LEE v LEE [2019] NZCA 345

LEE v LEE [2019] NZCA 345 [30 July 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA458/2017[2019] NZCA 345BETWEEN ROBERT LEE AS TRUSTEE OF THEESTATE OF J G LEEAppellantAND GREGORY LEEFirst RespondentGREGORY LEE AND JANE LOIS LEE ASTRUSTEES OF THE LEEROY FAMILYTRUSTSecond RespondentsHearing: 27 June 2019Court: Stevens, Venning and Dunningham JJCounsel: Appellant in personD A T Chambers QC and A H H Choi for RespondentsJudgment: 30 July 2019 at 4.00 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The plaintiffs in CIV-2010-463-430 are to provide security for costs inthe sum of $75,000 to the satisfaction of the Registrar.C In the event security is not provided by 16 August 2019 the proceeding willbe stayed.D The appellant must pay the respondents one set of costs for a standardappeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Venning J)Introduction[1] Last year this Court granted Mr Lee leave to appeal against a decision ofthe High Court requiring him to provide security for costs.1[2] The approved question for which leave was granted was whetherthe High Court was wrong in all the circumstances of the case to order Mr Lee toprovide security for costs without considering the merits of his claim.2Background[3] It is instructive to put Mr Lee's claim and the procedural background to theseproceedings in context.[4] In June 2010 Mr Lee applied for a pre-proceeding order for discovery. He thenfiled a statement of claim on 30 September 2011 citing himself as first plaintiff andhis sister, Helen Heard, as second plaintiff. They brought the proceedings in theircapacity as trustees of the estate of their late mother, Joyce Lee.3[5] The plaintiffs challenge transactions pursuant to which their parents transferredshares in a plastic manufacturing business, High Duty Plastics Ltd (HDP) to theirbrother Gregory Lee. They allege that Gregory exercised undue influence over theirparents and acted in breach of fiduciary duty. They say Gregory obtained anunconscionable bargain. They seek a variety of orders including setting asidethe transfer and an account of profits.[6] The plaintiffs' case is that the transactions in issue took place in August 2000.The defendants (Gregory Lee and Jane Lee) say the shares were transferred in 1997as part of a family arrangement at that time.1 Lee v Lee [2017] NZHC 431.2 Lee v Lee [2018] NZCA 282.3 As trustees they should have been cited as one plaintiff.[7] On 6 December 2012 Associate Judge Christiansen struck out the plaintiffs'claims on limitation grounds.4 On review Collins J upheld that decision.5 However, itwas reversed on appeal by this Court and the proceedings were reinstated on4 November 2015.6[8] On 23 May 2016 Associate Judge Christiansen heard a number of interlocutoryapplications, including the defendants' application for security for costs.7 Duringthe course of the hearing the Court adjourned to enable counsel, Ms Chambers QC andMr Lee, to discuss the provision of security.8 Following that adjournmentMs Chambers submitted that security might be provided by Mr Lee in the form of asecond registered mortgage over a property owned by a trust, the RB and JG LeeFamily Trust (the Trust), but occupied by him at 101 Springfield Road, Rotorua(the Springfield Road property). The security was to be up to a maximum of $150,000which was the sum then calculated to cover all costs in the event of judgment againstthe plaintiffs. The Judge endorsed that approach.9 He made an order that security beprovided in those terms, directing that a registered mortgage be provided within21 days and until provided, the plaintiffs' proceedings were to be stayed. Leave wasreserved to settle the terms of the mortgage.10[9] Mr Lee applied to review the orders requiring the plaintiffs to pay security.That application, together with other pre-trial applications, was heard inDecember 2016 before Davison J.[10] In his judgment issued on 14 March 2017, Davison J allowed Mr Lee'sapplication for review in part.11 Davison J determined that, on the basis of theinformation regarding the available equity in the trust property and, as the trial was tobe split between liability and quantum, the appropriate sum for security was $75,000rather than $150,000. Although the Judge recorded that the property was held in trust4 Lee v Lee [2012] NZHC 3283.5 Lee v Lee [2013] NZHC 1069.6 Lee v Lee [2015] NZCA 514, [2016] NZAR 61.7 Lee v Lee [2016] NZHC 1073.8 At [33].9 At [34]–[35].10 At [36].11 Lee v Lee [2017] NZHC 431.and that Mr Lee had indicated his co-trustee Mr Aarts was unlikely to agree to providemortgage security, Davison J directed that security for that sum be provided by Mr Leeby way of a registrable second mortgage over the property.12 In the event ofnon-compliance by 24 March 2017 the proceedings were to be stayed.13[11] Mr Lee did not provide the mortgage. He says his co-trustee Mr Aarts refusedto sign the mortgage.[12] In the meantime the Court had allocated a substantive fixture for five days tocommence on 3 April 2017. Mr Lee sought to vacate the substantive fixture.That application was declined by Davison J at a teleconference on 21 February 2017.Davison J observed that:[19] I note that this proceeding has been underway now for a considerabletime and that since mid 2016, a fixture in the first half of 2017 has beenanticipated. Whilst the first plaintiff may have been preoccupied with otheraspects of the case and has had difficulty in dealing with the volume ofmaterial he wishes to review, and preparing himself for the hearing, it is hisresponsibility as plaintiff to do so. The Court recognises that a litigant inperson may find the process of trial preparation more difficult than parties whohave legal representation. However, the Court is also concerned to ensure thatthe interests of justice are served for all parties which of course includesthe defendants, by ensuring that proceedings are conducted as efficiently andexpeditiously as possible. In my view the point has clearly been reachedwhere this matter should be determined at the scheduled April hearing withoutfurther delays, and accordingly I have confirmed the fixture and made thenecessary timetable directions.[13] The case came before Edwards J in Rotorua on 3 April 2017.14 There was noappearance for Mrs Heard, and no reason given for her non-appearance. On behalf ofthe defendants Ms Chambers sought an order lifting the stay to allow the trial toproceed (on the basis that an order be made directing the Registrar to sign the mortgagedocument).15 Mr Lee opposed the stay being lifted. He stressed he was entitled torely on Davison J's order that the proceeding would be stayed if the mortgage was notprovided.1612 At [29].13 At [30]–[31].14 Lee v Lee [2017] NZHC 712.15 At [17].16 At [18].[14] Edwards J recorded her assessment of the position as follows:[20] There was considerable merit in Ms Chambers' submission thatMr Robert Lee had deliberately failed to comply with Court orders so that hecould secure the very adjournment of the fixture which had been declined onearlier occasions. The ongoing hardship to the defendants in not having a finalresolution of all issues also weighed in favour of the stay being lifted so thatthe trial could proceed. Despite that, the Judge accepted that the stay should remain in place.17 Ultimately shedecided to vacate the substantive fixture.[15] A week later, on 10 April 2017, Mr Lee applied for leave to appealthe judgment of Davison J. On 30 June Davison J dismissed the application anddeclined leave to appeal.18[16] Mr Lee subsequently applied to this Court for leave to appeal and obtainedleave in the judgment issued on 1 August 2018 on the terms referred to.19[17] The respondents have given notice of their intention to support the High Courtdecision on other grounds. They say that if the merits of the plaintiffs' claims areconsidered, they support the order for security for costs.The relevant rule[18] Security for costs is provided for under r 5.45 of the High Court Rules 2016(the Rules):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; or17 At [25].18 Lee v Lee [2017] NZHC 1503.19 Lee v Lee, above n 2.(iii) is a subsidiary (within the meaning of section 5 ofthe Companies Act 1993) of a corporationincorporated outside New 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.(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 thatthe Judge considers sufficient—(i) by paying that sum into court; or(ii) by giving, to the satisfaction of the Judge orthe 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.[19] In the present case Mr Lee accepted he was impecunious and would otherwisebe unable to pay the costs of the defendants if he was unsuccessful in the proceeding.Mrs Heard lives in Australia. It is accepted that she is impecunious as well. In thecircumstances the discretion under r 5.45(2) is engaged.[20] The discretion is a broad one. It may be exercised to require security even ifthat may prevent a plaintiff from pursuing a claim. But access to the Court for agenuine plaintiff is not lightly to be denied. In A S McLachlan Ltd v MEL NetworkLtd this Court summarised the position:2020 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13]–[14].[15] The rule itself contemplates an order for security where the plaintiffwill be unable to meet an adverse award of costs. That must be taken ascontemplating also that an order for substantial security may, in effect, preventthe plaintiff from pursuing the claim. An order having that effect should bemade only after careful consideration and in a case in which the claim haslittle chance of success. Access to the Courts for a genuine plaintiff is notlightly 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.The merits issue[21] Mr Lee argued that consideration should be given to the following matters onthis appeal:(a) the merits of the plaintiffs' case;(b) the relevance, if any, of the Trust;(c) the nexus between the plaintiffs' impecuniosity and the transaction,the subject of the proceedings;(d) the principle of access to the courts of first instance for impecuniouslitigants; and(e) any other "normal considerations" when considering an order forsecurity.Consideration of the merits so far in this case[22] Before addressing those issues, we briefly record the background tothe consideration of the merits to date.[23] Associate Judge Christiansen did not address the merits of the plaintiffs' claimin his decision on the application for security.[24] Mr Lee did not raise the issue of the merits on his application for review beforeDavison J. It is apparent from that decision that the focus of Mr Lee's argument wasthat the order was based on an error as to the capital value of the Springfield Roadproperty.[25] Mr Lee also submitted that, in making the order for securitythe Associate Judge failed to recognise that the plaintiffs' impecuniosity had beencaused by Gregory excluding the plaintiffs from obtaining any benefit or interest inthe shares of HDP.21[26] Finally, Mr Lee said that while he was registered on the title to the SpringfieldRoad property it belonged to the Trust and his co-trustee, Mr Aarts, was unlikely toprovide a second mortgage as security for costs.[27] Given the focus of the application for review, and the fact the merits were notraised by Mr Lee, it is understandable that Davison J did not consider the merits ofthe proceedings in his review decision.[28] However, Davison J did deal with the merits of the plaintiffs' claim inthe application for leave to appeal. In that decision, which ran for some 66 paragraphs,Davison J dealt with the prima facie merits of the plaintiffs' claim in the followingparagraphs:22[54] The first plaintiff submits that the prima facie merit of the claim isevident by virtue of it having survived a strike out application. He submitsthat in these circumstances where the plaintiffs have not yet had the benefit ofa substantive decision of a court, and their claim has survived a strike outapplication, it should not have been difficult to persuade the Court against themaking of an order for security for costs.[55] In response Ms Chambers notes that the defendants' strike-outapplication which was unsuccessful did not relate to the merits of the claim,but was solely based on the Limitation Act 1950. Accordingly, she submitsthat the Court of Appeal judgment does not speak to the merits of the claim.[56] In her response to the plaintiffs' submission that their case is strong oroverwhelming, Ms Chambers refers to a detailed summary of the defendants'contentions set out in her written submissions to support a submission thatthe plaintiffs' case in fact has little prospect of success. In the context ofdeciding the current application it is not necessary or appropriate to engage ina detailed evaluation of the relative strengths and positions of the parties.21 This argument confuses the position of the plaintiffs as trustees of their mother's estate with theirpersonal position.22 Lee v Lee, above n 18.For present purposes it is sufficient to observe that the defendants have set outthe basis of their response to the plaintiffs' claims in a comprehensive mannerwith references to the affidavit evidence and exhibits produced in the courseof the proceeding to date. From that detailed outline, it prima facie appearsthat their case has substance. While at this stage it is a matter largely ofimpression rather than detailed evaluation, without expressing any view as tothe relative strengths of the cases, it would be quite wrong to proceed onthe basis contended for by the first plaintiff, namely that the plaintiffs' case isstrong or overwhelming and that consequently no order for security for costsshould have been made.[57] Therefore I consider that the plaintiffs have not shown that the Courterred in its assessment of the prima facie merit of their case in the judgmentsuch as to justify granting leave for a second and further appeal.[29] So, while the merits of the plaintiffs' claim were not considered bythe Associate Judge and were not dealt with in the course of the application for review,they were considered by the Judge when declining the application for leave to appealfrom that decision. It is apparent from his decision that Davison J did not considerthe plaintiffs' case was a strong one.[30] Given the grounds upon which leave was granted and the basis upon whichthe respondents seek to support the judgment, the parties focused on the merits ofthe plaintiffs' proceedings.The pleadings[31] The starting point for consideration of the merits of the claim must bethe pleadings. The plaintiffs' claim is now contained in a second amended statementof claim. It is a discursive document. The plaintiffs' claim is based on the transfer ofthe shares in HDP from the plaintiffs' parents, Ray and Joyce, to Gregory. HDP wasa family business established in 1983 by Ray and Joyce. Gregory worked inthe business from 1984. The plaintiffs allege that from 1988 Gregory began assertinginfluence over his parents in relation to the business in order to gain control of it.[32] By the early 1990's Ray and Joyce had three major assets:(a) the Springfield Road property;(b) a commercial property at 192 View Road, Rotorua; and(c) their shares in HDP.[33] From 1994 to 1997 Ray and Joyce met with their accountant, Clive Smith andsolicitor, John Battersby on a number of occasions and discussed their estate and estateplanning with them. The plaintiffs' complaint centres on events that occurred in 1997and 2000. As relevant the pleadings include:The Events of 199756. In relation to the proposed transactions recorded in the Minutes dated25 June 1996 [minutes of the meeting held at Mr Smith's office] thefollowing events occurred in 1997 which demonstrate a significantshift in Gregory's favour:(a) Ray and Joyce sold the View Road and Springfield Roadproperties to the family trust as per valuation.(b) The Family Trust did not purchase an additional property;(c) The [HDP] shares were reissued with Ray and Joyce owning50 voting "A" shares each and 450 non-voting "B" shareseach for a total of 1,000 shares;(d) the parents did not either sell or transfer their "A" shares toMr Smith or their "B" shares to Gregory though on 1 October1997 though they did sign a Deed of Acknowledgement ofDebt for $200,724 and(e) the same valuations were relied upon;(f) Gregory entered into a Term Loan contract to the Family Trustdated 2 October 1997 for $133,174. The loan was on termsfavourable to Gregory including that it was to be repaid sevenyears after the death of the last surviving parent.No repayments or interest were ever made. This "debt" waslater [cancelled] by the Deed of Agreement of 4 August 2000;(g) Gregory remained a beneficiary of the family trust;(h) The lease was assigned to [HDP] on 2 October 1997;(i) rent was $26,000 per annum meaning the other siblings couldconceivably receive $8,666 before tax each per annum —assuming the parents received nothing;(j) the lease agreement did have a clause contemplating the needto extend the building if the business grew;(k) the good will was increased and a dividend was declared.57. On 30 September 1997 Gregory consented to becoming a director of[HDP].58. On 2 October 1997 Gregory also acknowledged a debt of $200,724 toRay and Joyce. The terms were favourable to Gregory because anyinterest had to be demanded in advance and in writing. In practice itwas interest free.59. On 2 October 1997 Joyce and Ray signed new Wills that werefavourable to Gregory in which Mr Smith and Mr Battersby werethe executors and trustees. Gregory was to be given Ray and Joyce'scurrent account and a debt of $200,724 to Ray and Joyce was to beforgiven. The Wills made no provision for any residual.[34] The plaintiffs then allege a significant growth in the value of HDP from 1996to 2000 and plead:The 2000 Transactions80. Ray and Joyce still enjoyed beneficial and legal ownership of allthe [HDP] shares in 2000.81. Between April 2000 and July 2000 Gregory made repeatedapproaches to Ray and Joyce demanding that they sell him their[HDP] shares for $200,000. This was a significant undervalue andwell below market value.82. Ray and Joyce repeated declined Gregory's offers but Gregory did notaccept his parents' refusals.83. As a result of the stress placed on Ray by Gregory's repeated advancesRay significantly increased his alcohol consumption such that he wasno longer able to look after himself. He moved in with Robert and hiswife.84. In April 2000 Gregory attempted to prevent the parents from learningthe full extent of [HDP's] most successful year in its history byinstructing Helen not to allow Robert access to [HDP's] computersystem to do the annual end of year roll-over as was his custom.85. In May 2000 Gregory threatened that unless Ray and Joyce acceptedhis offer he would:(a) leave [HDP];(b) set up a business in opposition to [HDP];(c) take three key [HDP] staff with him;(d) take three key [HDP] customers with him.95. On 4 August 2000 the parents signed a deed acknowledging a debt of$23,768 to Gregory which was attracted interest and was repayableupon demand.96. Also on 4 August 2000 the parents, Gregory and Mr Smith signed aDeed of Agreement in relation to the payment of $200,000 by Gregoryin return for the parents resigning as shareholders and directors of[HDP].Ray and Joyce's Health104. By 2000 Ray and Joyce's health had deteriorated significantly to thepoint that they were at a significant disadvantage to Gregory.In particular:(b) Joyce also had a range of ailments that cumulatively made herfrail and vulnerable including:(i) Bi Polar Disorder from 1994;(ii) a mini-stroke in 1998;(iii) a heart attack in November 1999;(iv) Chronic Obstructive Pulmonary Disease(Emphasema) from 50+ pack-years of cigarettesmoking;(v) 100% blockage of the left carotid artery and 70% plusblockage of the right carotid artery which requiredsurgery.[35] The plaintiffs then plead their three causes of action: first, breach of fiduciaryduty. It is alleged from 30 September 1997 when he became a director of HDP,Gregory owed a duty to the individual shareholders, Ray and Joyce. It is said hebreached that duty by:(a) personally profiting from his intimate knowledge of the company byacquiring HDP shares on favourable terms; and(b) failing to disclose to Ray and Joyce the full extent of the significantincrease in HDP turnover and profits for the year ended 2000 andthe true value of the HDP shares in 2000.[36] The relief claimed for the breach is:(a) rescission of the transaction dated 6 October 1997 (a bare trust deed inrelation to HDP shares) to the extent that it is relevant;(b) rescission of the two transactions dated 4 August 2000;(c) all the HDP shares to be transferred to the estate of JG Lee from:(i) Gregory Lee in his personal capacity;(ii) Jane Lois Lee in her personal capacity;(iii) Gregory and Jane Lee as trustees of the Leeroy Family Trust;(d) an account of profits from 4 August 2000 to present;(e) a reasonable allowance for the efforts Gregory and Jane expended;(f) compound interest;(g) the removal of Gregory and Jane Lee as directors of HDP;(h) the surrender to the estate of any shelf companies held bythe defendants with names resembling High Duty Plastics Limited;(i) a restraint of trade order for Gregory and Jane Lee for any business thatwould compete with HDP;(j) costs; and(k) such further or other relief as the court may deem just.[37] The second cause of action alleges undue influence. The plaintiffs say apresumption of undue influence arises because Ray and Joyce placed trust andconfidence in Gregory, given he was the most senior employee of HDP and effectivelycontrolled the company. He was a director from 30 September 1997 and owed afiduciary duty as a director to the shareholders. As Gregory was also their son, Rayand Joyce were vulnerable to influence. They were retired and suffering a range ofdebilitating conditions.[38] The plaintiffs allege that Gregory exerted undue influence in a variety of ways,including:(a) holding HDP back from prospering from 1988 so that he was morelikely to be able to afford to buy it;(b) abusing company credit cards and supplier accounts;(c) disposing of HDP's waste metal for cash;(d) selling HDP products to his own customers for cash;(e) such that on 6 December 1994 Joyce was admitted to the Mental Healthward of Rotorua Hospital; and(f) threatening Ray and Joyce in May 2000 that if they did not transfer theshares to him for $200,000 he would leave HDP and set up inopposition.[39] The third cause of action alleges an unconscionable bargain. The plaintiffsallege that Gregory took advantage of, and actively extorted, his disadvantaged parentsand obtained an unconscionable bargain when purchasing the HDP shares atundervalue. It is said Ray and Joyce were disadvantaged by being elderly, sufferingfrom a range of health conditions and stress and not being in possession of up-to-datevaluations or legal advice.[40] The relief claimed under the first cause of action is repeated for the second andthird causes of action. It is apparent the focus is on the transfer of the shares in HDPto Gregory and the plaintiffs' belief that occurred in August 2000.[41] The defendants admit that Gregory and his parents signed a Deed ofAcknowledgement of Debt for $200,724 in 1997 but say that sum represented anapproximate quarter share of the estate as valued at that time. Gregory was the debtorand Ray and Joyce were the creditors. They further admit Gregory acknowledged aloan to the Trust for a further $132,174 to be repaid seven years after the death ofthe last surviving parent, which debt was later cancelled by the Deed of Agreement of4 August 2000. At that time Gregory paid his parents an additional $200,000 insteadof the $132,174 to be paid after their death.[42] The defendants deny all allegations in relation to breach of fiduciary duty,undue influence, and unconscionable bargain. They also plead affirmative defencesof laches, acquiescence/estoppel/affirmation and change of circumstances.The appellants' arguments on the merits[43] On appeal Mr Lee referred to the following points to support his argumentthe claim was meritorious:(a) the credibility of the defendants' key witnesses was undermined;(b) until 1995 the parents were determined to leave all their shares in HDPto their four children in equal shares;(c) Gregory had made numerous approaches to the parents to influencethem to give him their shares;(d) consideration of the 1997 proposal at face value;(e) issues of representation in 1997 and 2000;(f) the 2000 transaction called for an explanation;(g) Gregory was a director of the family business and owed a fiduciary dutyto the shareholders, namely his parents; and(h) by 2000 both the parents' health had declined significantly.(a) The credibility of the defendants' key witnesses[44] A major difficulty for the plaintiffs' claim is that Gregory's account thatthe majority of the shares in HDP were transferred to him as part of a familyarrangement in 1997 is largely supported by affidavit evidence from Mr Smith,the accountant, and Mr Battersby, the solicitor, who acted for Ray and Joyce atthe relevant time.[45] To overcome that hurdle, Mr Lee alleges there was a conspiracy betweenthe defendants' key witnesses to forge share transfer documents in order to misleadthe Court that the transfer took place in 1997. He also says that, contrary tothe evidence of Mr Smith, and a record of the meeting distributed to the family,Gregory was present at a meeting on 25 June 1996 when the family arrangements werediscussed. Mr Lee effectively alleges that the professional advisers acting for Ray andJoyce at the time have colluded to mislead the Court and have engaged in perjury.Those are serious allegations. From our review of the voluminous material beforethe Court, we consider that the evidence of Mr Smith and Mr Battersby is consistentwith other contemporaneous documents, such as correspondence and memorandaexecuted by Ray and Joyce.[46] The best explanation for why Ray and Joyce made the family arrangementsthey did and transferred the shares in HDP to Gregory is to be found in the documentsexecuted by them. They each executed a Memorandum of Wishes directed tothe trustees of the RB and JG Lee Family Trust at the time (6 October 1997). In hermemorandum Joyce said:3. After the death of my spouse I want the Trustees to provide primarilyfor my three children, Helen, Melvin and Robert as survive me.So far as possible I wish the Trustees to maintain equality betweenthese three children. The assets of the trust are sufficient that it shouldnot be difficult to do this. ...4. I record that, although I love him dearly, my son Gregory is notprovided for herein as he will receive, following the death of the lastof my said husband and me to die, the last of the shares inthe Company [HDP]. In this way Gregory has received hisinheritance much earlier than the other three children. This willcomplete the transfer of all the shares of that Company to Gregory,with most of the non voting shares having been transferred to himduring my lifetime. The transfer of these shares is in recognition ofGregory's contribution to the growth of that Company. The detailsof the transfer of those shares are embodied in a Bare Trust Deedexecuted by me and my said husband. My husband and I, along withour solicitor and accountant, have given this matter a great deal ofthought over a number of years.[47] Insofar as the handwritten notes of a meeting on 25 June 1996 may recordadditional parties were present at a meeting to those noted in the more formaldocument prepared afterwards, we consider nothing turns on that. Mr Lee and hissister (and other brother) were clearly aware of what was happening at the time andraised the issue with Ray and Joyce and their advisers at the time in a memorandumof August 1996.(b) Until 1995 Ray and Joyce were determined to leave their shares in HDP inequal shares[48] Mr Lee poses the rhetorical question: "What other than Gregory, could haveinfluenced them to change their minds?" The first point is that, although Mr Lee seeksto pursue these proceedings in the name of his mother's estate, it is quite apparent fromhis submissions that his main complaint is that the shares in HDP were transferred toGregory rather than to him and other members of the family. That is not a losssustained by his mother's estate. Apart from that issue, his challenge to the transfer ofthe HDP shares to Gregory overlooks that the agreement to transfer them was part ofan overall estate planning exercise from which he and his sister (and other brother)also ultimately benefitted.(c) Gregory's approach to his parents to have them transfer the shares[49] The Memorandum of Wishes noted above provides insight into why Ray andJoyce wanted to transfer the shares to Gregory.(d) Consideration of the 1997 proposal at face value[50] Mr Smith has given evidence of the background to the family arrangements in1996/1997. The properties and the shares in HDP were independently valued.The valuations were:(a) shares in HDP $332,898;(b) View Road property $275,000;(c) Springfield Road $195,000Total: $802,898A one-quarter share of the combined property at the time would have been $200,724.On that basis if the HDP shares were transferred to Gregory he would owe his parentsa further $132,174 to even the adjustments out equally between the children.[51] With Gregory to receive the HDP shares, the other assets, the residential andcommercial property were to be transferred into the Trust for the benefit of Ray andJoyce and Gregory's siblings. Gregory was subsequently removed as a beneficiary ofthe Trust with his consent in order to give effect to that intention.(e) Issues of representation[52] Mr Lee questions why Gregory did not have his own representation. Nothingturns on this. In consensual family arrangements that is often unnecessary.(f) The 2000 transaction[53] Again Mr Lee raises a rhetorical question as to why would the same advisersin 2000 recommend the sale of the HDP shares for $200,000 cash when the businesswas at that time worth almost a million. In his submission the transaction calls for anexplanation and a trial is required.[54] Against that, the evidence of the advisers supports the respondents'interpretation of events, namely that the agreement to transfer the shares was madeand completed in 1997 as part of the overall family and estate planning exerciseconducted by Ray and Joyce (with professional legal and accounting advice) at thattime. The further transactions in 2000 were, on the respondents' case, a variation inorder to complete the earlier transaction that was otherwise agreed. The evidence isconsistent with Gregory paying $200,000 to the immediate benefit of his parents in2000 in lieu of the $132,174 which was not due to be paid until after their death.That followed the review by Ray and Joyce's new accountant, Mr Willemsen.(g) The fiduciary duty issue[55] Mr Lee repeats the submission that Gregory as a director of the family businessowed a fiduciary duty to the shareholders being Ray and Joyce. As Ms Chambersobserved, Ray and Joyce remained directors and were quite capable of being involvedin decisions relating to the company. Further, the effect of the bare trust documentexecuted at the time limited Gregory's control of the company but ensured the shareswere held for him.(h) The parents' health[56] Mr Lee argues that by 2000 Ray and Joyce's health had declined significantly.We note that both Mr Lee and his sister are beneficiaries under his mother's will, whichwas not executed until 2004. There has been no issue raised as to her testamentarycapacity or ability to make the will at that time. Robert and Joyce Lee's lawyerconfirmed she had capacity even in March 2004 and that, while frail in health, she wasstill mentally alert at that time, some years after the transactions in issue.[57] We return to the other issues that Mr Lee sought to rely on to avoid an orderfor security for costs in this case.The RB and JG Lee Family Trust[58] The Trust now owns the Springfield Road property occupied by Mr Lee andhis family. For present purposes we take Mr Lee's explanation of that Trust as follows.The Trust was settled on 22 December 1994 by Ray and Joyce. The original trusteeswere Ray and Joyce and Clive Smith. The beneficiaries of the Trust originallyincluded Ray and Joyce and their four children, together with their spouses, partnersand children.[59] In 1997, and as part of the family arrangement, the Springfield Road propertyand the commercial property were transferred to the Trust. In September 2003Gregory was removed as a beneficiary of the Trust with his consent. Mr Lee wasappointed trustee. Subsequently the other siblings were removed as beneficiaries sothat Mr Lee and his interests are the only beneficiaries. Mr Lee lives in the main assetof the Trust, the Springfield Road property.[60] Mr Lee says Mr Aarts was appointed a trustee on 10 August 2009.The respondents question whether Mr Aarts has been properly appointed. We do notneed to resolve that issue. For present purposes we proceed on the basis that Mr Aartsis a trustee with Mr Lee.Nexus between plaintiffs' impecuniosity and the transaction the subject ofthe proceedings[61] As noted previously, the proceedings are brought on behalf of the estate ofJoyce. The issue is not Mr Lee's present impecuniosity but whether it could be saidJoyce's estate was impecunious as a result of the transactions. On the informationbefore the Court that argument cannot be sustained given the evidence of the paymentsmade by Gregory.[62] As to Mr Lee's personal position, we understand that while he is described inthe proceedings as an IT consultant, he is otherwise unemployed. We also understandhe has declined to apply for legal aid to assist with this proceeding.The principle of access to the Courts[63] Mr Lee relied on the Supreme Court decision in Reekie v Attorney-General,and particularly the following observations of the Court:23[3] Applications for security for first instance proceedings call for carefulconsideration and judges are slow to make an order for security which willstifle a claim.(Footnote omitted.)[64] As a matter of principle that is, with respect, uncontroversial and consistentwith the observations of this Court in A S McLachlan Ltd v MEL Network Ltd.24The Supreme Court also went on to discuss the current costs regime in general terms23 Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737.24 A S McLachlan Ltd v MEL Network Ltd, above n 20.and its relationship to security for costs. In doing so it made a number of observationsof general application:[33] Although an order dispensing with security is therefore, in itself, oflimited economic significance, the costs regime, including the usualrequirement for appellants to provide security for costs, imposes somediscipline on litigants. The liability to pay costs if unsuccessful is adisincentive to the commencement of frivolous proceedings. As well, mostlitigants will not commence proceedings if the costs of the exercise, includingthose they must pay if unsuccessful, exceed the likely benefits. So the costssystem discourages litigation which is disproportionate to the occasion.Increased costs may be ordered where proceedings have been conductedvexatiously, and this serves as a disincentive to vexatious conduct.An appellant who will not be able to meet a subsequent order for costs is freeof constraints that affect other litigants and this freedom carries with it thepotential for injustice to the respondent.[35] Against that background, we consider that the discretion to dispensewith security should be exercised so as to:(a) preserve access to the Court of Appeal by an impecuniousappellant in the case of an appeal which a solvent appellantwould reasonably wish to prosecute; and(b) prevent the use of impecuniosity to secure the advantage ofbeing able to prosecute an appeal which would not be sensiblypursued by a solvent litigant.A reasonable and solvent litigant would not proceed with an appeal which ishopeless. Nor would a reasonable and solvent litigant proceed with an appealwhere the benefits (economic or otherwise) to be obtained are outweighed bythe costs (economic and otherwise) of the exercise (including the potentialliability to contribute to the respondent's costs if unsuccessful). As should beapparent from what we have just said, analysis of costs and benefits shouldnot be confined to those which can be measured in money.(Emphasis added.)[65] While the observations were made in the context of security for costs on anappeal, they are still relevant to consideration of whether security for costs should berequired.[66] Essentially Mr Lee's position is that he (and his sister) should be entitled,without any order for security for costs against them, to pursue the proceedings againstthe defendants in these proceedings. In the event the claim fails there should be nocost consequences to them. We consider that to permit that would be to inflict apotential injustice on the respondents.Other considerations[67] Mr Lee made the point that this Court had allowed his appeal againstthe strike-out decision. But that appeal was in relation to a limitation defence.[68] There are a number of other relevant considerations.[69] The plaintiffs say Gregory owed a fiduciary duty arising from his position as adirector of HDP. But as noted, both Ray and Joyce remained as directors of HDP aswell until 10 August 2000. At the time Gregory was appointed a director in 1997 hisparents had the benefit of an independent valuation of the company and legal andaccounting advice. They continued to regularly attend the company office.Relevantly, both Mr Smith and Mr Battersby, the accountant and solicitor, havedeposed that the parents recognised the contributions Gregory had made to HDP.[70] The independent evidence of the solicitor and accountant do not support theallegations of undue influence. While the evidence is untested, their evidence isconsistent with contemporaneous documents. It is also relevant that the shares in HDPwere Gregory's inheritance and he did not receive a share in the trust, unlike his othersiblings.[71] Further, prior to the 2000 transaction the parents received further advice fromanother chartered accountant, Mr Willemsen. That advice was copied to bothMr Smith and Mr Battersby.[72] Again, on the current information before the Court, the plaintiffs' claim of anunconscionable bargain seems a difficult one for the plaintiffs on the basis ofthe valuation of the assets and the Memorandum of Wishes.Summary - merits[73] We have spent some time considering the merits of the claim, rather more sothan would be usual on an application for security. Normally the court will onlyendeavour to assess the merits and prospects of success of the claim by way ofoverview. But given the extent of Mr Lee's submissions we have sought to addressthe issue in more detail. We do emphasise, however, that an application for securityfor costs should not generally become an opportunity to explore the merits in anydepth.25[74] We consider the plaintiffs' claims face a number of substantial difficulties.On our assessment, the prospects of success are weak. The plaintiffs' own pleadingsgive rise to real difficulties as to whether the claims can be made out even withoutconsidering the affirmative defences, which are available to the defendants. There isalso the forensic difficulty in answering the evidence of Mr Smith and Mr Battersbyand responding to the contemporaneous documents. It would not be in the interests ofjustice to allow the appeal and effectively enable the plaintiffs to pursue these difficult,aged proceedings without providing some security for the defendants in the eventthe claim is ultimately unsuccessful.[75] Other factors also count against setting aside the order for security in this case.[76] As noted, a review of the procedural steps in the proceeding discloses thatwhen it has suited Mr Lee he has accepted the stay.[77] Finally, Mr Lee is both a trustee and final beneficiary of a trust which owns avaluable property. Given Mr Lee's assessment of the merits of the claim, it would bein his interest to pursue these proceedings as he is also a beneficiary of his mother'sestate. One means of providing security to enable that would be for the Trust to assistby providing a second mortgage to the Registrar's satisfaction. That is a matter forthe trustees to consider.25 At [21].Conclusion[78] An order for security is appropriate. The sum of $75,000 is a reasonable sumin the circumstances of this case. We agree however, that the High Court should nothave directed that the Trust provide security by way of a mortgage. The appropriateorder under r 5.45(3)(a)(ii) of the Rules is that the plaintiffs in the High Court are toprovide security in the sum of $75,000 to the satisfaction of the Registrar. That couldbe by the provision of a registrable second mortgage over the Trust property, but itneed not be.Result[79] The appeal is dismissed.[80] The plaintiffs in CIV-2010-463-430 are to provide security for costs in the sumof $75,000 to the satisfaction of the Registrar.[81] In the event security is not provided by 16 August 2019 the proceeding will bestayed.[82] The appellant must pay the respondents one set of costs for a standard appealon a band A basis and usual disbursements.Solicitors:Lance Lawson, Rotorua for Respondents