LICENCED ASSETS LIMITED V RB PATEL AND NG PATEL (ALSO KNOWN AS NAGINBHAI NEIL GHELABHAI PATEL) HC WN CIV-2009-485-1878

LICENCED ASSETS LIMITED V RB PATEL AND NG PATEL (ALSO KNOWN AS NAGINBHAI NEIL GHELABHAI PATEL) HC WN CIV-2009-485-1878 5 October 2010IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2009-485-1878BETWEEN LICENCED ASSETS LIMITED Plaintiff AND RATILAL BHIKHABHAI PATEL AND NAGINBHAI GHELABHAI PATEL (ALSO KNOWN AS NAGINBHAI NEIL GHELABHAI PATEL) Defendants Hearing: 5 October 2010 Appearances: No appearance for the plaintiff Mr. G.W.D. Manktelow - Counsel for Defendants Judgment: 5 October 2010ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLSolicitors: Guy & Toby Manktelow, Solicitors, PO Box 31-265, Lower HuttIntroduction[1] Before the Court is an application by the defendants seeking an order for security for costs in this proceeding against the plaintiff. [2] The application is not opposed by the plaintiff in the sense that no formal notice of opposition to the application has been filed. [3] This is notwithstanding a direction made in a Minute issued by this Court on 14 September 2010 requiring the plaintiff to file and serve any notice of opposition and supporting affidavits by 24 September 2010. That has not occurred. [4] In addition there is no appearance on behalf of the plaintiff here today. [5] Significantly, the plaintiff is currently in receivership and a report from the receiver, Mr John Managh, dated 2 July 2010 which has been provided to the Court states effectively that the plaintiff company is insolvent. This report indicates that the secured creditor of the plaintiff company who appointed the receiver is owed approximately $486,800.00 and that no monies of any kind are likely to become available for unsecured creditors.Background Facts[6] The plaintiff is the owner and operator of a business that appears to have been trading in premises leased from the defendant trust since about 1999. The lease was assigned to the plaintiff in May 2007. In June 2009 the plaintiff entered into negotiations with the Defendant Trust regarding renewal of the lease. As I understand it, however, the Trust advised the plaintiff that the lease had expired. [7] The current proceedings brought by the plaintiff are effectively an application for relief against forfeiture of the lease. The plaintiff claims that the lease is still extant because clause 35 of the lease, which set out the procedure to be followed for a renewal, requiring the plaintiff to provide written notice by a given date, had not been followed in the years from 2001 to 2009.[8] As I understand the position, the plaintiff in its claim relies on 4 causes of action. The first cause of action is that the defendants are estopped from denying that the lease is extant and that they are obliged to renew the lease. The plaintiff argues that the Trust created a belief and expectation that the lease was extant and that the strict provisions of the lease could be departed from. The plaintiff says it will suffer considerable detriment if the provisions in clause 35 of the lease are strictly enforced as it will lose the benefit of the investment it says it has made in the premises, and will incur significant costs in attempting to re-establish the business elsewhere. [9] The second cause of action in the plaintiff's statement of claim is apparently to the effect that there was an implied term that, before the defendant Trust could require the tenant to comply with the relevant clause in the lease (clause 35) it needed to give the tenant reasonable notice, in advance of the time specified by that clause, that it wished to return to the procedure set out in the clause. [10] The third and fourth causes of action, which are pleaded in the alternative, appear to be for relief under s 261 Property Law Act 2007 and a claim that the defendant's notice was in any event invalid as a notice to vacate the premises. [11] Essentially in its application for relief against forfeiture of the lease, the plaintiff is asserting that it is a solvent company and it will be able to continue as a tenant in the premises if the relief sought is granted.The Law[12] The legal position on the defendant's application for security for costs is clear. The power to make such an order is contained in r 5.45 of the High Court Rules. This provides in part:5.45 Order for security of costs(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,— (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.[13] The Court of Appeal provided a useful summary of the general approach to be applied in such applications in A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747:[13] Rule 60(1)(b) High Court rules (now r 5.45(1)(b)) provides that where the court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, "the court may, if it thinks fit in all the circumstances, order the giving of security for costs". Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing "principles" from the facts of previous cases. [14] While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a check list of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances. [15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied. [16] Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.Defendants' Application[14] As I have noted the defendant's application for security for costs is not opposed by the plaintiff. [15] Rule 5.45 provides for a threshold requirement which is to the effect that the plaintiff is impecunious. In the absence of a concession as to impecuniosity the defendants are required to adduce credible evidence of surrounding circumstances from which it may be reasonably inferred that the plaintiff, if unsuccessful, will not be able to pay the defendant's costs.[16] In the present case, the defendants have placed before the Court the report of the receiver of the plaintiff company, Mr John Managh, dated 2 July 2010 which I have referred to above. [17] It is clear from this report that the defendant company is impecunious. It is in receivership, its assets may not even cover the debts owed to secured creditors, and the receiver confirms there will be no money available for unsecured creditors. [18] I am satisfied under these circumstances that the threshold requirement of impecuniosity has been established here.Merits[19] The next factor to be considered in applications of this type relates to the merits of the plaintiff's claim against the defendants. [20] In this case again there has been no opposition advanced by the plaintiff to the defendant's present application. [21] In addition, as I see the position, the plaintiff's proceeding which seeks relief against forfeiture of the lease must be predicated on the plaintiff's assertion that it is a solvent company and is willing and able to continue its business in the defendant's premises. That is the whole purpose of the proceeding. [22] From the report by the receiver Mr Managh, it would appear that this assertion that the plaintiff is a solvent company is quite wrong. There seems little doubt that the company is substantially insolvent and its ability to continue as a tenant in the premises, even if the relief against forfeiture application was to be successful, must be the subject of considerable doubt. [23] I am satisfied therefore that although any enquiry as to the merits of the plaintiff's claim at this relatively early stage of the proceeding must necessarily be somewhat limited, those merits here appear to be slim in the extreme.Balancing Interests of Parties[24] Before dealing with this final aspect, for the sake of completeness I note that there is no suggestion here that any impecuniosity suffered by the plaintiff has in any way been caused by the defendants. [25] Finally, in considering applications such as the present, the Court in exercising its discretion is required to balance the interests of the plaintiff and the defendants – AS McLaughlin Limited v MEL Network Limited. [26] An order for substantial security made at this point in the current proceeding is likely to result in the plaintiff being prevented from pursuing its claim against the defendants if, in fact, it is in any event in a position to do so. [27] As the authorities note this must, however, be balanced against the interests of the defendants who are to be protected against being drawn into unjustified litigation at considerable expense with no or little likelihood of recovering costs in the event that the defendants are successful – Orakei Technologies Limited v Geostel Vision Limited, High Court, Hamilton – CIV-2005-419-809, Associate Judge Faire – 13 December 2007. [28] Weighing up all these matters, and given particularly that the plaintiff is presently in receivership and appears effectively to be insolvent, I conclude that the proper balancing of the interests of the parties here must fall on the side of the defendants who should not be out of pocket because of the impecuniosity of the plaintiff in facing the present claim. [29] I conclude therefore that the defendant's present application for security for costs must succeed.Quantum[30] As to the quantum of security sought, Mr Manktelow for the defendants helpfully put before the Court a calculation of the total category 2B scale costs whichwould be likely to be incurred in this case for what he says will be a 2 day trial. These costs total $23,124.00. [31] Again as there is no opposition of any kind to the application before the Court by the plaintiff, no challenge to these costs has been made by the plaintiff. [32] As to the amount of the security to be ordered McGechan on Procedure at para HR5.45.07 states: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: A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA). Those circumstances include the: (a) Amount or nature of the relief claimed; (b) Nature of the proceeding, including the complexity and novelty of the issues, and therefore the likely extent of interlocutories; (c) Estimated duration of trial; and (d) Probable costs payable if the plaintiff is unsuccessful, and perhaps also the defendant's estimated actual (ie solicitor and client) costs. Insofar 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.[33] Bearing all these factors in mind, it is my view that security for costs should be fixed in this case against a probable award of category 2B scale costs to the defendants if successful in the vicinity of at least $23,000.00. [34] Given that some discount on the likely award of costs is usually provided in cases of this type, in my view the appropriate amount for security here is $20,000.00. This takes into account the fact that the plaintiff, despite issuing these proceedings against the defendants on 21 September 2009, has effectively taken no steps of any kind for several months, no doubt as a result of the fact that it was placed into receivership and, as I have noted, being effectively insolvent. That position, however, should not be visited upon the defendants who are the subject of the present proceedings.[35] Although the discount from actual category 2B costs here is not major, in my view under all the circumstances, it is appropriate.Conclusion[36] The defendant's application for security for costs against the plaintiff succeeds, for the reasons I have outlined above. [37] An order is now made that the plaintiff by 2 November 2010 is to give security for costs to the defendants in the total sum of $20,000.00 by paying this sum into Court, or by giving to the satisfaction of the Registrar proper security for this amount. [38] An order is now made staying the present proceeding until such time as security for costs as outlined above, has been properly given by the plaintiff.Costs[39] As to costs on the present application, the defendants have been entirely successful and I see no reason why costs should not follow the event in the usual way. [40] The defendants are entitled to costs on the present application on a category 2B basis together with disbursements as fixed by the Registrar. An order to this effect is now made.Next Call[41] In the meantime this matter is now listed for call in the Associate Judge's List on 16 November 2010 at 10.00 am to review the position.'Associate Judge D.I. Gendall'