IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-1958 [2015] NZHC 1488

IN THE MATTER	of an application for summary judgment
under High Court Rule 12.4	

BETWEEN	
ALLAN ROY MCCOLLUM, NANCY MARGARET MCCOLLUM AND TERENCE NEIL WALKER
Plaintiffs	

AND	
DAVID JOHN THOMPSON AND JOSEPHINE RUTH MACBETH Defendants/Counterclaim Plaintiffs	

Hearing:	30 June 2015	

Counsel:	
LAB Kemp for plaintiffs
WT Nabney for defendants/counterclaim plaintiffs	

Judgment:	
30 June 2015	

(ORAL) JUDGMENT OF FAIRE J

Solicitors:	Kemp Lawyers, Auckland
Lyon O’Neale Arnold, Tauranga

McCollum v Thompson [2015] NZHC 1488 [30 June 2015]

Contents

Introduction ............................................................................................................[1] The application and its opposition .........................................................................[2] The background facts .............................................................................................[3] The pleadings .........................................................................................................[7] Trial issues............................................................................................................[15] The court’s approach to security for costs applications .......................................[17] Analysis ................................................................................................................[20] Decision................................................................................................................[21] Costs .....................................................................................................................[22] Remaining matters ...............................................................................................[23]

Introduction

[1]       The  plaintiffs  sue  the  defendants  for  the  balance  allegedly  due  under  a general security agreement dated 4 July 2011.  The defendants have filed a statement of defence which denies that any sum is due and owing and pleads a defence of set- off.   In addition, the defendants sue the plaintiffs by way of counterclaim in conversion.

The application and its opposition

[2]       The plaintiffs apply for security for costs in respect of the counterclaim.  The defendants oppose that application.  They submit that the same evidence that will be presented  in answer to  the plaintiffs’ claim  will  be advanced  in  support  of the counterclaim.   They submit that if any stay were to be ordered in respect of the

counterclaim, it would not change the issues in dispute between the parties because of the defence of set-off that has been pleaded.

The background facts

[3]       The plaintiffs are the secured parties under a general security agreement dated 4 July 2011.   The defendants are the debtor party to that general security agreement.

[4]       That plaintiffs say that the balance allegedly due under the general security agreement is $116,423 plus interest and costs.

[5]       The general security agreement provided for repayment by 4 July 2012.  On

4 February 2013, the plaintiffs made demand for $270,056.03.  The demand was not met.

[6]       The plaintiffs appointed a receiver pursuant to s 8 of the Receiverships Act

1993 following the defendants’ default under the agreement.  The receiver uplifted stock and allegedly sold the stock to the plaintiffs in part satisfaction of the defendants’ debt.   The receiver then issued notices to the defendants, the last of which claimed $116,423.

The pleadings

[7]       The statement of claim pleads the entry into the general security agreement, a breach, the appointment of the receiver and the issue of notices of demand for the shortfall after seizure and sale of stock.

[8]       The statement of defence denies that any sum is due.  In addition, it pleads a defence of set-off.   It pleads that the receivers, as agents of the plaintiffs, were in breach of their obligations under the general security agreement when selling stock that had been seized subject to the general security agreement, and that they failed to:

a)	Care for the stock seized by them so that the condition of the stock deteriorated;

b)	Provide particulars to the defendants of stock seized and claimed to be covered by the general security agreement; and

c)	Achieve a reasonable market price for the stock which was properly seized by failing to obtain fair value for that stock.

[9]       The statement of defence further pleads that the receivers failed to obtain fair value for the stock by transferring possession of the stock to the plaintiffs without first ascertaining:

a)	Whether the stock transferred to the plaintiffs was stock that was included within the general security agreement;

b)	Transferred  possession  to  the  plaintiffs  at  a  price  which  was significantly less than the true market value of the stock; and

c)	Have failed to provide complete details of the stock seized when the value of that stock was in excess of $316,000.

[10]     There has been no reply by the plaintiffs to the affirmative allegations in the statement of defence and, in particular, the defence of set-off.

[11]     Rule 5.62 of the High Court Rules provide:

5.62     Duty to file and serve reply

If a statement of defence asserts an affirmative defence or  contains any positive allegation affecting any other party, the plaintiff or that other party must, within 10 working days after the day on which that statement of defence is served, file a reply and serve it on the party serving the statement of defence.

[12]     Rule 5.63 of the High Court Rules provide:

5.63	Contents of reply

(1)        A reply must be limited to answering the affirmative defence or positive allegation and otherwise must comply with the rules governing statements of defence so far as they are applicable.

(2)	An  affirmative  defence  or  positive  allegation  in  a  statement  of defence that is not denied is treated as being admitted.

[13]     The plaintiffs’ omission will, in due course, have to be remedied.   That problem, by itself however, does not specifically deal with the outstanding issues on this application.

[14]     In respect of the counterclaim, the defendants repeat the matters raised in the set-off defence and plead that the plaintiffs have converted the stock which was seized and which was not covered by the general security agreement.

Trial issues

[15]   An analysis of the pleadings reveals that the set-off defence and the counterclaim raise substantially the same trial issues, namely:

a)	Identification of the livestock seized;

b)	Whether some of the seized livestock was not in fact covered by the general security agreement;

c)	The condition of the livestock and whether some of the livestock were in calf at the time of the seizure; and

d)	A valuation of the livestock seized.

[16]     It  would  seem  that  these issues  remain  whether or  not  the  counterclaim proceeds because of the matters that are pleaded by way of set-off defence.

The court’s approach to security for costs applications

[17]     The application is made in reliance on r 5.45 of the High Court Rules.  The relevant parts of that rule for the purposes of this application are as follows:

5.45	Order for security of costs

(1)        Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

…

(b)        that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding.

(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 is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i)	by paying that sum into court; or

(ii)	by giving,  to the satisfaction of the Judge or the
Registrar, security for that sum; and

(b)        may stay the proceeding until the sum is paid or the security given.

[18]     In  McLachlan  v  MEL  Network  Ltd  helpful  guidance  is  given  as  to  the approach  that  should  be  taken  on  applications  for  security  for  costs.1      For  the purposes of this application the Court’s comments at [13] – [16] are particularly helpful:

[13]      Rule 60(1)(b) High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.

[14]      While  collections  of  authorities  such  as  that  in  the  judgment  of Master Williams in Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a checklist of so-called principles. That creates a risk that a factor   accorded   weight   in   a   particular   case   will   be   given

disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.

[15]      The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.

[16]      Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.

[19]	The reference in the Court of Appeal decision to r 60(1)(b) is a reference to the predecessor of the current rule that I have set out.

Analysis

[20]     The threshold test required for the purposes of the rule is met in this case. The defendant counterclaim plaintiffs are not in a position to pay costs.   That, however, does not end the matter.  It is necessary to look at the overall discretion. What is apparent from the issues that will  require resolution at trial is that the principal matters that are raised by way of defence, are raised as well in the counterclaim.  Security for costs is not appropriate if the counterclaim is, in effect,
the defence to the plaintiffs’ claim.2   Accordingly, I conclude that security for costs

should not be ordered in this case.

Decision

[21]     The plaintiffs’ application for security for costs is declined.

Costs

[22]     I order that the plaintiffs pay the defendants’ costs based on Category 2

Band B together with disbursements as fixed by the Registrar.

Remaining matters

[23]	The minute of Gilbert J, dated 28 May 2015, appears to cover all matters required  preparatory  to  this  matter  proceeding  to  trial  on  28 September  2015.
Accordingly, no order in relation to these matters is made.

JA Faire J