TOMANOVICH HOLDINGS LTD v GIBBSTON COMMUNITY WATER COMPANY 2014 LTD [2018] NZHC 990

TOMANOVICH HOLDINGS LTD v GIBBSTON COMMUNITY WATER COMPANY 2014 LTD [2018]NZHC 990 [8 May 2018]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYI TE KŌTI MATUA O AOTEAROAŌTEPOTI ROHECIV-2016-412-000155[2018] NZHC 990BETWEEN TOMANOVICH HOLDINGS LIMITEDPlaintiffAND GIBBSTON COMMUNITY WATERCOMPANY 2014 LIMITEDDefendantHearing: 11 April 2018Appearances: D J Ballantyne for PlaintiffA N Isac for DefendantJudgment: 8 May 2018JUDGMENT OF GENDALL JIntroduction[1] On 22 December 2016 the plaintiff filed in this Court an originating applicationunder s 348 of the Property Law Act 2007 to set aside a transaction whereby GibbstonWater Services Limited (GWS) sold and transferred to the defendant certain potablewater assets in the Gibbston Valley in Central Otago. The plaintiff contends that it isa creditor of GWS and the transfer of those water assets to the defendant needs to beset aside as it was a disposition made with an intention to defeat the creditors of GWS,including the plaintiff.[2] The defendant denies this claim.[3] This proceeding already has a reasonably complex history. A number ofinterlocutory applications have been filed. Included in these are applications by thedefendant for:(a) The plaintiff's proceeding to be struck out;(b) Further security for costs to be awarded against the plaintiff; and(c) Further and better discovery.[4] The plaintiff has also commenced other interlocutory applications seekingorders for:(a) The collateral use of documents discovered in this proceeding; and(b) Particular discovery against a significant number of non-parties.Neither of those applications were before me here.[5] At the hearing before me on 11 April 2018 I heard argument on and consideredonly two of the defendant's applications. These were that the plaintiff's proceedingbe struck out, and that further security for costs be awarded against the plaintiff. I nowgive my decision relating to those matters.[6] As to the defendant's application for an order directing the plaintiff to makefurther and better discovery, the plaintiff has said that it does not oppose this, althoughthe documents sought were not in the possession or control of the plaintiff.Notwithstanding this, the plaintiff confirms that it will file a supplementary affidavitof documents shortly. That is simply noted. I say nothing more about this further andbetter discovery application at this point.Factual background[7] The defendant is the current owner and operator of a potable water supplyscheme in the Gibbston Valley in Central Otago (the water scheme). The water schemeservices approximately 30 neighbouring properties in the valley.[8] The present shareholders of the defendant company are most of the landownersin the valley who use the water. Certain other landowners there apparently draw waterbut do not hold shares. Present directors of the defendant company areDennis Marshall and Christine Erkkila, who are both residents in the Gibbston Valleyand participants in the water scheme.[9] The sole director of the plaintiff company is Kristina Louise Buxton. Herpartner/spouse is David Ian Henderson. He was a former director of the plaintiffcompany until his bankruptcy which occurred on 29 November 2010. Mr Henderson,although not a named party in this proceeding, has filed three affidavits here.[10] On 9 December 2016 Mr Henderson was conditionally discharged from hisbankruptcy but an order was made that he was prohibited until 9 December 2022 fromentering into, carrying on or taking part in the management or control of any businesswithout the consent of the Court.[11] The shares in the plaintiff company, as I understand it, are owned by Hendersonfamily interests.[12] These Henderson family interests own certain property in the Gibbston Valley,including the home occupied by Ms Buxton and presumably also Mr Henderson. TheHenderson interests draw water from the water scheme but do not hold shares in thedefendant company. As I understand the position, the water scheme operates on astrictly non-profit costs recovery basis.[13] Prior to December 2014, the water scheme was operated by GWS which wasa company at that time owned and controlled by Mr Henderson and his familyinterests. The shares in GWS were held then by another Henderson family company,Gibbston Water Holdings Limited (GWH).[14] The Henderson family ownership of the water scheme through GWS datedback to March 2007 when the Henderson company, GWH, purchased the shares inGWS for $60,000.[15] It appears that around that time Mr Henderson, through a range of othercompanies, promoted a hotel and spa development in the Gibbston Valley area (the"Anthem" development).[16] Significant acrimony, it seems, developed at the time, between a number of theneighbours and water users in the valley and the Hendersons. As I understand theposition, this related in large measure to the operation of the water scheme by theHenderson family interests and issues over the "Anthem" development and its possibleproposal to use water from the water scheme.[17] Then, in about June 2010, companies related to the Henderson family whichappear to have had control over GWS and the water scheme, including GWH, wereplaced in receivership and then liquidation. Mr Henderson, as I have noted, wasadjudicated bankrupt on 29 November 2010. Litigation ensued, amongst other things,relating to unsuccessful prior attempts which the Henderson family interests had takento sell the shares in GWH for $1.00 to another related company. The judgment of thisCourt in relation to the GWS share sale (the Castlereagh Properties decision) wasissued on 11 July 2014.1 Five days later, statutory demands were issued against GWSon behalf of five companies associated with the Henderson family interests claimingdebts of $41,589. One of those companies was the plaintiff.[18] Ultimately, these companies pressed on with attempts to seek the liquidationof GWS. But, before this could occur, on 1 December 2014 the water scheme asset ofGWS was sold to the defendant company for $35,000 (plus GST if any). Linked tothe sale was an associated Deed of Indemnity entered into between the defendantcompany and other individuals. This related to an indemnity designed to protectcertain parties in the event of litigation being brought subsequently by Mr Hendersonand his interests relating to these matters. The defendant company had beenincorporated only a short time prior to 1 December 2014.1 Walker v Gibbston Water Services Ltd, Castlereagh Properties Ltd and Ors [2014] NZHC 1638.[19] It is that sale of the water scheme from GWS to the defendant for $35,000which is essentially the subject of the plaintiff's challenge here. The plaintiff in itspleading maintains that as a creditor of GWS it has been prejudiced by the dispositionof company property, being the sale of the water scheme asset, at an undervalue. Itcontends that this sale was a disposition which was made with the intent to prejudiceit and others as creditors of GWS (as no part of the $35,000 was available to them)and, as a result, GWS essentially became insolvent. As to its claim to be a creditor ofGWS, the plaintiff notes that on 16 July 2014 it issued the statutory demand notedabove. This claimed the sum of $11,838, said to be an outstanding debt owing to theplaintiff. The statutory demand expired without payment or compromise.[20] Turning to the disposition claimed by the plaintiff to be prejudicial, it pleadsthat the water scheme, as effectively the major asset of GWS, was sold to the defendantat a significant undervalue without any marketing or a valuation being undertaken. Inaddition, the plaintiff contends that to enable this disposition to occur, some form offinancing "ploy" by way of a money-go-round was instituted at the instigation ofRobert Bruce Walker (Mr Walker), the liquidator of GWH and others at the time. Ireach no conclusion and say nothing further on this last allegation of a financing"ploy" however. It is of no relevance to my ultimate determination on the presentapplications before me.[21] Soon after the sale of its water scheme, GWS was placed into liquidation byshareholders' resolution. This led initially to a challenge brought by the Hendersonfamily interests over the identity of the liquidator appointed by the shareholders. Thischallenge culminated in Mr Sheppard being appointed as a new replacement liquidatorof GWS as the choice of Mr Henderson and Ms Buxton.[22] Reiterating, from the specific terms of its pleading in this proceeding, theplaintiff contends the disposition of the water scheme by GWS to the defendant:(a) was a disposition of property by a debtor, GWS, who became insolventas a result of making the disposition; and it(b) was made with intent to prejudice a creditor in the sense that it had thepurpose of defeating the plaintiff's right of recourse in respect of itsdebt owed by GWS. It is said it also defeated the intention of theplaintiff and other GWS creditors to appoint their preferred liquidatorto sell the water scheme asset for market value and to pursue theaccounts receivable of GWS.[23] With respect to these matters, the plaintiff goes further. Before me,Mr Ballantyne alleges that in an Otago Daily Times newspaper article dated 10December 2014, interests associated with the defendant admitted that the intention ofthe series of transactions resulting in the sale was to enable control of the assets ofGWS to be taken out of the reach of creditors who were formerly associated with MrHenderson.[24] And, so far as the plaintiff's claim that GWS' 1 December 2014 sale of thewater scheme at $35,000 was below the market value for these assets, it contends thatearlier in 2014, a Mr Edney (who, according to the defendant, may be associated withthe Henderson interests) offered to pay $60,000 for the shares of GWS and a further$80,000 in full and final settlement of its debts, thus effectively valuing the assets ofGWS at $140,000. This is some $105,000 more than the sale price in the disposition.This offer by Mr Edney, it is pleaded, was repeated later.[25] Settlement and transfer of the water scheme from GWS to the defendantoccurred in December 2014. Since this date it seems the defendant has maintainedand operated the water scheme as a non-profit community based operation for theresidents of the Gibbston Valley. Of interest here, it is clear that all parties to thislitigation (including Ms Buxton and Mr Henderson) have confirmed that they agree acommunity based operation of the water scheme is in the best interests of everyone.No objection is taken as to the defendant's manner of operation of the water schemesince its acquisition in December 2014.[26] Notwithstanding this, on behalf of the plaintiff, both Ms Buxton andMr Henderson, in claiming that the sale of the water scheme to the defendant at$35,000 is at a significant undervalue, seek in their pleading not a simple repaymentin full of the debt owing by GWS, but rather "that the sale of assets (the water scheme)from GWS be set aside and the assets vested back in GWS".[27] One additional matter of some possible relevance needs also to be mentionedhere. This is the fact that, once the present proceeding was issued, on 14 December2017 the defendant made an open offer of settlement to the plaintiff, (accompanied bya denial of liability) for reasons it outlined as:(a) "The disproportionate cost that was being associated with this litigationcompared to the relatively low value of the plaintiff's claim"; and(b) "The very strong impression the defendant has that the plaintiff throughMr Henderson is conducting this litigation for the purpose of seekingto wrest back control of the potable water scheme. This is notable froman email from the plaintiff's solicitor, from various discussions betweencounsel and from the fact that financial compensation is not sought inthe proceeding, just the setting aside of the sale."[28] The defendant's offer was to pay 100 per cent of all the creditor claims againstGWS of the Henderson companies and interests as approved by the liquidators,together with category 2B scale costs for steps taken up to the date of the offer. Theoffer, it seems, went on to state that if any doubt arose about the value of those creditorclaims, the liquidators and the Henderson entities could avail themselves of theprocesses under the Companies Act to resolve that value issue.[29] Approximately one week later on 22 December 2007, this offer from thedefendant was rejected. The defendant says this occurred without explanation.[30] A further incident is raised by the defendant as also being of some relevancehere. This was a phone call from Mr Henderson to Christine Erkkila, as a director ofthe defendant company, which was not disputed and took place on 19 December 2017.This call, it is said, was a response to the defendant's settlement offer of 14 December2017. A transcript of the telephone conversation is before the Court. According to thedefendant, in this call Mr Henderson made a number of implicit threats to Ms Erkkilarelating to the present proceeding. The plaintiff rejects this, but for reasons relating torelevance and otherwise, I am of the view that I need say nothing further at this pointregarding that aspect.Strike out application[31] The defendant applies for the plaintiff's claim to be struck out underr 15.1(1)(d) High Court Rules 2016. Rule 15.1 provides:(1) The court may strike out all or part of a pleading if it—(a) discloses no reasonably arguable cause of action, defence, orcase appropriate to the nature of the pleading; or(b) is likely to cause prejudice or delay; or(c) is frivolous or vexatious; or(d) is otherwise an abuse of the process of the court.(2) If the court strikes out a statement of claim or a counterclaim undersubclause (1), it may by the same or a subsequent order dismiss theproceeding or the counterclaim.(3) Instead of striking out all or part of a pleading under subclause (1),the court may stay all or part of the proceeding on such conditions asare considered just.(4) This rule does not affect the court's inherent jurisdiction.[32] These submissions fall under the fourth ground of strike out (otherwise anabuse of process) listed in r 15.1. This ground:2extends beyond the other grounds and captures all other instances of misuseof the court's processes, such as a proceeding that has been brought with animproper motive or is an attempt to obtain a collateral benefit.[33] The defendant claims that the proceeding should be struck out as an abuse ofprocess for six reasons:(a) The plaintiff's rejection of the defendant's 14 December 2017settlement offer leads to the strong inference that these proceedings are2 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53 at [89].being continued to achieve an illegitimate collateral advantage and/orfor an improper purpose;(b) The plaintiff and its associates have misused the Court's processes byadopting irreconcilable and inconsistent positions in this proceedingand earlier Castlereagh proceedings (which I will mention later);(c) Mr Henderson has involved himself in this litigation in breach of theHigh Court's prohibition orders, and has made improper threats to thedefendant in order to further his own interests;(d) Mr Henderson and the plaintiff were aware of the existence of theirclaim in December 2014, but did not pursue it within the otherproceedings they brought to challenge the transaction;(e) There has been both an inexcusable delay of over two years before thisclaim was commenced, and also dilatoriness in advancing it once filed,causing the defendant significant prejudice as result; and(f) The underlying pleading in relation to an intention to defeat creditors isunsustainable.[34] In response, initially the plaintiff submitted that the strike out should not begranted as it has a tenable cause of action. However, this is not the focus of the inquiryunder r 15.1(1)(d). Otherwise, the plaintiff goes on to contend that its claim is not anabuse of process. It suggests too that the defendant certainly has not satisfied thereasonably heavy onus upon it to show that the proceeding was brought for animproper purpose.Improper purpose[35] The English Court of Appeal has held that:33 In Re Majory [1955] Ch 600 (EWCA) at 623–624; adopted by the High Court of Australia inWilliams v Spautz (1992) 174 CLR 509 (HCA) at 528 and 536.court proceedings may not be used or threatened for the purpose ofobtaining for the person so using or threatening them some collateraladvantage to himself, and not for the purpose for which such proceedings areproperly designed and exist; and a party so using or threatening proceedingswill be liable to be held guilty of abusing the process of the court and thereforedisqualified from invoking the powers of the court by proceedings he hasabused.[36] The improper purpose need not be the sole purpose, as long as it is thepredominant purpose.4 The onus is on the party alleging abuse of process to show thatthe proceeding was brought for an improper purpose. It is "a heavy onus" and one tobe exercised only in exceptional circumstances.5 It is unnecessary to provecommission of an improper act to justify exercise of the power to stay.6 However,save in the clearest of cases, it will be necessary to point to some separatemanifestation of the defendant's intent in the form of an overt act such as a demandwhich identifies the true collateral purpose.7[37] The defendant claims that the plaintiff is pursuing these proceedings for anillegitimate collateral advantage or improper purpose. The pleaded purpose of theproceedings is to set aside a particular transaction in order that the assets may beavailable for the plaintiff and its associated entities to recover their debts. However,the defendant claims that the plaintiff has actually taken these proceedings in order foran entity associated with it and the Henderson interests to regain control over the waterscheme which was transferred. The defendant maintains that the conduct ofMr Henderson, Ms Buxton and others directly associated with them here has beendubious in the extreme. The defendant justifies its argument here too by the plaintiff'srefusal, without explanation, of the defendant's settlement offer. By this offer, as Ihave noted, the defendant would pay the creditor claims and category 2B costs up tothe date of the offer, without acknowledging fault.[38] The defendant also points to Mr Henderson's comments that he sees himselfas the victim of persecution and state bullying and what it says is his desire to havematters "put right". The defendant submits that these proceedings are being continued4 Goldsmith v Sperrings Ltd [1977] 1 WLR 478 (EWCA) at 496; Williams v Spautz, above n 6, at529.5 Williams v Spautz, above n 6, at 529; Goldsmith v Sperrings, above n 7, at 498.6 Williams v Spautz, above n 6, at 527–529.7 Williams v Spautz, above n 6, at 529.in order to get back at parties that Mr Henderson sees as having harmed him. Theplaintiff's collateral use and non-party discovery applications it is claimed providefurther evidence that these proceedings will be used to further Mr Henderson's "war"against Mr Walker. As I have noted, Mr Walker is the liquidator of GWH and the PVLGroup of companies associated with Mr Henderson, and he is the man whoMr Henderson claims at least in part instigated and lies behind the prejudicialdisposition.[39] The plaintiff in response at least as to part argues that the defendant's14 December 2017 settlement offer noted at [28] above would not adequately or fairlycompensate it and the creditors of GWS for the prejudicial disposition. Furthermore,the offer it is said did not include some relevant parties and was vague as to quantum.The plaintiff says it is also concerned with how the assessment and payment would becarried out.[40] The defendant refutes these contentions. It says the proposed settlement wouldbe an appropriate means to remedy what is claimed as a prejudicial disposition here.Creditors such as the plaintiff only have an interest to the level of their debt, and notin the assets themselves. And, the plaintiff, it is claimed, in any event did not properlyinform the defendant of its concerns in a timely way, such that they could conceivablyhave been negotiated through.[41] The plaintiff's refusal to accept the defendant's 14 December 2017 settlementoffer (which it is claimed would have settled the entire GWS indebtedness) togetherwith other comments the defendant attributes to Mr Henderson, it is claimed, providesome indication that this whole proceeding is being advanced for an improper purpose.A legitimate purpose here, that is to ensure the repayment of proper debts owing to theplaintiff and the Henderson interests, the defendant says would be achieved by anacceptance of the defendant's offer. Instead, the plaintiff simply chose to reject thisoffer summarily without explanation.[42] According to the defendant, these factors together with the plaintiff's delay inbringing this claim point towards this proceeding being an abuse of process. From theauthorities, policy considerations in determining whether to order strike out or a stayon the grounds of abuse of process however require some caution. Considerations tobe applied include:(a) Generally, courts are required to exercise their jurisdiction on mattersproperly brought before them.(b) It is important to preserve freedom of access to the courts.(c) The courts need to be vigilant that abuse of process claims are notadvanced other than in clear and appropriate cases and are not broughtfor tactical reasons; and(d) Equally, the courts fundamentally should be alert to misuse of theirprocesses and be prepared to exercise their power to stay when theinterests of justice demand it.[43] On this aspect, it is my view that, although there is merit in some of the"improper purpose" arguments advanced for the defendant here, overall and given thesuggestion as to the undervalued consideration paid by the defendant for the waterscheme (including the comments I note at [46] following), the interests of justicesuggest this is a matter on which the plaintiff's freedom of access to the Court shouldbe preserved.Inconsistent positions[44] The Canadian courts have recognised that it is an abuse of process for a partyto deliberately adopt inconsistent factual positions in different proceedings.8 Therationale for this approach was explained in Halagan v Reifel9 as:neither pleadings nor any other of the court processes are a game to beplayed according to what appears to be a strategic advantage at the time. Thecourt expects a party to take a position which is consistent with its evidenceand to maintain that position in its dealings with the court. In other words,saying something to one judge and saying the opposite to another will not becountenanced.8 Mystar Holdings Ltd v 247037 Alberta Ltd [2009]ABQB 480 at [49].9 Halagan v Reifel [1997] Carswell BC 404 at [8].[45] In the Castlereagh10 proceedings, Ms Buxton and the Henderson entitiesargued that the shares in GWS were worthless and the value of the water scheme assetswas limited to $2,500 at most. However, in this Court, they contend that the assets areworth at least $140,000, or even an amount substantially higher than this. Thedefendant maintains therefore that the available inference is that the plaintiff and theHenderson interests have attempted to mislead the court in one or both of theseproceedings and this is an abuse of process.[46] The plaintiff replies that while Ms Buxton did depose in the Castlereagh11proceedings that the assets were worthless without a water permit, the valuationproposed was rejected by the Court. Mander J in his judgment therefore, offered thecomment that the replacement value for the water scheme as at 2010 was likely to bearound $150,000. Given the High Court's earlier finding, it is suggested therefore thatit is appropriate and logical in the present case for Ms Buxton to give evidence morein keeping with what is said to be the true value of the water scheme and its waterright.[47] Therefore, while the discrepancy might be seen as concerning at first blush, theplaintiff suggests Ms Buxton's evidence here is not an attempt to mislead the Court.That discrepancy is certainly a major one. In all the circumstances here, however, Iam prepared to give the plaintiff, Ms Buxton and Mr Henderson the benefit of anydoubt that exists as to this aspect. I find that for present purposes any such inconsistentposition is not such as to provide a compelling argument for the defendant's stancehere.Involvement of Mr Henderson[48] Mr Henderson, as I have noted, is subject to a prohibition order which preventshim from participating, directly or indirectly, in the running of any business for a timewithout the consent of the Court. The defendant submits that Mr Henderson has beenintimately involved in this litigation in breach of that prohibition. Mr Henderson has10 Walker v Gibbston Water Services Ltd, Castlereagh Properties Ltd and Ors, above n 1.11 Above n 1.provided important affidavits in support of the various applications before me. It washe who responded to the defendant about the settlement offer.[49] I am aware, too, that in other proceedings in this Court (CIV-2010-409-000559) involving Henderson interests/companies, the Official Assignee has bymemorandum dated 6 April 2018 raised issues over Mr Henderson's involvement inthis and other business matters. This is in light of a formal complaint it seems theOfficial Assignee has received against Mr Henderson.[50] The plaintiff, however, takes issue here with the defendant's focus onMr Henderson and its painting of him, in the plaintiff's words, as "a bad man".[51] Although issues not the subject of the present proceeding may arise over thesematters, I do note that Mr Henderson is not a direct party to this proceeding. Whilsthis alleged behaviour, if the evidence is able to establish the veracity of thoseallegations, might be seen as somewhat concerning overall, on its own it is notsufficient, in my view, to give rise to an abuse of process.Failure to pursue claim in other proceedings and inexcusable delay[52] Sir James Wigram VC stated in Henderson v Henderson12 that:where a given matter becomes the subject of litigation in, and ofadjudication by, a court of competent jurisdiction, the court requires the partiesto that litigation to bring forward their whole case, and will not (except underspecial circumstances) permit the same parties to open the same subject oflitigation in respect of matter which might have been brought forward as partof the subject in contest, but which was not brought forward only because theyhave, from negligence, inadvertence, or even accident, omitted part of theircase.[53] This Court in the past13 has observed that the rule in Henderson v Hendersonis a broad, merits based judgment which takes into account the public and privateinterests involved and the facts of the case. The crucial question is whether the partyis misusing or abusing the process of the Court by seeking to raise an issue that it could12 Henderson v Henderson (1843) 3 Hare 100, 67 ER 319 (Ch) at [115], [319].13 Rafiq v The Secretary for the Department of Internal Affairs of New Zealand [2014] NZHC 2064At [18] – [19].have raised before. This doctrine can apply when the relevant parties in the two actionsare different.[54] The defendant notes that the plaintiff was well aware of the relevant sale inDecember 2014. The plaintiff's solicitors wrote at that time stating that an applicationunder s 348 might be brought. The plaintiff had also commenced proceedings then toterminate the liquidation of GWS, or to have an interim liquidator or new liquidatorappointed. The plaintiff pleaded that the purpose of incorporating the defendant andan associated company was to "defeat the intention of the plaintiff and other creditorsto appoint their preferred liquidator to sell the assets for market value".[55] The defendant records that this pleading is essentially identical to one in thepresent proceeding. It was open to the plaintiff to bring the s 348 challenge at thattime, but it chose not to. It was not until December 2014 that the plaintiff brought atotally new proceeding in this matter. The defendant also notes that in this time, theGibbston community expended around $80,000 in establishing the water scheme.Returning the assets now, it is suggested, would prejudice them.[56] In response, the plaintiff replies that any claim of prejudice to the defendantignores the fact it was a participant in a scheme allegedly set up to drain resourcesfrom the plaintiff and its associates. It took advantage of the situation to purchase theassets at an undervalue.[57] However, I consider that the plaintiff's delay at one level has caused somedegree of prejudice here to the defendant and the Gibbston community.[58] I consider that the plaintiff's failure to bring this claim in the earlierproceedings and then delaying two further years, knowing that such a claim could bemade, is a factor that might otherwise contribute to this proceeding being seen as insome way tending to be an abuse of process. There is some similarity between thepresent and earlier proceedings which must mean that to some extent this issue maybe seen as falling under the Henderson v Henderson rule. But this is not entirely clearas I see the position. Overall, I am of the view that on its own this is not a matterwhich justifies the striking out of this proceeding on abuse of process grounds.Unsustainable pleadings[59] The plaintiff's statement of claim specifically alleges that the purpose of thesale of the water assets to the defendant (and related actions):was to defeat the intention of the plaintiff and other creditors to appointtheir preferred liquidator to sell the assets for market value and to pursue theaccounts receivable of GWS.[60] The defendant submits that jurisdiction under s 348 is only engaged if aplaintiff can establish the disposition was carried out "with intent to prejudice acreditor". A disposition of property with an intention to defeat the plaintiff's intentionto appoint its preferred liquidator, does not fall within the Court's jurisdiction. Thedefendant contends that the claim, as pleaded, is legally untenable and ought to bestruck out.[61] While the plaintiff's statement of claim does not follow that of s 348 exactly, Iconsider that does not mean the claim is untenable. Some minor amendment to thepleadings here may be required. The plaintiff's pleading is a particularisation of howthe defendant intended to prejudice GWS's creditors. Had this been the only issue withthe plaintiff's proceedings, strike-out would not be justified.Conclusion on strike-out application[62] The sum of the factors discussed above lead me to conclude, but only by areasonably fine margin, that this proceeding is not an abuse of process under r15.1(1)(d). It is in the interests of justice for it not to be struck out. The defendant'sstrike out application is dismissed and an order to that effect will follow.Security for costs application[63] The defendant's second (alternative) application is one for an award of furthersecurity for costs against the plaintiff. It is made under r 5.45 of the High Court Ruleswhich relevantly provides:5.45 Order for security of costs(1) Subclause (2) applies if a Judge is satisfied, on the applicationof a defendant,—(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.(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 theRegistrar, security for that sum; and(b) may stay the proceeding until the sum is paid or the securitygiven.(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.[64] In considering whether I should exercise my discretion to order security forcosts against the plaintiff, I must balance the interests of the plaintiff (in that it shouldnot lightly be prevented from pursuing its claim) and of the defendant (in that it shouldbe protected against being drawn into unjustified litigation). That balancing test wassummarised by the Court of Appeal in A S McLaughlan Ltd v MEL Networks Ltd:1414 A S McLaughlan Ltd v MEL Networks Ltd [2002] 16 PRNZ 747 (CA) at [15]-[16].The rule itself contemplates an order for security where the plaintiff will beunable 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 notlikely to be denied.Of course, the interests of defendants must also be weighed. They must beprotected against being drawn into unjustified litigation, particularly where itis overcomplicated and unnecessarily protracted.[65] The merits of a plaintiff's case are a proper matter for consideration in thecontext of security for costs – Ambrose v Pickard.15 Other matters which may beassessed in undertaking that balancing exercise include:(a) Whether the plaintiff's impecuniosity was caused by the defendant'sactions;(b) The means of anyone associated with the proceeding which may be ableto assist the plaintiff;(c) Delay on the part of the defendant in bringing the application; and(d) Whether the making of an order might prevent the plaintiff fromproceeding with a bona fide claim.[66] The general approach to be taken in an application of this type was summarisedin Busch v Zion Wildlife Gardens Ltd (In Receivership and in Liquidation)16 asfollows:1. The applicant must first satisfy the Court of the threshold underr 5.45(1) that the plaintiff is impecunious and would be unable to paythe defendant's costs if the plaintiff is unsuccessful;2. How should the Court exercise its discretion under r 5.45(2);?3. What amount should security for costs be fixed at; and4. Should a stay be ordered?15 Ambrose v Pickard [2009] NZCA 502.16 Busch v Zion Wildlife Gardens Ltd (In Receivership and in Liquidation) [2012] NZHC 17.[67] Whether or not to order security and, if so, the quantum are discretionarymatters, although it is clear that the discretion is not to be fettered by constructing"principles" from the facts of previous cases.[68] Rule 5.45(3)(b) allows the Court in its discretion to stay a proceeding untilsecurity ordered is given. Although this is discretionary, as McGechan on Procedure17notes, the Courts generally stay a proceeding until security ordered is given. Unusualsituations may warrant the refusal of a stay, however.[69] In the present case, as I understand it, the plaintiff has already made twopayments by way of initial security for costs under an agreed arrangement reachedbetween the parties. Since those payments were made, however, the plaintiff nowformally opposes any further order for security for costs to be made.[70] Although this may be seen as somewhat unusual, the opposing plaintiffcontends here that the earlier security for costs payments were made voluntarily andsimply for pragmatic reasons. It says it is entitled to oppose the present applicationand does so on proper grounds.[71] The defendant's response, however, is that the fact the plaintiff has alreadymade two security for costs payments confirms its impecuniosity here. I leave thataspect on one side, however.[72] What does seem clear from all the material before the Court is that the plaintiffis a non-trading company which does not appear to have any assets. No evidence ofany real and substantiated kind has been placed before the Court to verify the financialposition of the plaintiff. It was aware that the defendant, in bringing this security forcosts application, was contending that the plaintiff was impecunious. And yet theplaintiff has chosen not to refute this in any real way.[73] I conclude that the plaintiff has done nothing to counter the defendant'ssuggestion that it is impecunious here and I find the impecuniosity test has beensatisfied.17 McGechan on Procedure at para HR 5.45(11)(i).[74] The plaintiff then goes on to some extent to endeavour to claim that if the Courtis satisfied that it is impecunious, then this impecuniosity has been caused by acts ofthe defendant. As I understand this argument, it relates to the suggestion that, giventhis proceeding is concerned with the disposition of the water scheme to the defendantat a claimed undervalue, so the defendant's debt is not repaid, the defendant has playeda real part in any impecuniosity the plaintiff is suffering.[75] Claims of this kind are always difficult to establish. In the present case, in myview, there is simply insufficient evidence before the Court to show that acts of thedefendant, which was simply the recipient of the water scheme, were such as to causethe plaintiff's impecuniosity. And, in any event, the claimed debt the plaintiff says isdue to it from GWS is only approximately $14,000. Although before me this claimwas not advanced with any real vigour by the plaintiff, in all the circumstances here Ireject it.[76] Next, I turn to the issue of whether the Court should exercise its discretion hereto order security for costs. This involves the Court in conducting the balancingexercise to which I refer at para [64] above.[77] In looking to this balancing exercise I proceed here on the basis that theplaintiff will be able to make out the factual propositions it advances in its pleadingsin support of its claim. A question arises therefore as to whether or not the claim hasso little chance of success that the defendant should be protected from being drawninto this litigation without an order for security for costs.[78] It is always difficult to assess the likely chances of success of a claim at thisearly stage. I accept that access to the Courts for a genuine plaintiff should not bedenied but against this, as the Court of Appeal noted in A S McLaughlan Ltd,18 theinterests of a defendant must also be weighed.[79] The plaintiff here has already made two payments by way of security for costs.Given what are said to be the relatively small debt amounts at stake, and what it issuggested will be lengthy interlocutory proceedings which the plaintiff has chosen to18 A S McLaughlan Ltd v MEL Networks Ltd, above n 14.signal as being required, I have an obvious concern over issues in this proceeding forthe future. Assuming a three day trial in this matter and a further half-day hearing foradditional interlocutory matters, security for costs on a 2B basis would amount to atleast $33,000 on top of what has already been expended to date. This is for aproceeding brought by the plaintiff on an unpaid creditor claim of approximately$14,000 said to be owing to it. These proceedings have already spanned nearly18 months. Although it is always difficult to assess the merits of a claim at this earlystage, my impression is that the overall merits of this claim may not be high. In myview therefore, this and all the other circumstances of this claim are such that herethey clearly justify an order for further security for costs being made. It has not beensuggested that if such an order for security for costs is made, this will mean the plaintiffeffectively will be unable to proceed with this claim.[80] An order for security is therefore to follow.[81] As to quantum, in A S McLaughlan Ltd,19 the Court of Appeal made it clear at[14] that there is no checklist or simple formula for decisions on the quantum ofsecurity for costs to be ordered. The amount of security is not necessarily to be fixedby reference to a likely costs award. What the Court must do is to make an assessmentof what is just in the particular circumstances of the case.[82] On this issue of quantum, counsel for the parties requested that, as nosubmissions were made before me on quantum, I should receive memoranda fromthem now directed at this issue. Certainly no advice was given to the Court as to theestimate of time counsel believe a trial in this matter would require, nor theintermediate steps which were to be taken prior to that.[83] A direction relating to memoranda to be filed on this aspect is to follow.[84] I turn now to the issue of a stay of this proceeding pending payment of security.Rule 5.45(3)(b) High Court Rules provides this Court with a discretion as to whetherto stay a proceeding such as this until proper security for costs is given.19 A S McLaughlan Ltd v MEL Networks Ltd, above n 14.[85] The authorities on this illustrate, as I have noted, that where security for costsis ordered, proceedings are often stayed until the sum is paid or security properlygiven.20[86] In the present case, as I have noted, the real amounts at issue so far as theplaintiff is concerned are not substantial and yet it is suggested this proceeding stillhas a significant interlocutory path to run before it is even ready to reach a trial date.In these circumstances an order for stay is appropriate.Result[87] The defendant's application to strike out the plaintiff's claim here fails and isdismissed.[88] The defendant's application for further security for costs to be paid by theplaintiff succeeds. As to the quantum of security to be awarded, the followingdirections are now made:(a) Within 10 working days of the date of this judgment the defendant is tofile and serve its submissions in support of the quantum of furthersecurity for costs it seeks against the plaintiff here.(b) Within a further 10 working days of that date the plaintiff is to file andserve its reply submissions on the issue of the quantum of furthersecurity for costs to be awarded.(c) Within a further five working days of that date the defendant is to fileand serve any submissions on the security for costs quantum issuestrictly in reply.(d) Those submissions are then to be referred to me and, in the absence ofeither party indicating they wish to be heard on the question, I will20 Concord Enterprises Ltd v Anthony Motors (Hutt) Ltd (No. 2) [1977] 1 NZLR 516; Busch v ZionWildlife Gardens Ltd, above n 16; and Retail Ready Logistics v Bank of New Zealand [2015]NZHC 2682.decide the issue as to the quantum of further security for costs to beawarded based on the memoranda filed and the other material beforethe Court.[89] As to the question of a stay, I now make an order that this proceeding is stayeduntil such time as quantum of the further security for costs to be ordered is determinedand the security sum is paid or security properly given.Costs[90] Finally, on the issue of costs relating to these applications before me, thesecosts are reserved.[91] If the parties are unable to agree on the issue of costs on these applications thenI direct that they may file memoranda (sequentially) directed to the issue of costs (eachmemorandum being not more than five pages) and I will decide the issue of costs basedupon the memoranda filed and the other material before the Court....................................................Gendall JSolicitors:Canterbury Legal, ChristchurchAndru Isac, Barrister, Wellington