Gun Bo LLC v Asia Trust Ltd [2011] CKHC 6; Plaint 14 of 2010 (21 February 2011)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)

PLAINT NO. 14/2010

BETWEEN

GUN BO LLC
Plaintiff

AND

ASIATRUST LIMITED
First Defendant

AND

JOHN E CORK and SUSAN M CORK
Second Defendants

AND

NATHAN A CORK and EMILIE M CORK
Third Defendants

Hearing: 7 December 2010

Counsel: A Grant and B Gibson for Applicant (First Defendant)
T Manarangi for Respondents (Plaintiff)

Judgment: 10 December 2010

JUDGMENT OF GRICE J
[Application for Security for Costs]

T Manarangi, Rarotonga
BJ Gibson, Gibson’s Law PC, Rarotonga
Copy:
A Grant, Auckland, New Zealand

[1] Gun Bo LLC, the Plaintiff in this matter, claims that Asiatrust Limited and the other Defendants have been involved in transfers of assets from a company which Gun Bo LLC obtained judgment against. That company, CW Capital Fund One LLC ("Capital") had insufficient assets to pay the judgment sum and interest, which is in the region of US$7 million.

siatrust rust is the trustee for Los Cabos Trust, which is the Trust which Gun Bo LLC alleges received sums of money from Capital and the settlors of the Trust, John and Susan Cork. A claim is also made against the Corks as guarantors of the obligations of Capital.

[3] Los Cabos Trust is registered as an International Trust under the Cook Islands International Trusts Act 1That Act modifies laws apps applicable to International Trusts and provides limitation periods and various protections for those trusts. The litigation particularly involves the application of the provisions of that Act insofar as they protect the payments made to the Trust.

[4] Gun Bo obtained a Mareva Injunction and ancillary Orders against the Defendants on an ex parte application. Those Orders, among other things, prevent the Defendants from dealing with any assets until further Order of the Court. An application by the First Defendant has been made to vary that Mareva Injunction. By consent that application has been adjourned for a hearing. Further steps must be taken by each party, and a timetable has been put in place for those steps to occur. A separate Minute deals with the timetable directions.

[5] The present application is an application for security for costs by the First Defendant ("Asiatrust"). It is opposed by the Plaintiff ("Gun Bo").

[6] It is common ground that the jurisdiction to require security for costs is discretionary. In the Cook Islands this jurisdiction is provided under s 93(1) e Judicature Act:
:

93. Security for costs – (1) In any civil proceedings and at any stage thereof, the High Court may require a Plaintiff or applicant resident out of the jurisdiction of the High Court to deposit any sum of money as security for costs, and may stay the proceedings pending the making of such deposit. (2) When any sum has been so deposited as security for costs, it shall be disposed of in such manner as the Court directs.
    

[7] Rules 319, 320 and 321 of the Code of Civil Procedure of the High Court 1981 (Cook Islands) provide for the procedure. The Court may order a deposit of money or a Mr Manarangi cited Agriculture Corp v McFarlane Laboratories Limited,[1] which dealt with the New Zealand position under the old Code of Civil Procedure. McGechan J laid down the fing approapproach when considering the giving of security by a non-resident Plaintiff:

1. There is no inflexible principle that such auch a Plaintiff with no assets within the jurisdiction should normally be ordered to give security.
   
2. The Court's discretion is to be exercised by taking into account all the circumstances of the case and arriving at the conclusion which will do justice between the parties.
   

100. The ease and convenience of the cost of procedures in the Plaintiff's country of residence ordinarily was a primary consideration.
     

4. Otherwise, the principles involved are those applicable under r 5.45(1)(b).

[br> [8] Mr Manaralso quoted AS McLa McLachlan Ltd v MEL Network Ltd,[2] a decision of the New Zealand Court of Appeal which emphasised whillections of authoauthorities 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.

[9] The Applicant and Respondent approached their submissions under similar headings.

[10] The factors affecting the discretion were largely common ground:

• There is no onus or predisposition one way or the other.
  
• The discretion involves a balancing exercise, taking into account the whole situation. While on the one hand, a Defendant should not be able to use an application for security to defeat an impecunious Plaintiff, the Plaintiff should not be permitted to use its inability pay to place pressure on the descendants (Bek, 9.8.3).
  
• The merits of the claim are relevant. The reasonable probability that the Plaintiff's impecuniosity has been caused by the descendants is also a relevant consideration.
  
• Whether the Plaintiff has any assets within the jurisdiction, and the difficulty which would be involved in enforcing a costs order in a foreign country.
  
• Impecuniosity of the Plaintiff.
  

[11] I deal with each of those headings.

The merits of the claim

[12] No statement of defence has yet been filed. Mr Grant, however, set out of e of the defences likely to be pleaded. From those submissions it appears the defences are that the basic facts (subject to arguments about dates) set out in the statement of claim are not in issue. He submits his dhis defences will be: part of the claim being time barred; the application of the definition of "creditor" and the lack of a cause of action of "unjust enrichment" which was pleaded by Gun Boh.

[13] I first deal with the cause of action issue. The cause of action based on "unjust enrichment" Mr Grant submits does not amount to a proper cause of action as all the elements that are necessary to sustain it are not present. In particular, there is no qualifying or vitiating factor, such as duress or illegality, which would put the claim into a particular category under the umbrella of "unjust enrichment".

[14] Mr Manarangi nds that the unju unjust enrichment claim is based on the failure to satisfy the final judgment of the Superior Court of Arizona against Capital and the Second dants. Mr Grant in his reply inds he s he was not in a in a position to argue this matter in depth, but commented that the judgment was not the type of issue for which unjust enrichment would be based.

[15] The law relating to unjust enrichment is developing. Restitution is recognised as the presumptive remedial response to "the cause of action in unjust enrichment".[3] The exact basis and analysis of "unjust enrichment" does not appear to have been robustly examined in New Zealand. It is clear, however, that while the commentators are divided about the extent and application of unjust enrichment as a cause of action, it is recognised by the commentators and, on its face, the present pleading may well ground the claim. This needs to be further argued. However, I am satisfied that the law recognises the concept of "unjust enrichment" as the basis of a cause of action. Whether the analysis is that unjust enrichment is merely a unifying legal concept which applies to a variety of distinct categories of case, where the obligation on the part of the Defendant to make a fair and just restitution for the benefits is derived at the expense of the Plaintiff or otherwise. For the present purposes I am satisfied that the matters to which Mr Manarangi points provibasisbasis for arguing a claim of unjust enrichment.

[16] The Defendant also submits that the defence will be raised that the claim so far as it relates to a disposition of $800,000 made by Colorado West Inc. to the Trust is not able to be recovered since Colorado West Inc. was not a settlor of the Trust, and it is a requirement of s 13B(12) a disposition may bmay be made by or on behalf of a settlor. Section 13B(12) defines the term "creditor" as meaning a creditor e settlor and "includes any person who alleges a cause of action against a settlor". This dhis does not appear to limit the disposition to one made by or on behalf of the settlor. The claim appears to have merit on this head.

[17] A further argument that Mr Grant raised as to beded ined in the statement of defence was whether the cause of action would be time barred by virtue of s 13B(4). This is in relato a to a claim for $2.5 millionh was settled on then the Trust on 6 June 2008. The Plaintiff su the the cause of action in relation to that payment did not commence until demand was made of the Court pursuant to uarann 13&August&gust 2008. The First Defe will cill contend that the cause of action tion arosearose on the date when the moneys were due under the loan, 25 June 20br> <18] M18] Mr Man0;Manarangi arguet the sthe second cause of action is not within the deeming effect of s 3B(3) of the Act, as thentiaintiff commenced proceedings on that cause of action before the Superior Court (a Courtompetent jurisdiction) on 2 on 20 Nov 2008. That date bete being within one year of the transfer of $2.5 million on 6 June 2008.ppeart that the Plaintlaintiff has a reasonable argument on this point from the, admittedly superficial, arguments thaave h
[19] Therefore, I am of the view that the Plaintiff has a reasonable claim. aim. That That is, ois, of course of necessity, a superficial analysis of the merits.

Residence of the Plaintiff

[20] The Plaintiff is a resident of Arizona. It has no assets in the Cook Islands. Mr Park,incipal of the Plaintiaintiff, has filed an unsworn affidavit which indicates he is a person of significant substance. The same affidavit indicates that the Plaintiff has a net of equity in thinity of US$1.9 millioillion.
[21] Mr&# Mr Manarangi argues in a genergeneral approach the Court's discretion must be exercised in the circumstances, and it is not conclusive that a non-resident Plaintiff has no assets within the jurisdiction which wourmally be ordered to give sive security.

[22] I accept that the residence of the Plaintiff is only one factor. However, in this case that factor counts against the Plaintiff.

Plaintiff's financial substance

[23] Mr Manarangi argues th Pa60;Park is a person of significant substance. Mr Park had offthe Plaintiff aiff an undertaking to the Court to pay osts. Mr Gresponded that such an undn undertaking would be unenforceable for all intenintents and purposes against Mr Park whosedencenclea is nots nots not based in the Cook Islands or New Zealand.

[24] It is clearclear from the unsworn affidavit filed by laintiff himself that the Plaintiff is impecunious. Mr Manarangi that has been coen coen contributed to by the failure of the Defendants to pay the judgment to the Plaintiff. The equity position of the Plaintiff would have been considerably healthier if thdgment had been paid.


[25] As I have said, if the Defendants' conduct has caused the Plaintiff's impecuniosity it is a factor to be taken into account. In this case it appears from the statement of claim that the Defendants have received funds from Capital against which the Plaintiff has received judgment. If Capital had been able to pay, the Plaintiff's financial position would be considerably better than it is today. I take that into account.

Conduct of the parties

[26] Mr Manarangi submitted the Coue Court should have no sympathy for the Defendants as the Defendants had arranged or been involved in dispositions or trrs of assets which led to the Plaintiff being unable to recover the judgment. Mr GrantGrant replhat the Cook Cook Islands International Trusts Act 1984 providededural and limd limitation safeguards which the Defendants are entitled to take the benefitnd therefore no condemnation of their conduct should be take taken into account. I was referred to the decision in The South Orange Grove (Case No. 2)[4] (CA). In that case the Cook Islands Court of Appeal rejected an argument that Parliament ever intends that fraud be condoned. I am advised that the legislation was amended after that case to deal with the issues raised by the Court of Appeal. However, the Court of Appeal dictum that Parliament never intends fraud to be condoned remains applicable. If assets have been transferred to a Cook Islands Trust to avoid judgment as alleged in the statement of claim, the Defendants would be unlikely to find any sympathy extended by the Court. I do not find this issue weighs one way or the other in my assessment.

Should security be granted?

[27] I am of the view that the Plaintiff should be required to pay or secure costs in this case. I have weighed up the matters raised by the parties. I find the Plaintiff has a reasonable case on the assessment able to be undertaken at present. However, the Plaintiff is impecunious and its assets are outside the jurisdiction. The fact that its principal, Mr Park, has funds doe mean than that they are accessible by the Defendants, although the provision of an undertaking by Mr Park (which has not been peovided) would be a factor taken into account.

[28] I therefore turn to the the amount that should be fixed.

[29] Mr Grant for the Appt subd thad that, unlike New Zealand, the High Court in then the Cook Islands could not order staged security for costs, or security xed on one or more occasions. He based this argument on the reference in s 93(1) to "ato "any suther ther than "sums". He submitted that the section expressly contemplates the payment of one sum on one occasion and not several sums on several occasions. He commented that the granting of staged security is a recentecent development under the New Zealand Rules and he had not been able to find any cases where this approach was adopted under the former (NZ) Code of Civil Procedure, which he referred to as the model for the rules that currently govern the High Court of the Cook Islands. On that basis he submitted it was, as a matter of policy, unfair to allow a Plaintiff to commence and advance the litigation if it cannot give security for the whole of the costs to which a Defendant would be entitled. He further submitted that even if it were available in the Cook Islands, staged security would not be appropriate in this case as:

1. The Court has jurisdiction to allow it to provide a bond as security, and in this case if it could not put up a bond then it is doubtful whether it would be able to pay the costs award that would be made against it if it failed in the proceedings.
   
2. A series of applications for further security would incur more costs and delay would be substantial.
   

100. The costs are likely to be high during the early phases of the litigation and therefore a further application to increase the security would be necessary.
     

4. It is not a detriment to the Plaintiff to have to provide for security as it is fully protected in the event that it is successful.
   

[30] Mr Grant overlooks the specific wording of s 93 which provides the appliapplicant for security can make an application "at any stage". This also appears to have been the case in New Zealnder ld Code of Civil Procedure whereCourt curt could fix afix a preliminary amount and grad grant leave to apply for further security later (Beck, Principles of Civil Procedure, Brooker & Friend 1992 at p 164, citing (1987) 1 PRNZ 467.) In any event the requirement of further security would be available inCourt's inherent jurisdiction.

[31] I am satisfiedsfied that staged security may be required by the Court. In this case it may be particularly appropriate as Mr Grant himself indicatehis ohis oral submissions the difficulty of providing a legal budget as the likely costs of these proceedings. Staged security is often appropriate in those types of cases.

[32] Mr Gror the Applicant urges me t me to make an Order for an amount of $693,000, being an amount based on the percentage allowed for costs under the High Court Fees Costs and Allowance Regulations 2005.

[33] He points to New Zealand cases and referred to three cases: Union Air Service Company Limited v Wasan International Co. Limited, [5] on a claim of $800,000 $31,000 awarded being 94 percent of scale in New Zeew Zealand; Mawhiney v Waitakere CC,[6] where security was awarded of $60,000 on a claim of $6 million, being 61;percent oent of scale (2B) Nichibo Japan Trading Cing Company Limited v IBS Group Limited,[7] security of $48,000 was awaon a percentage of scale of 92.6 percent.

[34> [34] I am not persuaded that the correct approach is to look at what the likely award of costs to the Defendant would be on a proceeding. This is a percentage of the amount in issue. The Judge retainsscretion in making that awat award. The approach is rather that the Court must determine what is appropriate in all the circumstances including:

1. the amount and nature of the relief claimed;
   
2. the nature of the proceeding, complexity of issues and extent of interlocutory matters;
   

100. duration of trial; or
     

4. costs payable if the Defendant is unsuccessful.
   

[35] The amount of the relief claimed is substantial. However, it does not appear that there are any complex issues raised by the case, although the cause of action based on unjustified enrichment certainly will raise some novel issues. There has been an Order for production of specific documents. As I understand it, there are unlikely to be any unusual interlocutories. The Plaintiff has indicated that it may file an amended statement of claim following discovery and inspection. The Defendant is now being timetabled to file a statement of defence. Neither party could give me an estimate of the duration of the trial. The Plaintiff's best estimate was five days to prove every allegation.

[36] In the Cook Islands the practice has been that a security for costs in the region of US$5,000-$10,000 are regarded as substantial. This would likely be the upper end of range that would be ordered on the present application. Neither party were able to provide any Cook Islands argued cases. Mr Gibsr the Applicant himselfmself confirmed that range would likely be granted to date in the Cook Islands.

[37] As I have already found, the High Court haspower to award staged security for costs. It is therefore oore open to the Applicant at any stage to make a further application for costs in a later stage of the proceedings.

[38] Taking into account all the factors above, I, therefore, require that security for costs should be provided as follows:

1. The Plaintiff shall give security for the First Defendant's costs in the sum of US$10,000 by payment of that sum into Court, or by giving, to the satisfaction of the Registrar of this Court, security for that sum.
   
2. This proceeding is stayed until such sum is so paid or security is given.
   

100. Leave is reserved to the First Defendant to apply further to this Court at any time before the setting down of this proceeding for a further Order or Orders for further security arising from the costs of trial on substantive issues.
     

[39] The parties indicated that they wish to be heard on the issue for costs on this application. If the parties are unable to agree:

1. submissions by the Applicant are to be filed and served within seven (7) days of the date of this Judgment;
   
2. submissions in response by the Respondent (Plaintiff) is to be filed and served three (3) days after the date of this Judgment;
   

100. the Applicant must file and serve any submissions in reply within two days of receipt of the Respondent (Plaintiff) submissions.
     

[40] The time for filing submissions is truncated to ensure the matter is dealt with before the Christmas break.

Grice J

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^[1] Agriculture Corp v McFarlane Laboratories (1984) Limited (1987) 1 PRNZ 467.
^[2] AS McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747.
^[3] Civil Remedies in New Zealand, Ed Blanchard Bookers Limited 2003 Wellington, see Chapter 8, para 8.2 p 371, and gener366-372.
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^[4] The South Orange Grove (Case No. 2) (CA) 2 ITLR 482 and 4 ITELR 877.
^[5] Union Air Service Company Limitedmited v Wasan International Co. Limited Unreported, High Court, Auckland, CIV-2006-404-2190, 21/9/06, Doogue AJ.
^[6] Mawhiney v Waitakere CC Unreported, High Court Auckland, CIV-1999-404-1850, 2/5/05, Sargisson J.
^[7] Nichibo Japan Trading Company Limited v IBS Group Limited, Unreported, High Court Auckland, CIV-2002-404-1703, 2/5/03, Master Faire.