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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV
1998-404-195
BETWEEN US INTERNATIONAL MARKETING
LIMITED
Plaint iff
AND ANZ NATIONAL
BANK LIMITED
Defendant
Hearing: 16 June 2006
Counsel: D Chan
for Defendant in support
B O'Callahan for Plaintiff to oppose
Judgment: 23 June 2006 at 3.00 p.m.
JUDGMENT OF RODNEY HANSEN J
This judgment was delivered by me on 23 June 2006 at 3.00 p.m.
Pursuant to Rule 540(4) of the High Court Rules.
Registrar/Deputy Registrar
Date:
Solicitors: Minter Ellison Rudd Watts, P O Box 2793, Wellington for Defendant in
support
US INTERNATIONAL MARKETING LIMITED V ANZ NATIONAL BANK LIMITED HC AK CIV 1998-
404-195 23 June 2006
Carter & Partners,
P O Box 2137, Lower Shortland Street, Auckland for Plaintiff to
oppose
Introduction
[1] The defendant (the Bank) applies for
further security for costs. The
applicat ion is opposed by the plaintiff.
[2] This is the third such application.
Soon after the proceeding was
commenced, the Bank applied for security for costs. The plaintiff consented and
paid $20,000
into Court as security.
[3] A hearing on liability then took place. I found for the Bank. The plaintiff
appealed successfully.
The Bank then applied for leave to appeal to the Privy
Council. That application stands adjourned until after the plaintiff's
claim for
damages has been heard.
[4] The Bank then made a further application for security for costs. The plaintiff
acknowledged
that it was impecunious. On the basis that a trial on damages would
take three days, Williams J made an order on 31 March 2004 that
the plaintiff
provide security of $18,000.
[5] It has now become apparent that the trial on damages will take longer and be
more costly than anticipated. The estimated duration of the hearing is twelve days.
Twelve witnesses will be called, a number of
them from overseas. An interpreter
will be required for several Indian witnesses which will slow the pace of the trial.
The Bank
estimates costs (on a 2B basis) and disbursements at $132,000. Further
securit y is accordingly sought.
Jurisdiction to order security
[6] Rule 60 of the High Court Rules provides that if the Court is satisfied 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 its proceeding, the Court may, if it thinks
fit in all the circumstances, order the giving of security for costs.
[7] There is no dispute that the plaintiff will be unable
to pay costs. An updating
affidavit by its sole director, Mr Inderjit Singh, confirms that it is impecunious.
There is no indication
that its financial position will materially change.
[8] In resisting the application the plaintiff relies on the principle that
an order
for substantial security which may prevent the plaintiff from pursuing the claim
should be made only after careful consideration
and where the claim has little chance
of success AS McLachlan Limited v MEL Network Limited(2002) 16 PRNZ 747
(CA). See also Churchill Group Holdings Limited & ors v Aral Property Holdings
Limited & anor CA283/05 31 May 2006. It maintains
that it has a good arguable
case for damages.
[9] For that purpose, an entitlement to nominal damages is not enough. The
plaint
iff has already succeeded in establishing liability but that alone does not assure
it of an outcome which would disentitle the defendant
to costs. I accept, as did
Williams J when he considered the second application for security for costs, that
something more than
an award of nominal damages is required before the plaintiff
could be regarded as "successful". As Devlin J said in Anglo-Cyprian
Trade
Agencies Limited v Paphos Wine Industries Limited [1951] 1 All ER 873 at 874:
No doubt, the ordinary rule is that, where a plaintiff has been successful, he
ought not to be deprived of
his costs, or, at any rate, made to pay the costs of
the other side, unless he has been guilty of some sort of misconduct.
In
applying that rule, however, it is necessary to decide whether the plaintiff
really has been successful, and I do
not think that a plaintiff who recovers
moninal damages ought necessarily to be regarded in the ordinary sense of
the
word as a "successful" plaintiff. In certain cases he may be, eg where
part of the object of the action is to establish a
legal right, wholly
irrespective of whether any substantial remedy is obtained. To that extent a
plaintiff who recovers
nominal damages may properly be regarded as a
successful plaintiff, but it is necessary to examine the facts of each particular
case. (Emphasis added)
[10] Anglo-Cyprian has been followed in a number of cases in New Zealand, for
example, Brown v Dunsmuir
[1994] 3 NZLR 485. It is likely to apply if the plaintiff
were to recover only nominal damages in this case. It would be comfortably
accommodated by the Rules. Notwithstanding the general principle that costs will
fo llo w the event (r 47(a)), r 48D permits the
Court to refuse to make an order for
costs in such circumstances.
[11] The substantial issue and the focus of argument is whether
the plaintiff has a
reasonable prospect of achieving an outcome which could reasonably be expected to
shield it from a claim for
costs. For the Bank, Mr Chan submitted that the chances
of that occurring are slim.
The claim prospects of success
Background
[12] In its second amended statement of claim the plaintiff claims the loss of
instalments of about $270,000 paid towards the
purchase of land in India. In
December 1997 it sought to withdraw $10,000 from its account with the Bank in
order to complete
payment of the final instalment of the purchase price. The Bank
had frozen the account and, notwithstanding advice from the plaintiff
that the
plaint iff would lose a substantial amount on the transaction if it were unable to
obtain the funds, the Bank manager refused
to allow the funds to be withdrawn. In
US International Marketing Limited v National Bank of New Zealand Limited [2004]
1 NZLR 589, the Court of Appeal held that the Bank was in breach of its contract by
failing to pay the plaintiff's demand.
Bank's submissions
[13] The Bank resists the claim for damages on a number of grounds. First, it says
there was never any contract for sale of
the land. It will call the alleged vendors of
the land to say they never agreed to sell. They will say the signatures on the
agreement
are forgeries. They will also say they have not received any money from
the plaintiff.
[14] Secondly, the Bank submits that
even if there were a contract, the plaintiff
faces insuperable obstacles under Indian law to establishing a right to recover. In
a
brief of evidence by Mr Ravi Nath, an eminent and highly qualified Indian lawyer,
he expresses the opinion that:
a)
the alleged agreement is void and unenforceable under Indian law
because the land is agricultural land which could
not be sold to a
foreign company by reason of the foreign exchange legislation;
b) the plaintiff is
accordingly entitled under Indian contract legislation to
recover all payments made pursuant to the alleged agreement
and has
failed to take reasonable steps to recover those payments;
c) even if the agreement were not
void by virtue of the foreign exchange
legislat ion, it is not enforceable by the vendors because it imposed a
penalt y. The plaintiff is entitled under the Indian contract legislation
to recover all payments;
d) if the agreement were not void under the foreign exchange legislation,
the plaintiff could, on tendering
the final balance of the purchase
price, have obtained a decree for specific performance.
[15] Thirdly, the Bank
argues that the damages claimed are too remote. Mr Chan
pointed out that in cases of breach of contract the aggrieved party is only
entitled to
recover such part of the loss actually resulting as was at the time of the contract
reasonably foreseeable as likely
to result from the breach Victoria Laundry
(Windsor) v Newman Industries Limited [1949] 1 All ER 997, [1949] 2 KB 528.
That requires an enquiry into the information possessed by the Bank at the time the
contract was made. Mr Chan said there is no evidence
the Bank knew of any of the
material facts relating to the land purchase until shortly before the breach occurred.
He referred to
the observations of the Court of Appeal on this aspect of the plaintiff's
case at [72] of its judgment:
Apart from certain
idiosyncratic similarities of expression in the Indian
sourced document and Mr Singh's covering letter, the proposition that
a
deposit equivalent to $250,000 would be lost if a single payment of $10,000
was not made seems unlikely and all the
more so when it is appreciated that
the disputed account would have had insufficient funds in it for $10,000 to
be
paid if the bank cheque tendered to the High Court had been accepted.
Plaintiff's submissions
[16] In response, Mr O'Callahan
relied on expert legal opinion relied on by the
plaint iff which takes issue with each of the key propositions of Indian law relied
on
by the Bank. The expert accepts that the alleged transaction contravened Indian
foreign exchange legislation but does not accept
that it would be void and
unenforceable as a result. Nor does he accept that the instalments forfeited would be
construed as a penalty
under Indian law. He maintains they would be considered a
genuine pre-estimate of damage. Accordingly, relief from forfeiture would
not be
available. And, because time is of the essence of the contract, he is of the opinion
that specific performance would not be
available. Finally, the plaintiff's expert
witness expresses the view that because of procedural difficulties, it would not in any
event be reasonable to take steps for recovery in India. He asserts that it would take
15-20 years to bring the litigation to a conclusion.
(On this point, also, the experts
are at odds; the Bank's witness says that litigation could be completed in two years.)
[17]
On the issue of remoteness, Mr O'Callahan relied on Jackson v Royal Bank
of Scotland [2005] 2 All ER 71 (HL) to support a submission that damages will be
recoverable if at the time the Bank entered into the contract it could have anticipated
that the plaintiff might suffer loss as a result of a commercial transaction through not
having the timeous access to funds. There
was no need for the Bank to know
something about the specific transaction at the time the contract was entered into.
Discussion
[18] The Bank has identified a daunting series of hoops through which the
plaint iff must jump before it can be regarded as a
successful plaintiff. It is
impossible to assess the degree of difficulty which some present. The first, for
example, is
an allegation that the plaintiff's claim is an elaborate fraud. There is no
way of judging whether that allegation will be sustained.
The evidence of the Indian
lawyer called by the Bank, whose brief I have seen, is impressive. He is highly
qualified and his opinions
generally convey a view of the law which accords with
commo n law principles and, in a broad sense, coincides with New Zealand
jurisprudence. But his opinions are disputed and the differences cannot be resolved
in the context of this application.
[19]
The issue of remoteness is in a different category. The essential facts are not
in dispute and the applicable legal principles have
been established since Hadley v
Baxendale (1854) 9 Exch 341, [1843-60] All ER Rep 461. They have not been
modified by Jackson v Royal Bank of Scotland, as Mr O'Callahan suggested might
be the case. Indeed, they were
applied in that case to render liable the Bank of
Scotland for the loss by the plaintiff of a key customer as a result of the bank
disclosing to that customer, in breach of a contractual duty of confidence,
informat ion which led the customer to learn of the mark-up
on goods being sold to it
by the plaintiff. As a result, it ceased dealing with the plaintiff. At first instance, in
the Court of
Appeal and in the House of Lords, it was held that the plaintiff's interest
in maintaining confidentiality was known to the bank
at the time the contract was
entered into. The loss of repeat business as a result of confidential information being
disclosed was
not too remote.
[20] The circumstances of this case are very different. At the time of the contract
between the plaintiff and
the Bank (entered into some six weeks before the breach
complained of) the Bank was not told of any circumstances which might have
led to
it contemplating that a failure to release funds would lead to losses almost thirty
times greater than the amount sought to
be withdrawn. On the face of it, the
damages claimed are too remote.
Decision
[21] My overall assessment is that
the plaintiff's claim has little chance of
producing more than a nominal award of damages. That is not, of course, the end of
the
matter. As the Court in McLachlan made clear, the decision whether or not to
order security and, if so the quantum, are discretionary
issues for the Judge to decide
as he or she thinks fit in all the circumstances. Other factors were raised in the
plaint iff's notice
of opposition but not pursued in argument. They included an
allegat ion that the plaintiff's impecuniousity was caused by the defendant's
breach.
[22] If the claim for damages proceeds to trial, it is clear that the Bank will be put
to great expense well over $100,000.
If the Bank successfully defends the claim in
the sense earlier discussed, it will recover only what is ordered to be provided by
way of security.
[23] I am not persuaded that an order for further security will necessarily prevent
the plaintiff pursuing its
claim. Its impecuniousity has not prevented it from
pursuing the claim thus far. It has also brought proceedings in this Court
against the
liquidator of a company in which it had an interest, US International Marketing
Limited v Williams HC AK CP595-SD97 26
November 2003. It has paid security
for costs in that proceeding of $10,000 and otherwise funded the proceeding since it
was issued
in 1997.
[24] In his earlier affidavit Mr Singh gave an account of how the plaintiff had
been able to fund the litigation. He
deposed that the plaintiff had been able to pursue
the action only because of the assistance and generosity of his family and associates
and, it is clear, the indulgence of his legal advisers. He said he had personally
guaranteed the existing debt to his solicitors
but did not then have the means of
satisfying that obligation.
[25] At the time of the affidavit, March 2004, he said he was
in the process of
establishing a manufacturing business in Sydney in which he had invested
$AUD50,000 obtained from personal loans.
He said his income was sufficient only
to meet the basic needs of his family. The only other asset disclosed was a motorcar
worth
$AUD12,000.
[26] Mr Singh has been fortunate to enjoy the support of his family, friends and
lawyers. He has been able to pursue
litigation of which, as I understand it, he would
be the ultimate beneficiary, without having to resort to funds of his own. At the
same time he has been able to relocate to Sydney and establish himself in a business,
the profitability of which is not disclosed
in his most recent affidavit. And, of
course, he was able to fund the instalments of $270,000 for the purchase of the land
in India
for the purpose of establishing a factory for the manufacture of leather
garments.
[27] Having regard to what has gone before, I am not persuaded that an order for
securit
y would inevitably bring the plaintiff's claim to an end. If he has the will to
pursue the claim and confidence in the outcome, I
have the sense that Mr Singh will
find a way. The provision of security will not only protect the Bank, it will ensure
that he assumes
at least some of the risk of failure.
[28] I think the amount of security should recognise the substantial costs which
the
Bank will be required to incur, and will be entitled to recover if successful, but
should not be of a magnitude which might snuff
out a meritorious claim. I assess
that sum at $50,000.
[29] There should be reasonable time for the plaintiff to make the necessary
funding arrangements. On the other hand, an assurance that security is being
provided should be available to the plaintiff before
it is obliged to make final
arrangements for the attendance of overseas witnesses at the trial, scheduled to
commence on 27 November.
Having regard to these considerations, I consider
securit y should be provided in two equal tranches, one by 31 July and the second
by
31 August.
Result
[30] The plaintiff is to give security for costs in the sum of $50,000 by paying the
sum of $25,000
into Court by 31 July and $25,000 by 31 August. The proceeding is
stayed pending the payment of these sums.
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