Indoor Skydive Australia Group Ltd v SkyVenture International Ltd
[2017] NSWSC 1543
•16 November 2017
|
New South Wales |
Case Name: | Indoor Skydive Australia Group Ltd v SkyVenture International Ltd |
Medium Neutral Citation: | [2017] NSWSC 1543 |
Hearing Date(s): | 3 November 2017 |
Decision Date: | 16 November 2017 |
Jurisdiction: | Equity |
Before: | Ball J |
Decision: | The plaintiffs pay the defendants’ costs of the proceedings. |
Catchwords: | COSTS – Party/Party – General rule that costs follow the event – Proceedings discontinued or dismissed – No issue of principle |
Legislation Cited: | Uniform Civil Procedure Rules 2005 (NSW) r 42.19 |
Cases Cited: | Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 |
Category: | Costs |
Parties: | Indoor Skydive Australia Group Ltd (First Plaintiff) |
Representation: | Counsel: |
File Number(s): | 2017/308904 |
Publication Restriction: | None |
JUDGMENT
The first plaintiff, Indoor Skydive Australia Group Ltd (P1), is a publicly listed company. It carries on business through three subsidiaries, the second plaintiff, Indoor Skydiving Gold Coast Pty Ltd (P2), Indoor Skydiving Perth Pty Ltd (P3) and Indoor Skydive Penrith Holdings Ltd (P4), of providing indoor skydiving facilities in the Gold Coast, Perth and Penrith to members of the public using technology and equipment supplied by the first defendant, SkyVenture International Ltd (D1), a company incorporated in the Bahamas and based in Austin, Texas. D1 is an indirect wholly owned subsidiary of the third defendant, iFLY Holdings LLC (D3), a company also based in Austin, Texas. The technology and equipment is provided pursuant to three Purchase and Licence Agreements (PLAs) entered into between each of P2, P3 and P4 and D1.
On 18 September 2017, the Chief Legal Officer of “iFLY Indoor Skydiving” served by email a letter addressed to the Directors & Chief Executive Officer of “ISA Group” purportedly giving notice of breaches of each of the PLAs said to be between “SkyVenture International (UK) Limited (“SkyVenture”) and certain Indoor Skydive Australia Group Limited (“ISA Group”) affiliates”. SkyVenture International (UK) Limited, which is the second defendant (D2), is a wholly owned subsidiary of D3 and the immediate parent of D1. The alleged breaches arose from an announcement of the ISA Group that it was in the process of constructing an indoor skydiving facility in Malaysia and was considering further expansion in Southeast Asia, Hong Kong and China. Purportedly in accordance with the PLAs, the notice gave ISA Group 30 days to cure the identified breaches, failing which (to quote from the notice) “SkyVenture will have the sole discretion to terminate the PLAs related to the Penrith, Gold Coast, and Perth facilities”.
On 28 September 2017, “SkyVenture International Ltd” (presumably a reference to D1) as claimant served a Demand for Arbitration in accordance with the rules of the American Arbitration Association on each of the plaintiffs as respondents. The demand was made pursuant to arbitration clauses contained in each of the PLAs.
On 12 October 2017, the plaintiffs commenced proceedings in this court against D1 to D3, the fourth defendant, SkyVenture LLC (D4), and the fifth defendant, iFLY Australia Pty Ltd (D5). D4 is another intermediate holding company between D1 and D2. D5 is an Australian incorporated company in the iFLY Group. In the proceedings the plaintiffs sought, among other things, injunctions restraining termination of the PLAs pending the outcome of the arbitration. The plaintiffs obtained ex parte orders from Kunc J on that day.
On 18 October 2017, the defendants filed a notice of motion seeking a stay or dismissal of the proceedings or orders setting aside orders for service. That motion was ultimately listed for hearing in this list on 3 November 2017 after directions had been made by the court on 27 October 2017 and after the defendants had given undertakings the effect of which was to continue the orders made by Kunc J until the motions were heard.
On 3 November 2017, the court:
(a)gave leave to P1 to discontinue all its claims for relief in the proceedings;
(b)gave leave to P2 to P4 to discontinue all their claims for relief in the proceedings so far as they concern D2 to D5; and
(c)stayed the balance of the proceedings pursuant to s 7(2) of the International Arbitration Act 1974 (Cth).
The only outstanding question is costs. The plaintiffs seek their costs of the proceedings or alternatively an order that each party pay its own costs. The defendants, on the other hand, seek their costs of the proceedings.
Unless the court orders otherwise, a plaintiff is liable to pay the defendant’s costs of a discontinued claim: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.19. One circumstance where the court may order otherwise is where the costs have been significantly increased by the unreasonable conduct of the opposing party: see Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32. The plaintiffs rely on that exception in seeking the costs orders they do.
In order to understand the plaintiffs’ contentions, it is necessary to say something more about the history of the matter.
As I have said, a breach notice was served on 18 September 2017. On any view it is unsatisfactory. It appears to be given by D3 purportedly on behalf of D2, neither of which is a party to any of the PLAs. It appears to have been given to P1, which is also not a party to the PLAs, although it is its conduct about which complaint is made.
At the time the breach notice was served, D1 issued a press release which commenced with the following paragraph:
iFLY calls on Indoor Skydive Australia Group to back down from its announced breach of contract Wednesday, September 20, 2017 …
On 25 September 2017, P1 by its solicitors, Webb Henderson, responded to the breach notice denying any breach, demanding that the notice be withdrawn and threatening to apply for interlocutory injunctions in Australia if their demand was not met.
In response to that letter, on 28 September 2017, Yetter Coleman LLP, the Texan attorneys acting for the defendants, issued a Demand for Arbitration. The demand stated that the applicant was D1 and the respondents P1 to P4.
Webb Henderson responded to that demand on 29 September 2017. That letter said, in part:
We do not accept that the ISA Entities [defined earlier in the letter to be P1 to P4] are bound to resolve the dispute by arbitration in Texas, and the ISA Entities do not submit to the jurisdiction of Texas. However, to enable the ISA Entities to more fully consider their position in respect of the Demand for Arbitration, iFLY must first confirm urgently that it will either agree to withdraw its Breach Notice or refrain from relying on the Breach Notice while the parties decide how to resolve the issues, and provide an undertaking to that effect …
Yetter Coleman LLP responded on 2 October 2017. Among other things, the response indicated that iFLY was prepared to meet promptly to discuss a resolution “while maintaining a status quo that protects all parties’ interests”. The letter continued:
… we are willing to proceed in good faith with such discussions if the ISA Group immediately ceases all construction and development activities at their new Malaysian facility and terminates the memorandum of understanding with Avest Capital Company Limited [P1’s joint venture partner in Malaysia]. In return, SkyVenture will hold its validly filed contract arbitration in abeyance, and will not declare termination of the parties’ contracts, until either side declares that the settlement discussions are concluded.
Webb Henderson rejected that proposal on 3 October 2017 and again pressed for an undertaking that iFLY either withdraw the breach notice or refrain from relying on it while the parties decided how to resolve the issues.
There was further correspondence between the parties’ lawyers on 3 and 4 October 2017 in which each maintained their positions.
Following that correspondence, also on 4 October 2017, Yetter Coleman LLP served an Original Petition and Application to Compel Arbitration in the District Court of Travis County, Texas.
On 11 October 2017, an administrative conference call in the arbitration scheduled for that day was rescheduled to 19 October 2017.
As I have said, on 12 October 2017, the plaintiffs obtained ex parte interim injunctive relief from Kunc J. On 18 October 2017, the defendants filed a notice of motion seeking to stay or to dismiss the proceedings or an order setting aside service. On the same day, directions were given for the preparation of evidence relating to those motions. Much of the evidence went to the question whether the plaintiffs were bound to submit their dispute to arbitration and the proper parties to that arbitration.
On 25 October 2017, P2 to P4 filed an Application for Emergency Interim Relief in the Texas arbitration against D1. An emergency arbitrator was appointed and on 30 October 2017 there was a conference call with her during which D1 agreed to maintain the status quo until the application for interim relief was heard, which was set down for hearing before the emergency arbitrator on 6 November 2017.
In light of those orders and undertakings, the plaintiffs concluded that it was unnecessary to continue to press for relief in these proceedings. It was in that context that the court made the orders it did on 3 November 2017.
The plaintiffs submit that the defendants have acted unreasonably and in doing so have significantly increased the costs of the proceedings justifying a costs order in their favour, or at least an order that each party bear its own costs. They rely principally on the initial letter of demand which they submit was obviously flawed because it sought to exercise rights against P2 to P4 in respect of conduct of P1 and asserted those rights on behalf of companies that were not parties to the PLAs. Not only did that cause unnecessary confusion, but it also made necessary the commencement of court proceedings because, on any view, not all the entities involved were parties to an arbitration agreement. The plaintiffs also rely on the defendants’ insistence that P1 cease work on the facility in Malaysia and terminate its joint venture agreement as a condition of any further settlement discussions. In addition, the plaintiffs submit that, at the time they commenced these proceedings, there was limited time available in which to make an application for the appointment of an emergency arbitrator and, given the timetable contemplated by the rules of the American Arbitration Association in relation to the appointment of emergency arbitrators, it was possible that an emergency arbitrator would not have sufficient time to deal with the plaintiffs’ application before the 30 days’ notice period expired.
I am not satisfied that the defendants’ conduct justifies a special costs order in this case.
I accept that the breach notice was confusing. However, that confusion was largely cleared up at the time that D1 served the demand for arbitration. If there remained any doubt about the matter, that doubt could easily have been resolved by the plaintiffs asking whether the defendants accepted that the only entity that had the right to exercise the right of termination conferred by the PLAs was D1. Instead, the plaintiffs appeared to maintain that they were not bound to submit the dispute identified in the demand for arbitration to arbitration. The basis for that position was not identified in their solicitors’ letter dated 29 September 2017; and it is not clear on what basis that assertion could have been made. The only possibility appears to be that P1 was sought to be made a party to the arbitration although it is not a party to any of the PLAs. However, the evidence suggests that as a matter of Texas law P1 could be made a party to the arbitration. In any event, if that was the basis of the contention, the plaintiffs could have said so and, if they had, that may have helped to simplify the issues between the parties.
I also accept that there was little merit in the defendants’ position that the status quo should be preserved by P1 ceasing work on the Malaysian facility and terminating the agreement with its joint venture partner. However, the defendants had made their position on that matter clear at least by 4 October 2017. It was open to the plaintiffs to seek the appointment of an emergency arbitrator shortly after that time. There is no reason to think that there was inadequate time to do that at that time; and if they had done so the likelihood is that the parties would have reached the position they reached by 3 November 2017 well before then. The costs of these proceedings arose largely not because the defendants took an unreasonable position in relation to preservation of the status quo but the plaintiffs’ response to that position.
It follows that there is no reason to depart from the general rule set out in UCPR r 42.19.
Nor do I think that some different approach should be taken insofar as the proceedings are stayed rather than discontinued. The stay represents practical success for the defendants on their notices of motion and the disposal of the balance of the proceedings in their favour. There is no reason in those circumstances why they should not recover their costs.
It follows that the orders of the court are that the plaintiffs pay the defendants’ costs of the proceedings.
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