ELEND PTY LIMITED AND ANOR V DAJ KELT HC NAP CIV-2004-441-526

ELEND PTY LIMITED AND ANOR V DAJ KELT HC NAP CIV-2004-441-526 5 December 2007IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY CIV-2004-441-526BETWEEN ELEND PTY LIMITED First Plaintiff AND PG FOODS PTY LIMITED Second Plaintiff AND DAJ KELT Defendant Hearing: 18 October 2007 Appearances: R.K.M. Hawk - Counsel for Plaintiffs M.E.J. MacFarlane - Counsel for Defendant Judgment: 5 December 2007 at 3.30 pmJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by Associate Judge Gendall on 5 December 2007 at 3.30 p.m. pursuant to r 540(4) of the High Court Rules 1985.Solicitors: Jackson, Russell, Solicitors, PO Box 3451, Auckland Sainsbury Logan & Williams, Solicitors, PO Box 41, NapierIntroduction[1] On 3 August 2007 the defendant filed an application for an order varying an existing security for costs order made in this proceeding on 11 November 2005. The application sought the following orders: 1. Varying the existing order as to security by requiring the amount then fixed to be paid in cash. 2. Fixing further security for costs to cover the trial and its preparation and requiring that security also to be paid in cash. 3. Staying the proceeding pending compliance by the plaintiffs with those orders. [2] The earlier security for costs order made on 11 November 2005 required $19,000.00 security for costs to be provided. This was to be made available first, by way of a mortgage over the shares in Boss Hoggs Hot Dogs Pty Limited ("Boss Hogs Pty") held by the first and second plaintiffs to secure this sum, and secondly by way of a mortgage or assignment security over the first plaintiff's interest in a debt of AUD$30,000.00 owing by Boss Hoggs Pty and over the second plaintiffs interest in a debt of AUD$41,000.00 owing by Boss Hoggs Pty. [3] The present application both to vary and for additional orders relating to security for costs is opposed by the defendants.Background Facts[4] The factual background to this proceeding is set out at paragraphs 6-22 inclusive of my judgment dated 11 November 2005 given with regard to the earlier security for costs application and other matters in this proceeding. [5] Since November 2005, new evidence has been provided on behalf of the defendant by Messrs Plum, Vautier and the defendant in their capacities as managing director, director and shareholder of the Boss Hoggs group respectively. That evidence is to the effect that the advances of AUD$30,000.00 and AUD$41,000.00 owing by Boss Hoggs Pty to the first plaintiff and the second plaintiff have little or no value. The evidence confirms further that the shares held by the plaintiffs in BossHoggs Pty similarly have little or no value. The affidavits depose that recently substantial funds have needed to be injected into the Boss Hoggs group by its shareholders including Mr Kelt and Mr Plum. The evidence advanced for the defendant claims that a substantial cause of the perilous state of the Boss Hoggs Group performance has been the past mismanagement failures by Mr Alt and Mr Giddy, shareholders and directors of the first and second plaintiffs. [6] Although this last point is strongly disputed by the plaintiffs, the evidence as to the present financial position of Boss Hoggs Pty advanced for the defendants before me was effectively unchallenged by the plaintiffs.Counsel's Arguments and My Decision[7] The present application seeks various security for costs orders in reliance on Rule 60(1) High Court Rules. The relevant part of this rule provides:"(1) Where the Court 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 (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 – The Court may, if it thinks fit in all the circumstances, order the giving of security for costs."[8] The plaintiff companies are Australian companies being incorporated out of New Zealand. Both the first plaintiff and the second plaintiff therefore are to be regarded as overseas plaintiffs. Given that the evidence presently before the Court is that their shareholding in and loan advances to Boss Hoggs Pty are of little or no value, it would appear they have little or no property in New Zealand.[9] The general approach to granting of security for costs against overseas plaintiffs was set out by McGechan J in Aquaculture Corporation v McFarlane Laboratories (1984) Limited 1 PRNZ 467 in the following way:"(a) There is no inflexible principle that such a plaintiff with no assets within the jurisdiction should normally be ordered to give security. (b) The Court's discretion is to be exercised by taking into account all the circumstances of the case and arriving at the conclusion which will do justice between the parties. (c) The ease, convenience and cost of procedures in the plaintiff's country of residence, ordinarily are primary considerations. New Zealand Courts have taken the view that the whole point of ordering security against an overseas plaintiff is to avoid the costs and difficulties of overseas enforcement. (d) Otherwise, the principles applicable to applications for security by a plaintiff resident overseas are those applicable under rule 60(1)(b)."[10] There seems little question here that the plaintiffs accept they have no assets within the jurisdiction and accordingly the Court may if it thinks fit in all the circumstances order the giving of security for costs pursuant to Rule 60(1). [11] The defendant throughout has maintained the view here that the principals of the first and second plaintiffs (Messrs Alt & Giddy) are responsible for the losses caused to the Boss Hoggs group. Indeed the defendant alleges that the shares and loans held by the plaintiffs in Boss Hoggs Pty are valueless due to the earlier management incompetence of Messrs Alt & Giddy. That is disputed by the plaintiffs and of course remains a matter for trial. [12] Notwithstanding this, two issues require consideration here. These are: (a) The strength or merits of the plaintiffs' case.(b) If, as I have found, the first and second plaintiffs are without assets, whether this may have been caused by the actions of the defendant. [13] Before turning to these issues, however, it must be noted that the Court has power to review, set aside or vary an order for security for costs already made –Cargill NZ Limited v Palmerston Wool Company Limited (1997) 11 PRNZ 52. This is also the case where the order in question was made on a mistaken basis – Raymond Tansley Panelbeaters Limited v NZI Insurance Limited High Court, Wellington 11 October 1995 CP57/93 Master Thomson. [14] The defendant contends that the mistaken basis for the earlier order here is the supposed true value of the Boss Hoggs Pty shares and loan advances when the recent uncontested facts before the Court are that those shares and advances are worth little. [15] It is unfortunate to say the least that the defendant, Mr Kelt, now resiles from the clear statement he made at paragraph 70 of his affidavit dated 25 August 2005 when he deposed:"I am pleased to say that both Boss Hoggs Pty and Boss Foods Pty are in a sound financial position and each are well on the way of achieving the objectives, business goals and profitability outlined in the original representations made to Mr Alt."[16] It seems now that this statement was either wrong or at best it was cavalier. Certainly, as I have already noted, the present uncontested evidence before the Court confirms that the shares and loans to Boss Hoggs Pty are of little value. [17] That said, there can be little argument that the existing security for costs order made on 11 November 2005 should be varied by requiring the $19,000.00 ordered there either to be paid in cash or by providing an appropriate bank instrument rather than by provision of the securities noted at paragraph 47 of that judgment. Orders to this effect as part of the overall orders to be made in this matter will follow.[18] Turning now to consider the strength or merits of the plaintiff's case, at the outset it needs to be acknowledged that it is always difficult to assess the merits of a plaintiff's claim at an early stage of the proceedings such as this – Meates v Taylor(1992) 5 PRNZ 524 (CA). [19] The plaintiffs essential argument is that the reasons for the failure of the company to achieve projected profits were the misrepresentations of the defendant (promised sales of $6.5 million dollars and profits of AUD$500,000.00) and this caused the company's failure rather than anything they did. [20] A central issue at trial would appear to be whether the defendant made it sufficiently clear that he was representing actual annual sales and profit figures to the plaintiffs or their directors when he provided the annualised profit figures. The plaintiffs' position is that the defendant was at least reckless in his assertions and that they certainly understood that the old company was achieving the sales and profit figures which were outlined. This is disputed by the defendant. [21] Significant factual disputes obviously arise here. These are matters which can only be determined at trial. [22] Turning now to the impecuniosity issue, McGechan on Procedure at Para. HR60.03(c) notes that one factor relevant in dealing with security for costs applications is:"Any 'reasonable probability', established by persuasive evidence – mere assertion will not suffice – that the plaintiff's impecuniosity results from the defendant's actions complained of in the proceeding As with the merits, assessment of this factor, short of a full hearing, is regularly acknowledged as being very difficult, if not impossible: Meates v Taylor (1992) 5 PRNZ 524 (CA)."[23] In the present case, the plaintiffs' Notice of Opposition to the 3 August 2007 security for costs application does not list as a ground for opposition that any impecuniosity of the plaintiffs has resulted from the defendants' actions. It may be,however, that this is implicit from the nature of the plaintiffs' claims against the defendant. But as I see it, there is little in the way of persuasive evidence put before the Court by the plaintiffs as to this aspect. The plaintiff has not done enough here to show a 'reasonable probability' established by persuasive evidence that the plaintiffs' impecuniosity here has been caused by the defendants' actions. In my view, this aspect does not assist the plaintiffs here. [24] As I see it, in all the circumstances of this case, security at a realistic level should be provided by the overseas corporate plaintiffs in the interests of justice between the parties. The plaintiffs would appear to have little or no assets and they have not made serious attempts to disclose full information as to their financial positions. The Court is entitled to proceed upon the basis that the first and the second plaintiffs have no assets other than the advances to and shares in Boss Hoggs Pty. [25] As to the shareholders and directors of the first plaintiff and the second plaintiff (Messrs Alt & Giddy) the defendant notes that the Court has had no disclosure from them of their financial positions. It is suggested therefore that the Court is entitled to infer the availability of appropriate funding from Messrs Alt & Giddy for security and costs purposes. Such appeared to be the case in Attorney General v Transport Control Systems (NZ) Limited [1982] 2 NZLR 19. As I understand the position Mr Giddy at least holds or held a senior executive position and may well have the financial means to fund this litigation. [26] Balancing all these factors, I take the view that an increase over the existing order by way of security should be provided here in favour of the defendant. I say this especially given the overseas status of the plaintiffs, the possibility that the plaintiffs' shareholders might be in a position to provide security if the plaintiff companies are unable to do so, and the need to strike a reasonable balance between the interests of the plaintiffs and the interests of the defendant here which will achieve justice between them.Quantum[27] I turn now to the question of the total quantum of security to be ordered. As to this, McGechan on Procedure at para. HR60.07 provides:"The amount of security is equally in the Court's discretion. It is not necessarily to be fixed by reference to likely costs awards. Rather, it is to be what the Court thinks fit in all the circumstances: AS McLaughlin Limited v MEL Network Limited (2002) 16 PRNZ 747 (CA). Those circumstances include: (a) The amount or nature of the relief claimed. (b) The nature of the proceeding, including the complexity and novelty of the issues, and therefore the likely extent of interlocutories. (c) The estimated duration of trial. (d) The probable costs payable if the plaintiff is unsuccessful, and perhaps also the defendant's estimated actual (i.e. solicitor and client) costs."[28] Before me, counsel for the defendant submitted that the actual costs the defendant is facing to proceed to trial from this point will be around $100,000.00 (calculated on a 10 day trial) together with disbursements. Calculated, however, on a Category 2B basis, counsel for the defendant submitted that these costs would amount to approximately a further $80,000.00 together with disbursements of $26,000.00 (including expert witnesses fees) giving an all up total of $106,000.00. [29] In response counsel for the plaintiff suggested that the trial would not last 10 days. He thought that a hearing of 6 days maximum would be all that is required. On this basis, counsel for the plaintiffs calculated Category 2B costs at a total of $49,600.00 with expert witness fees and other disbursements totalling $8,600.00 giving an all up total of $58,200.00. This is significantly less than the $126,000.00 actual costs and disbursements and $106,200.00 scale costs and disbursements suggested by counsel for the defendant.[30] McGechan on Procedure at para. HR60.07 does go on to provide that:"In so far as past awards of security are a legitimate guide, they generally represent some discount on the likely award of costs as calculated under Schedule 3."[31] That said, and given the dispute between counsel as to the likely trial duration here, I take the view that total security for costs (including the $19,000.00 already ordered) of $45,000.00 plus an amount for disbursements and expert witnesses fees of $8,000.00 making a total of $53,000.00 should be awarded here. [32] This security should be paid in cash or by appropriate bank instrument approved by the Registrar. [33] So far as the defendants additional application for an order staying this proceeding pending payment of the security is concerned, before me counsel for the defendant pragmatically suggested that the stay application might be left in abeyance in the meantime on the basis that a trial of this matter would be at least some 6 months away. There was also some suggestion that this proceeding might be considered as suitable for a judicial settlement conference at some stage in the future. [34] That said, there is to be no order at this point staying this proceeding.Orders[35] The defendant having succeeded in his present security for costs application, the following orders are now made: 1. The first plaintiff and the second plaintiff together are to give security for costs of the defendant in the sum of $45,000.00 plus disbursements of $8,600.00 making a total of $53,600.00 by paying this total sum into Court or by giving to the satisfaction of the Registrar a proper bank instrument security for this sum.2. The defendant is entitled to an order for costs on this application which are awarded on a Category 2B basis together with disbursements (if any) as fixed by the Registrar.'Associate Judge D.I. Gendall'