Commissioner granted unless order for security for costs
2017 case note - CIR granted 'unless order' by the High Court for security for costs.
High Court Rules 2016, r 7.48(2)
This proceeding concerns the non-payment of a security for costs order. The Commissioner of Inland Revenue (“the Commissioner”) sought orders that unless the plaintiff pays the $40,000 security for costs within 14 days, his claim will be struck out. The Court granted the Commissioner’s application but gave the plaintiff 30 days to pay the security for costs.
The Court will grant an unless order where there has been a reasonable time within which to comply with an order to provide security for costs. The failure to comply with the security for costs order has caused delays and is at odds with the clear public interest in ensuring the just, speedy and inexpensive determination of a proceeding.
In July 2012, Mr Mawhinney as trustee of the Forest Trust (“the Trust”) sought damages of over $5m from the Commissioner after she disallowed a goods and services tax (“GST”) refund of approximately $67,000. Mr Mawhinney also filed an application for summary judgment seeking approximately $600,000 for GST refunds withheld by the Commissioner.
The Commissioner applied for security for costs of $40,000 and sought that the proceedings be stayed until the sum was paid or security was given. On 4 July 2014, Associate Judge Christiansen granted that order and held that the amount sought was reasonable and could not be said to stop Mr Mawhinney from pursuing the claim. On 3 December 2014 Brewer J upheld the decision on review.
The proceeding has been stayed since the order made by the Associate Judge in 2014. The current application for an unless order was filed and served on 16 May 2017.
Mr Mawhinney’s Affidavits
The Commissioner objected to three of Mr Mawhinney’s affidavits being read. Those affidavits were originally served as unsworn affidavits, outside the Court ordered deadline, and shortly before the initial hearing of the application. The initial hearing, however, was adjourned due to a power cut.
The Court considered that the Commissioner has now had the opportunity to read and consider the affidavits which were subsequently served in sworn form. Her Honour noted that the application was for an order which, if granted, would likely result in the proceeding being struck out. She concluded that there is no prejudice to the Commissioner and the interests of justice weigh in favour of permitting the affidavits to be read.
The Court set out the principles in SM v LFDB ( NZCA 326,  3 NZLR 494 at ) which apply to unless orders:
- An unless order is an order of last resort and will be granted where there is a history of failure to comply with earlier orders.
- An unless order should clearly set out when and what is the sanction for non-compliance.
- The sanction will apply without further order if the party in default does not comply with the order by the time specified. The party in default may seek relief by application to the Court.
- The party should not assume that belated compliance of the order will suffice. Justice may require that the party in default be relieved if the Court is satisfied that the breach resulted from something for which the party should not be held responsible.
- Where the unless order has deliberately been breached, it will be difficult in the interests of justice to grant that person relief from the order.
- When deciding whether to excuse a breach of an unless order a Judge must ask what does justice demand in the circumstances of this case? Matters to consider when deciding this include public interest in the administration of justice without unnecessary delays and costs, the interests of the injured party to minimise delay and wasted costs, and injustice to the defaulting party but this carries less weight than other considerations.
A plaintiff must be given a reasonable opportunity to comply with an order for security for costs before a proceeding is struck out.
The proceeding has been stayed for over three years and the Court stated this is a reasonable time within which to comply with an order to provide security for costs.
The Court considered that the delay in the proceeding is prejudicing the Commissioner as the events took place in 2009 and it is difficult for staff to recall key events in the proceeding. The Commissioner also needs to maintain staff or employ additional staff should the proceeding move forward.
The Court stated that Mr Mawhinney’s failure to comply with the security for costs order has caused delays and is at odds with the clear public interest in ensuring the just, speedy and inexpensive determination of a proceeding.
The Court was not convinced that Mr Mawhinney will have funds available to him through the sale of logs in April 2018 in order to vary the order in the future. There was no evidence produced to substantiate his claim. There is current litigation about whether the logs may be harvested without a resource consent and the Court was unconvinced that the harvesting of smaller areas as of right would return the amounts submitted by Mr Mawhinney.
The Court stated that it seems unlikely that there are other avenues of funds available to Mr Mawhinney. The Court was not persuaded that litigation between another trust associated with Mr Mawhinney and the Commissioner will result in any source of funds being available in the short term, and noted that there is no undertaking or legally enforceable agreement by which this other trust agreed to advance sums to Mr Mawhinney.
The Court also took into account that Mr Mawhinney’s claim had been assessed as weak by the judges involved in earlier decisions relating to security for costs.
The order to provide security for costs strikes a balance between the rights of plaintiffs to bring and progress their proceeding, and the rights of defendants to be protected from unmeritorious claims brought by impecunious plaintiffs. On balance, the Court held the interests of justice require Mr Mawhinney to be afforded one final opportunity to pay the security for costs order or have his claims struck out.
The unless order is granted; unless the plaintiff pays the security for costs in the sum of $40,000 into Court within 30 days from the date of this judgment, the plaintiff’s proceedings will be struck out.