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Commercial Factors Limited v Scenic Hotel Group Limited [2020] NZHC 2407 (16 September 2020)

Last Updated: 2 October 2020

JUDGMENT OF OSBORNE J

[costs]

This judgment was delivered by me on 16 September 2020 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

COMMERCIAL FACTORS LTD v SCENIC HOTEL GROUP LTD [2020] NZHC 2407 [16 September 2020]

• [1] The plaintiff (CFL) and the first defendant (Scenic) collaborated for a lengthy period with a view to having a hotel joint venture in Tonga.

• [2] In this proceeding, CFL sued Scenic on three causes of action (estoppel, contractual joint venture and partnership).

• [3] By my judgment, following trial, CFL failed on each of its pleaded causes of action.¹ The Court nevertheless made a declaration that a pre-contractual joint venture between CFL and Scenic was terminated with effect from 26 March 2015.

• [4] As between CFL and the second defendant (Scenic Hotels Ltd) judgment was entered for the second defendant, that company in fact having nothing to do with the dealings between the other parties, and having been sued in error.² The previous joinder of the second defendant does not affect costs issues as the defendants, represented by the same solicitor and counsel, seek a single set of costs and disbursements.

Costs application

The substantive outcome

• [5] The defendants invoke the primary rule that costs follow the event.³

• [6] Mr Smith QC, for Scenic, observes that the essence of CFL’s claims was that Scenic had contractually committed itself to buy the hotel and to form a long-term relationship with CFL on agreed terms, or that Scenic was estopped from denying such an agreement. Mr Smith notes that CFL failed to obtain an iota of the relief it actually sought. Instead, the Court had been prepared to grant an “empty declaration” based on a pre-contractual joint venture which the defendant had accepted existed for the purpose of argument (not covered by any declaration sought by the plaintiff).

¹ Commercial Factors Ltd v Scenic Hotel Group Ltd [2019] NZHC 2370.

² At [7], fn 1.

³ High Court Rules 2016, r 14.2(a).

• [7] Mr Smith submits that CFL’s claim was entirely unsuccessful both in substance and in form. The defendants by contrast successfully established their pleaded positions in relation to CFL’s pleaded claims.

• [8] For CFL, Mr Dale QC submitted that it was in fact CFL who should be regarded as the successful party. This was because CFL had established that the parties had been in a business relationship and that that relationship had been validly terminated in March 2015. He characterised as “nominalism” Scenic’s attempt to distinguish between the pleaded joint venture or partnership and the pre-contractual joint venture identified by the Court.⁴

• [9] Mr Dale QC noted that the Court had recognised the need for accounting as between the parties, only declining ultimately to order such accounting by reason of the available process through the liquidation of the intended joint venture vehicle (Pacific Hotels Ltd).

• [10] I consider that Scenic must be regarded as the successful party in this proceeding. CFL failed to establish any of the three causes of action upon which it sought relief.

• [11] The primary principle is therefore in favour of Scenic in relation to the substantive outcome.

Post-trial interlocutory issues

• [12] The same applies to an interlocutory issue which arose post-judgment.

• [13] In the judgment as initially released, I directed the taking of accounts in relation to the pre-contractual joint venture vehicle.

• [14] That aspect of the initial judgment was the subject of a recall application made by Scenic primarily upon the bases that accounting in relation to a pre-contractual joint

4. “Nominalism” being a description used in Kahn v Miah [2000] UKHL 55; [2000] 1 WLR 2123 as referred to in the Judgment, above n 1, at 235].

venture had not been pleaded or argued for and that the Court had not offered counsel the opportunity to make submissions on it before delivery of the judgment.

• [15] Upon hearing further submissions from counsel, I made an order recalling the judgment and deleting the directions for accounts.⁵

• [16] Mr Smith again submits that in relation to those interlocutory matters the defendants were successful and are entitled to their costs.

• [17] Mr Dale referred to the recall application as having arisen “out of the Judge’s error”.

• [18] Again, I find in favour of Scenic on this point. Parties suffer the consequences of the straightforward application of the primary principle as to costs following the event even where the litigation process has gone astray through some approach taken by the Court. Such was recognised in Manukau Golf Club for Shoye Venture Ltd.⁶

Late discovery of insurance arrangements

• [19] Finally, Mr Dale referred to late notification received by CFL of insurance arrangements which Scenic had put in place in relation to the hotel. That led to an insurance entitlement worth in the order of $3.3m.

• [20] Mr Dale submits that the claim ought to have been disclosed by Scenic well in advance of the trial so that the plaintiff could consider its position without the pressure of the pending hearing. The insurance entitlement significantly affected what had previously been indicated by the evidence, that being that Pacific Hotels Ltd was insolvent. Mr Dale refers to the potential for inconsistent verdicts, arising from any liquidation proceedings, in relation to entitlements in the insurance proceeds.

• [21] Mr Dale submits that the trial would undoubtedly have taken a different course had there been a timely disclosure in relation to the insurance proceeds.

⁵ Commercial Factors Ltd v Scenic Hotel Group Ltd [2020] NZHC 1868.

⁶ Manukau Golf Club Inc v Shoye Venture Ltd [2020] NZSC 109, [2013] 1 NZLR 305, at [13].

• [22] Mr Smith, in reply, observed that the submission for CFL amounted to the proposition that CFL was disentitled to claim costs by reason of discreditable conduct. Mr Smith submits that any matters arising from a perceived difficulty with late disclosure and its impact on the trial should have been the subject of further application, whether for adjournment or otherwise.

• [23] The basis upon which the Court refuses or reduces costs is identified in r 14.7 High Court Rules 2016. Ultimately, in terms of r 14.7(g) the Court has a discretion not to apply the primary principle where any reason exists which justifies the Court refusing or reducing costs. Specific grounds are identified in the rule such as where a party fails to comply with an order for discovery (r 14.7(f)(iv)).

• [24] Here, it is unnecessary to determine whether there was a specific breach in relation to Scenic’s ongoing duty of disclosure. It is unnecessary to find whether there was a breach. What was clear to me as trial Judge, and as the Judge who dealt with the pre-trial issues as they arose, is that whatever the reason was for Scenic making its decisions in relation to its late disclosure of information concerning the insurance arrangements, the lateness of that disclosure did have an impact on the way evidence was briefed and in the way issues had to be explored at trial. It was not a great impact when compared to the fundamental issues at trial relating to the existence and nature of a business relationship. But it was an impact which I find it just to assess at 5 per cent of those costs associated with the preparation for trial and the trial itself (Items 30, 32, 33, 34 and 35, Schedule 3, High Court Rules).

Second counsel

• [25] Scenic seeks a certificate for second counsel. Having regard to the nature of the case, such is appropriate and I will so certify.

Scenic’s disbursements

• [26] Counsel have provided details of Scenic’s disbursements, which total $913.04 (exclusive of GST).

• [27] Those disbursements will be allowed.

Scenic’s costs

• [28] Counsel have provided a schedule of costs calculations, attached as Schedule A.

• [29] The costs were calculated in accordance with the initial categorisation of the proceeding as a Category 2 proceeding.⁷

• [30] For CFL, Mr Dale raised a limited number of points in relation to Scenic’s calculations, all of which I have considered.

• [31] The claims of Scenic which I disallow, or allow on a reduced basis, are as follows:

(a) Items 13 — Scenic claimed for two appearances at case management conferences, whereas Mr Dale identified that those conferences were vacated and matters dealt with on the papers. Allowance: nil.

(b) Item 13 — there was a third conference vacated (22 February 2018) which Mr Dale appears to have overlooked in his objection. Allowance: nil.

(c) Item 9 — Scenic claimed for an amended statement of defence which was not filed in response to any amendment of CFL’s pleading. Allowance: nil.

(d) Item 20 — Scenic sought Band C for its discovery.⁸ The amount of time reasonably required for discovery in this case was appreciably more than normal but not as large as Band C would recognise. Allowance: 100 per cent uplift on Band B (five days total).

⁷ High Court Rules, r 14.3(1).

⁸ High Court Rules, r 14.5(2)(c).

(e) Item 21 — inspection of documents. The considerations in relation to inspection are directly parallel to those in relation to discovery. Allowance: 100 per cent uplift on Band B (three days).

(f) Item 20 — Scenic claimed (on a 2B basis) for a second list of documents, whereas an appropriate allowance for a second list would be on a 2A basis. Allowance: 0.7 days.

(g) Additional memoranda (by analogy to Item 11). Scenic calculated an additional four days (10 x 0.4) in relation to 10 memoranda but then claimed two days only. That was an appropriate concession having regard to the very short nature of many of the memoranda. Allowance: two days in total.

Total

• [32] Once those alterations are made to Scenic’s claim, and the certificate for second counsel is taken into account, the appropriate costs payable total $116.089.26.

Order

• [33] I order the plaintiff to pay to the first defendant the costs of this proceeding fixed in the sum of $116.089.26 together with disbursements fixed in the sum of

$913.04.

• [34] As between the plaintiff and the second defendant there is no order as to costs or disbursements.

Osborne J

Solicitors:

Neilsons Lawyers, Auckland Meares Williams, Christchurch