MCNAUGHTON v MILLER [2022] NZCA 273

MCNAUGHTON v MILLER [2022] NZCA 273 [27 June 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA109/2022[2022] NZCA 273BETWEEN RICHARD MCNAUGHTONApplicantAND RODNEY MILLERFirst RespondentGARY KAYEFourth RespondentTAVERNER KEYS & COFifth RespondentCourt: Collins and Katz JJCounsel: Applicant in personD A Bleier for First RespondentV S Wethey for Fourth RespondentB J Sanders for Fifth RespondentJudgment:(On the papers)27 June 2022 at 11:00 amJUDGMENT OF THE COURTA The application for leave to appeal is declined.B The applicant must pay each of the respondents costs for a standardapplication on a band A basis and usual disbursements____________________________________________________________________REASONS OF THE COURT(Given by Katz J)Introduction[1] Mr McNaughton applies to this Court for leave to appeal a decision ofAssociate Judge Johnston ordering Mr McNaughton to provide security for costs.1The Judge declined Mr McNaughton's subsequent application for leave to appeal tothis Court.2 Mr McNaughton now applies to this Court for leave to appeal, pursuantto s 56(5) of the Senior Courts Act 2016.Leave principles[2] The principles that apply to an application seeking leave to appeal aninterlocutory decision are well settled. In Finewood Upholstery Ltd v VaughanFitzgerald J observed that:3[13]The requirement for leave to appeal should serve as a "filteringmechanism", to ensure that unmeritorious appeals of interlocutory orders, orappeals of interlocutory orders of no great significance to either the parties ormore generally, do not unnecessarily delay the proceedings in which the orderswere made.[3] The following considerations apply:4(a) a high threshold exists;(b) the applicant must identify an arguable error of law or fact;(c) the alleged error should be of general or public importance warrantingdetermination or otherwise of sufficient importance to the applicant tooutweigh the lack of general or precedential value;(d) the circumstances must warrant incurring further delay; and(e) the ultimate question is whether the interests of justice are served bygranting leave.1 McNaughton v Miller [2021] NZHC 2688 [Security judgment].2 McNaughton v Miller [2022] NZHC 232 [Leave judgment]. Mr McNaughton was required toapply to the High Court for leave to appeal before applying to this Court: Senior Courts Act 2016,s 56(3).3 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679.4 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6], citing Finewood UpholsteryLtd, above n 3.Background[4] Mr McNaughton is a solicitor. He initially represented himself, includingpreparing and filing submissions in support of this leave application. Mr McNaughtonadvises, however, that he has recently been granted legal aid. He is now apparentlyrepresented by counsel in the High Court proceeding. The respondents have beenrepresented by counsel throughout.[5] The High Court proceeding is against three remaining defendants (the claimsagainst two other defendants have been discontinued) and alleges breach of contract,breach of the Fair Trading Act 1986, negligent misstatement, fraud, conspiracy andpromissory estoppel.[6] The underlying dispute concerns the purchase of a plumbing and drainagecompany by Mr McNaughton in mid-2017. The business was sold by companiesassociated with Mr Miller to companies associated with Mr McNaughton for$1,250,000. Mr Kaye was the business broker engaged by Mr Miller in relation to themarketing and sale of the company. Mr McNaughton alleges that he purchased thebusiness in reliance upon forward orders which had been under-quoted. As a result,he alleges, the company he incorporated to acquire the business did not make theprojected profit, and this in turn caused its failure. Mr McNaughton claims damagesof just under $6 million from Mr Miller and/or Mr Kaye.[7] Taverner Keys & Co are in a somewhat different position. They wereMr McNaughton's solicitors at the time that he negotiated and entered into the saleand purchase agreement for the plumbing business. Essentially, Mr Miller claims thatTaverner Keys was negligent, with concurrent liability in contract. All threedefendants deny the claims against them.[8] Mr Miller filed an application pursuant to r 5.45 of the High Court Rules 2016seeking security for costs in the sum of $130,000, to be paid in stages. The quantumsought was based on counsel's assessment of likely scale costs (estimated at $128,821)if the matter proceeded to trial, having regard to the likely length of the hearing andthe manner in which Mr Miller has conducted the proceeding to date. Mr Kaye andTaverner Keys subsequently also filed applications seeking security for costs. As aresult, Mr Miller reduced the quantum of costs sought and each of the three defendantssought $75,000 security for costs, to be paid in stages as the claim progressed towardstrial.[9] Mr McNaughton filed a notice of opposition to the applications. In it he stated,amongst other things, that:The plaintiff / respondent has never been opposed to providing security andhas been willing to consider the issue of security on a principled basis. The security for costs hearing[10] The High Court hearing took a day. It is apparent from the transcript that MrMcNaughton:(a) made submissions on the merits of his claims;(b) accepted that the requirements for ordering security for costs had beenmet;(c) confirmed that the main issue related to what was fair and reasonablein terms of quantum and also how any order for security was to bestructured;(d) stated that he could not pay a significant order for security in cash andsuggested instead that security could be provided over a propertylegally owned by his parents, in which he had a beneficial interest of atleast $500,000; and(e) suggested that security in the sum of $75,000 should cover all threedefendants, but that he would "ultimately go with [the Court's]decision".The Judge's decision[11] The Judge recorded that Mr McNaughton had conceded that the threshold forsecurity was met and the defendants were prima facie entitled to an order.5 GivenMr McNaughton's submission that an order for security in cash would prevent himfrom prosecuting his claim, however, the Judge ordered that security be provided overthe property registered in the name of Mr McNaughton's parents, as Mr McNaughtonhad suggested.6 The quantum of the security ordered was $225,000 in total ($75,000in respect of each defendant).7 The Judge also observed that from the limited argumenton the merits it was "not obvious that Mr McNaughton's claim is a strong one".8[12] Mr McNaughton subsequently sought leave to appeal the decision. The appealappears to have been prompted, at least in part, by the fact that Mr McNaughton'sparents were not willing to provide their property as security.[13] The Judge declined the application for leave to appeal on the basis thatMr McNaughton had effectively consented to the order for security.9 His Honournoted that if Mr McNaughton's parents did not consent to their property being used assecurity, Mr McNaughton could apply to substitute another type of security.10Application to this Court for leave to appeal[14] Mr McNaughton has filed a synopsis of his argument, as well as three sets ofsubmissions in reply to the respondents' submissions. His submissions have becomesomewhat more focussed in reply. Although Mr McNaughton originally appeared toseek to resile from some of the concessions he made in the High Court, his finalproposed grounds of appeal appear to be that the Judge, when setting the quantum ofsecurity at $225,000:(a) failed to take into account the merits of Mr McNaughton's substantiveclaims against the defendants;5 Security judgment, above n 1, at [16(a)] and [16(b)].6 At [16(d)], [16(e)] and [23]–[25].7 At [19]–[20].8 At [12].9 Leave judgment, above n 2, at [7]–[9].10 At [11].(b) failed to consider the fact that his impecuniosity was caused by thedefendants' conduct;(c) predetermined the outcome of the application; and(d) failed to have regard to the fact that security at such a level will preventMr McNaughton from engaging counsel and experts for trial.[15] The proposed appeal therefore relates to the amount of security ordered, ratherthan the making of the order per se.Discussion[16] Rule 5.45 of the High Court Rules relevantly provides that if a Judge issatisfied that there is reason to believe that a plaintiff will be unable to pay the costsof the defendant if the plaintiff is unsuccessful in the proceeding, the Judge may, if heor she thinks it is just in all the circumstances, order the giving of security for costs.[17] Whether or not to order security and, if so, the quantum of such security, arematters of discretion. What is called for is "an assessment in the round".11 The amountof security is not necessarily to be fixed by reference to likely costs awards (althoughthat may well be relevant). Ultimately, however, it is what the court thinks fit in allthe circumstances.12 Those circumstances will generally include the:13(a) amount or nature of the relief claimed;(b) nature of the proceeding, including the complexity and novelty of theissues, and therefore the likely extent of interlocutories;(c) estimated duration of trial; and(d) probable costs payable if the plaintiff is unsuccessful, and perhapsalso the defendant's estimated actual (ie solicitor and client) costs.11 Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA 284, (2021) 25 PRNZ 780 at [30].12 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [27].13 As summarised in Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at[HR5.45.07].[18] Issues such as the underlying merits of the proceeding, and whether theplaintiff's impecuniosity was arguably caused by the defendants' actions, are generallyconsidered at the first stage of the inquiry (whether an order for security for costs isappropriate at all). We accept, however, that these issues may also have somerelevance on the issue of quantum in this case.[19] It is well recognised, however, that there is a limit as to how far an inquiry intothe merits can be made, particularly at an early stage of the proceeding.14 As notedin Ngai Te Hapu Inc "[f]or obvious reasons a thorough review of the merits would beimpractical and undesirable in an interlocutory context".15 Here, the statement ofclaim (although already in its fourth iteration) appears to be poorly pleaded and likelyrequires substantial further amendment. Only one defendant (not Mr Miller, theprimary defendant) has yet filed a statement of defence. The issues appear to be ofsome complexity. In a complex matter, any assessment of the merits will be no morethan an impression.16[20] Taking these matters into account, together with the fact that Mr McNaughtonaccepted that an order for security for costs (in the form of a charge over property)was appropriate and the sole issue is one of quantum, it is our view that the Judge'sfailure to provide a more detailed analysis of the merits of Mr McNaughton's claimsdoes not give rise to an arguable error of law.[21] Similarly, the Judge expressly acknowledged that there was "no doubt that[Mr McNaughton] would say that his financial position has been brought about by theactions of the defendants".17 Obviously, however, the weight of this factor is reducedby the Judge's preliminary assessment that Mr McNaughton's claim did not appear tobe a strong one.1814 Meates v Taylor (1992) 5 PRNZ 524 (CA) at 528; and Lee v Lee [2019] NZCA 345 at [73].15 Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [21].16 A S McLachlan Ltd, above n 12, at [21].17 Security judgment, above n 1, at [13].18 At [12]–[13].[22] Nor does the suggestion of predetermination give rise to an arguable error offact or law. There is nothing in the transcript or any other document before us tosupport such a submission.[23] Finally, the suggestion that the level of security imposed would preventMr McNaughton from engaging counsel and experts for trial does not appear to havebeen a matter that was raised at the hearing, directly at least. We note, for example,that Mr McNaughton informed the Judge that he had $500,000 equity in his parents'property, which is considerably more than the quantum of security ordered.[24] The real issue appears to be that Mr McNaughton is unable to provide securityin the form originally contemplated, in any sum. No proposal is made to substituteanother form of security, however. Nor does Mr McNaughton propose an alternative,lesser, amount of security and seek to justify that sum. Rather, although it is notentirely clear, the outcome Mr McNaughton appears to seek in his proposed appeal isthat security for costs be set aside completely. This is despite Mr McNaughton havingconceded in the High Court that an order for security was appropriate.[25] Taking all of these matters into account, it is our view that Mr McNaughtonhas failed to identify any seriously arguable errors of fact or law in the exercise of theJudge's discretion to set the amount of security for costs. At the very least, theproposed arguments are not sufficiently meritorious to outweigh the cost andinconvenience of bringing an appeal. Consequently, the high threshold for the grantof leave to appeal has not been crossed. The interests of justice would not be servedby granting leave.[26] For completeness, we note that since the parties filed submissions in relationto this application, Mr McNaughton has advised this Court that he has been grantedlegal aid in respect of his "claims against the respondents" in CIV 2021-435-01.Section 45 of the Legal Services Act 2011 provides that "[n]o order for costs may bemade against an aided person in a civil proceeding unless the court is satisfied thatthere are exceptional circumstances."19 The High Court has jurisdiction to vary or set19 Legal Services Act 2011, s 45(2).aside an order where there has been a significant change in material circumstances.20The High Court, in our view, is the appropriate forum to address any security for costsissues that result from Mr McNaughton's changed circumstances (whether these ariseout of his grant of legal aid, or the fact that he has been unable to provide security overhis parents' home).Costs[27] All three respondents seek indemnity costs, although detailed submissionswere not made on this issue. In essence, the respondents say that in light of the variousadmissions and concessions made by Mr McNaughton prior to and at the security forcosts hearing, it is clear that the application for leave to appeal should never have beenbrought. In addition, Mr McNaughton was put on notice that the respondents wouldseek indemnity costs if the appeal was pursued but proceeded regardless.[28] Although the arguments advanced by Mr McNaughton in support of hisapplication for leave to appeal are weak, we have not been persuaded that the highthreshold for ordering indemnity costs, as set out in r 53E(3) of the Court of Appeal(Civil) Rules 2005, is met..[29] For completeness, we note that Mr McNaughton has not suggested that thegrant of legal aid in the High Court proceeding is relevant to the issue of costs inrespect of this application (which pre-dated that grant) and we proceed on that basis.Result[30] The application for leave to appeal is declined.[31] The applicant must pay each of the respondents costs for a standard applicationon a band A basis and usual disbursements.Solicitors:Gawith Burridge, Masterton for First RespondentFee Langstone, Auckland for Fourth RespondentDarroch Forrest Lawyers, Wellington for Fifth Respondent20 See for example Driver v Radio New Zealand Ltd [2020] NZHC 2903 at [8].