright v Attorney-General [2019] NZHC 3046 at [26].33 Sharp v Pillay [2017] NZHC 647; and Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA284 at [30].34 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA).35 Tomanovich Holdings Ltd v Gibbston Community Water Co 2014 Ltd [2018] NZHC 990 at [68]and [85].Analysis[40] The issues to be determined in this judgment are:(a) Are the criteria in r 5.45(1) met so that the jurisdiction to award securityfor costs is available to the Court?(b) If the answer to the question at [40](a) is "Yes", should the Courtexercise its discretion under r 5.45(2) to award security for costs, andif so, what should the quantum of the award be?(c) If the answer to the question at [40](b) is "Yes" and the quantum of thesecurity for costs is fixed, should the Court order a stay of theproceedings pending the security being paid into Court?[41] I deal with each of these questions in turn.Are the criteria in r 5.45(1) met so that the jurisdiction to award security for costs isavailable to the Court?[42] In my view, the threshold under r 5.45(1) is met. There is no significantargument that the plaintiff resides in Queensland, Australia, and therefore falls withinr 5.45(1)(a)(i). I do not accept Mr Hayes' argument that Ms Conrad is not really a"plaintiff" because she is only responding to Mr Thomson's application for lapse thecaveat by bringing an application to sustain the caveat. In my view, this argumentignores the fact that the application to remove the caveat only became necessarybecause Ms Conrad had lodged the Caveat in the first instance. In substance, she isthe instigator of these proceedings, and a plaintiff.[43] While meeting the criteria under r 5.45(1)(a) is sufficient to engage the Court'sdiscretion under r 5.45(2), I continue on to consider briefly whether, for the purposesof r 5.45(1)(b), there is reason to believe that Ms Conrad will be unable to pay thecosts of Mr Thomson if Ms Conrad is unsuccessful in the proceedings. Ms Kirksubmitted that there is a reasonable inference that Ms Conrad will be unable to payMr Thomson's costs as Ms Conrad was bankrupt from 6 October 2010 until27 September 2013. However, given the period of time which has passed sinceMs Conrad was discharged from bankruptcy, I do not place much weight onMs Conrad's previous bankruptcy.[44] In my view, the position is that the Court does not have sufficient informationto draw a conclusion as to whether, for the purposes of s 5.45(1)(b), there is reason tobelieve Ms Conrad will be unable to pay Mr Thomson's costs if the proceedings areunsuccessful. It is noted that Ms Conrad has chosen not to put information before theCourt in relation to her financial position and ability to pay the costs award.[45] The answer to the question raised at [40](a) as to whether the criteria inr 5.45(1) are met is "Yes". Consequently, the Court's jurisdiction to award security forcosts is engaged.If the answer to the question at [40](a) is "Yes", should the Court exercise itsdiscretion under r 5.45(2) to award security for costs, and if so, what should thequantum of the award be?[46] Ms Kirk has submitted that Mr Thomson has already had to incur significantlegal fees to file his notice of defence and make the application for security for costs.Ms Kirk submits that Mr Thomson is entitled to protection against being drawn intounjustified litigation. She submits that Mr Thomson is 80 years old, retired, andrelying on his superannuation for an income.[47] As to the merits of Ms Conrad's claim, there is a significant conflict of evidenceas to whether the Lake Tarawera property is held on trust for Ms Conrad and herinterests. Clearly, the issues will need to be explored by further evidence dealt with ata trial. Ms Conrad's case is not hopeless in that she had submitted the loan agreemententered into by Ms Bailey on 31 December 1997 and the statutory declaration madeby Ms Bailey in May 2019. Mr Thomson, on the other hand points to Ms Bailey'sobligations of disclosure relating to the Separation Agreement signed between himselfand Ms Bailey, and makes the point that no reference to the trust or a loan fromMs Conrad was referred to in the disclosures or discussions leading up to signing theSeparation Agreement.Conclusion[48] In my view, it is appropriate that an order for security for costs be made infavour of Mr Thomson. The reasons for this are as follows:(a) Ms Conrad resides in Queensland and hence the threshold inr 5.45(1)(a)(i) is met to engage the Court's jurisdiction to make anaward of security for costs pursuant to r 5.45(2).(b) Ms Conrad has not provided any financial information about hercircumstances or ability to pay an award of costs should she beunsuccessful in the proceedings.(c) Ms Conrad has explained the delay in her taking any action to claimher alleged interest in the Lake Tarawera property, based on not wishingto cause conflict between Ms Bailey and Mr Thomson. However,Mr Thomson has relied on the Separation Agreement and hisownership of the property for 11 years. Ms Conrad has taken no actionto enforce an alleged claim during that period of time. Given the longdelay in bringing her claim, leading to the claim being brought againstMr Thomson in circumstances where he is elderly and, according to hisevidence, has limited financial resources, this is a factor which weighsin favour of Mr Thomson being given some protection against thelitigation costs.(d) Mr Thomson's personal circumstances, being 80 years old and relianton the superannuation as his only form of income. A barren award ofcosts could cause financial hardship for him.[49] As to the quantum of the security for costs, in my view, the amount sought byMr Thomson of $20,315.00 is excessive. Assessed in the round, security for costs of$10,000 would be appropriate in the present circumstances.If the answer to the question at [40](b) is "Yes", and the quantum of the security forcosts is fixed, should the Court order a stay of the proceedings pending the securitybeing paid into Court?[50] I propose that the usual position should apply in the present instance, and theproceedings should be stayed until the amount of the security for costs is paid intoCourt.Result[51] I make the following orders:(a) Ms Conrad is to provide security for costs in the amount of $10,000, tobe paid into the High Court at Rotorua.(b) The proceedings are stayed until the security for costs is paid intoCourt.(c) Costs in respect of this application are reserved to be dealt with at thesubstantive hearing...Associate Judge Taylor