IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY COMMERCIAL LIST CIV-2012-404-2676 [2012] NZHC 2723

BETWEEN

AEROSPACE DEVELOPMENTS LIMITED Plaintiff ALTITUDE AEROSPACE INTERIORS LIMITED Defendant

AND

Appearances: N Flanagan for the plaintiff N Gedye for the defendant Judgment: 17 October 2012

Hearing:

12 October 2012

JUDGMENT OF ALLAN J

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 4.30 pm on Wednesday 17 October 2012 Solicitors.counsel: Meredith Connell, Auckland nick.flanagan@meredithconnell.co.nz Tompkins Wake, Hamilton Nathan Gedye, Auckland Nathan.gedye@xtra.co.nz

AEROSPACE DEVELOPMENTS LIMITED V ALTITUDE AEROSPACE INTERIORS LIMITED HC AK CIV-2012-404-2676 [17 October 2012]

Introduction

[1]

This is an application for an order directing the plaintiff to give security for

the defendants costs. It is made in reliance upon High Court Rule 5.45 which provides as relevant:
5.45 (1) Order for security of costs Subclause (2) applies if a Judge is satisfied, on the application of a defendant, (a) that a plaintiff (i) (ii) is resident out of New Zealand; or

(iii) (b) (2) (3) An order under subclause (2) (a) (i) (ii) (b)

is a corporation incorporated outside New Zealand; or is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

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.

A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

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 by paying that sum into court; or by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and

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

Relevant principles

[2]

An application for security gives rise to the following issues: (a) Has the applicant satisfied the Court of the threshold under r 5.45(1)?

(b) (c) (d) [3]

How should the Court exercise its discretion under r 5.45(2)? At what amount should security for costs be fixed? Should a stay be ordered?

The ordinary approach was helpfully restated by the Court of Appeal in A S

McLachlan Ltd v Mel Network Ltd.1 Whether or not to order security, and if so the quantum, are discretionary. They are matters for the Judge, who is to take into account all the relevant circumstances. The discretion is not to be fettered by

constructing principles from the facts of previous cases. [4] It is accepted by the plaintiff that the case meets the threshold test in r 5.45(1)

plaintiff is unsuccessful in the proceeding. [5] [6] than a matter of impression.3 [7]
1 2

because it accepts that it will be unable to pay the costs of the defendant if the

Where, for the purposes of the rule a plaintiff is impecunious, an order having

the effect of preventing a plaintiff from pursuing the claim 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 likely to be denied.2 On a security for costs application the Court will endeavour to assess the

merits and prospects of success of the claim, but realistically, such an inquiry will be limited in a relatively complex matter such as this. Any assessment will be no more

A reasonable probability, established by persuasive evidence, that the

plaintiffs impecuniosity results from the defendants actions complained of in the proceeding, is a factor that militates against an order for security. 4 But care must be

A S McLachlan Ltd v Mel Network Ltd (2002) 16 PRNZ 747 (CA) at [13]-[14]. A S McLachlan Ltd at [15]-[16]. 3 Meates v Taylor (1992) 5 PRNZ 524 (CA), and A S McLachlan Ltd at [21]. 4 Davy v Howell (1993) 7 PRNZ 14 (HC); Weld Street Takeaways & Fisheries Ltd v Westpac Banking Corp [1986] 1 NZLR 741 (HC).

taken to avoid the circular argument that because the defendant does not accede to the claim and pay damages, the plaintiffs impecuniosity is therefore its fault.5 [8] The amount of security is equally in the Courts discretion. It is not

necessarily to be fixed by reference to a likely costs awards. Rather, it is to be what the Court thinks fit in all the circumstances.6 Those circumstances will ordinarily include such matters as: (a) (b) The amount and/or nature of the relief claimed; The character of the proceeding, including the complexity and novelty of the issues, and therefore the likely extent of interlocutory disputes;

(c) The estimated duration of the trial; (d) Outline of the dispute [9] respect of aircraft interiors. [10] defendant.
5

Probable costs payable if the plaintiff is unsuccessful.

The plaintiff is a manufacturer of bespoke aircraft fitouts. It specialises in the

design, manufacture, and installation of bespoke aircraft furniture and interiors, including veneering, cabinetry and associated finishing services. The defendant is involved in aviation design engineering. It provides supply management, design, engineering, certification, manufacturing, installation and maintenance services in

In or about September 2008, the plaintiff was incorporated in order to take

over part of the operations of two other companies. A little earlier, in about May 2008, Air NZ Ltds aviation design engineering business was transferred to the

Birnie Capital Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29 October 2010. 6 A S McLachlan Ltd.

[11]

The plaintiff claims that the parties were in a relationship in the nature of a

joint venture, pursuant to which the defendant was subject to fiduciary obligations of trust and confidence owed to the plaintiff. The relationship was one where the plaintiff would support the defendant in obtaining contracts on the basis that it would receive work if the tenders were won. [12] The claim relates to two particular projects (known as OG3 and Samsung

respectively). The plaintiff says that the defendant unlawfully refused to engage the plaintiff on those projects after it obtained the head contract with the plaintiffs assistance. It is common ground that the Samsung project was by far the bigger and

[13] with the defendant, it: (a) (b) (c) jointly pitched for work; and (d) [14] referred leads to the defendant. comprehensively pleaded, with copious particulars. [15]

The relationship between the parties was never formalised in a written

agreement. Nevertheless, the plaintiff alleges that the relationship developed over a period of years, having its origin in certain projects completed by the respective predecessors of the parties. The plaintiff alleges that pursuant to its arrangements

structured its business to the defendants requirements; obtained assurances from the defendant that it would obtain work from the projects the plaintiff was assisting it with;

Both the amended statement of claim and the statement of defence are It is therefore possible to

ascertain with some confidence the detail of the case advanced on either side. The plaintiff pleads breach of contract, breach of fiduciary duty, estoppel and

breach of s 9 of the Fair Trading Act 1986. In respect of the claim for breach of fiduciary duty, it seeks an account of the value of the veneering and associated

more lucrative of the two projects.

services work on the OG3 and Samsung projects, together with declaratory relief in respect of the other causes of action. It also seeks an inquiry as to damages. [16] It is common ground that at the core of the plaintiffs claim is its contention

that it is entitled to damages for loss of net earnings arising out of the Samsung contract, which the defendant puts at no more than $150,000, but which the plaintiff says would be several times greater than that. The defendants position

engaged in contractual relationships pursuant to which the plaintiff carried out work

on a sub-contract basis for the defendant. [18] inspection has not been undertaken. [19]

It remained willing throughout the

relevant period to enter into further sub-contracts where appropriate. However, it says, there was never an element of exclusivity about the relationship between the parties. Each was free to contract with others. Accordingly, the plaintiff was entitled to source and carry out work for other customers. Likewise, the defendant was entitled to look to other sub-contractors as appropriate. Importantly, in respect of the Samsung contract, the defendant alleges that

there was never any practical prospect of the plaintiff becoming entitled to the associated veneering and cabinet work. That was because, prior to entry into the contract, representatives of Samsung had visited the premises of SMI, a company to which the plaintiff sub-contracted some of its work. On the defendants case, the Samsung representatives were not impressed and expressly refused to let the contract to the defendant unless the veneering and cabinetry work was undertaken by another sub-contractor. There was explicit affidavit evidence to that effect. The plaintiff is in no position to refute that evidence as yet, because discovery is incomplete and

The defendant also places at the forefront of its case the fact that, although

numerous draft agreements were exchanged and discussed over a lengthy period, nothing was ever signed. Mr Gedye points particularly to a provision in a draft

[17]

The defendant acknowledges that the parties were, from time to time,

agreement prepared and presented by the plaintiff, in which the relationship of the parties is expressly declared not to be that of joint venturers. [20] Overall, the defendants position is that the plaintiffs claim, although not

hopeless, is weak. Discussion

[21]

The nub of the plaintiffs argument against an order for security is that,

despite its admitted impecuniosity, no order should be made because the defendants

ceased to trade shortly after it failed to obtain the Samsung work. The conduct relied

terms of the scope of the work involved. [22] fiduciary obligations to the plaintiff. placed in a difficult financial position. [23]

upon is the failure of the defendant to secure for the plaintiff the sub-contracts associated with the Samsung and OG3 contracts respectively. But the focus is very largely on the Samsung contract, which was very significant both financially and in

The plaintiff contends that the defendants failure to secure the Samsung sub-

contract for the plaintiff amounted to a breach of the defendants contractual and Moreover, Mr Flanagan argues that the

defendant knew that the plaintiff had incurred a great deal of expenditure in preparing for additional work expected to arise from the ongoing relationship between the parties, and that if the work was not forthcoming, the plaintiff would be

In order to gauge the strength of these contentions, it is necessary to form a

tentative view or impression about the strength of the plaintiffs case. There are two principal aspects of particular relevance. The first is the strength of the plaintiffs claim that the defendant is in breach of one or more legal duties to the defendant. The Court has been provided with a number of draft agreements and e-mails which, to some extent, chart the course of the relationship between the parties. Mr Gedye tells the Court that there is a great deal more to be provided on discovery.

conduct has brought about the plaintiffs parlous financial position. The plaintiff

[24]

For present purposes, I accept Mr Gedyes submission that the trend of these

documents suggests that the defendant, while willing to enter into a written agreement with the plaintiff, would do so only upon certain terms. No written agreement was ever finalised. The various drafts (including from the plaintiff) consistently provide that the agreement is not to constitute a joint venture between the parties. [25] It does not follow that the plaintiff will be unable to establish the pleaded

relationship, or the existence of contractual and/or fiduciary duties, but the absence of a concluded written agreement renders the plaintiffs case more difficult. [26] The second important aspect of the plaintiffs claim concerns the Samsung

contract to the plaintiff. [27] embellished the truth. tied by its customer. [28]

contract. Mr Flanagan accepts that this contract lies at the heart of the proceeding. It is said that the plaintiff spent a great deal of time and money in preparing for what it believed was a strong likelihood that the defendant would get the head contract from Samsung, and that the plaintiff would get the relevant sub-contract. The defendant did ultimately get the contract, but the plaintiff did not benefit. That was because, on the defendants affidavit evidence, Samsung personnel had formed an unfavourable view of the plaintiff and its associates, and would not permit the defendant to sub-

Mr Flanagan submits that the Court ought not to accord significant weight to

that contention because, although it is supported by sworn evidence, the defendant has not as yet given full discovery on the issue. While that is correct, I consider there to be substance in Mr Gedyes submission that it is inherently unlikely that the defendants deponent would simply have made the Samsung story up, or somehow If Samsung would not work with the plaintiff then the

defendant could not be in breach of any obligation, contractual or fiduciary, to the plaintiff in respect of the Samsung sub-contract, because the defendants hands were

Standing back and assessing these considerations, I conclude as a matter of

impression that the plaintiffs case, although not weak, faces certain hurdles. It follows that the link between the defendants alleged conduct and the plaintiffs

impecuniosity is not strongly established, and certainly not to the point at which the Court would be justified in refusing an order for security on that ground alone. [29] A further matter which the Court must take into account is the need to ensure

that a plaintiff with a meritorious case is not excluded from its right to a determination of the Court on financial grounds, if there is no prospect of meeting an appropriate order for security. As to that, there is no suggestion here that the making of an order for security will bring the proceeding to an end. The plaintiff itself has no funds, but the Court is told that certain persons associated with the plaintiff are meeting its legal costs. It is not contended that those same persons would not be in a

[30] that it is appropriate to grant the application. [31] I therefore turn to the question of quantum. Quantum [32] more than a band B allocation. [33] one are $34,825. Mr Flanagans figure is $16,915. [34]

In my view, this is not a case in which a plaintiff has established such a clear

link between allegedly blameworthy conduct of a defendant, and the plaintiffs own impecuniosity, as to justify the refusal of an order. On the contrary, I am satisfied

Counsel are agreed that the case is likely to take about 10 days to hear, but

there is agreement on little else. Mr Gedye estimates the defendants likely scale costs if it succeeds at trial to be of the order of $93,000. Mr Flanagans figure is about $62,000. The principal difference appears to be Mr Gedyes choice of band C for many steps, while Mr Flanagan contends that no step would justify anything

Each counsel analysed the likely costs in three stages. Stage one concludes

with item 21, relating to inspection. Mr Gedye contends that scale costs for stage

I have decided to make an order for security for costs in respect of stage one

alone at this point, leaving it open to the defendant to make a further application by

position to meet an order for security.

memorandum when stage one attendances are complete. That may very well be within a matter of weeks rather than months. I adopt that course because the Court and the plaintiff will be in a much better position to analyse the strength of the Samsung aspect of the claim once discovery and inspection of documents has been completed. At that point the overall strength of the plaintiffs case, and of the link to the plaintiffs impecuniosity, may be gauged with greater confidence. [35] The Court is not required to link the quantum of any order with the detail of

likely scale costs, although there must be some correspondence between them. I make an order directing the plaintiff to provide security for costs in favour of the

on Friday 2 November 2012. If payment is not made on or before that date, I direct

Timetabling [36] (a) (b) (c) 9.15 am on Friday 7 December 2012. Costs [37] accordance with category 2B.

that the proceeding be stayed thereafter until payment is made.

By consent, I give the following timetable directions: The time for the service of lists of documents and inspection volumes on either side is extended from 26 October 2012 to 2 November 2012; Any applications arising out of discovery and inspection are to be filed and served no later than 23 November 2012; The proceeding is listed for further mention in the Commercial List at

The defendant is entitled to costs on the present application, calculated in

defendant in the sum of $20,000, such sum to be paid into court no later than 4 pm

C J Allan J