Alusi Limited v Creative Dentistry Limited

[2017] NZHC 3154

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV 2017-485-728 [2017] NZHC 3154

BETWEEN

ALUSI LIMITED

Plaintiff

AND

CREATIVE DENTISTRY LIMITED Defendant

Hearing:	On Papers
Counsel:	J O Upton QC for Plaintiff J A L Langford for Defendant R C Laurenson for Joinder Applicant
Judgment:	15 December 2017

JUDGMENT OF SIMON FRANCE J (costs on discontinuance)

[1]      The parties (“Alusi” and “Creative”) are dental practices. Along with a third, G J Lawrence Dental Ltd (“Lawrence”), they operate out of a single business premise. The arrangements between them were governed by a Deed of Association, and by the constitution of a company they jointly formed to hold the lease on the building (“the foundation documents”).

[2]      The two key facts behind the proceedings appear to be that relations between the three deteriorated and Lawrence indicated an intention to retire, raising the spectre of sale.  Exactly what the sequence of these two events was does not matter.  Suffice to  say  the  foundation  documents  contain  rules  concerning  sales,  and  what

opportunities must be given to the other two practices if one of the three wishes to sell.

ALUSI LTD v CREATIVE DENTISTRY LTD [2017] NZHC 3154 [15 December 2017]

[3]      Initially Lawrence was going to sell to Alusi, and it seemed Creative might sell to a third party.   Both arrangements would engage the rights under the foundation documents.  No doubt not assisted by the collapse of the underlying relationships, issues arose concerning these possible steps.  Eventually the three entities went to mediation, out of which a new agreement between them emerged. The new agreement appears directed at these two possible sale arrangements, and sets rules around how they might happen, and who has to agree to what by when.

[4]      Alusi  and  Lawrence  immediately  confirmed  the  agreement  for  sale  and purchase between them.  Creative, however, did not successfully sell to a third party and accordingly did not agree to the Lawrence sale to Alusi.   Whether Creative’s consent was needed went to arbitration and the arbitrator ruled against the Alusi/Lawrence sale being enforceable over Creative’s objections. Subsequent to this, and important to the joinder application, Lawrence decided it did not want to go ahead with a sale to Alusi.

[5]      The next event is Creative agreeing a sale to a third party. This led Alusi to file these proceedings seeking an injunction to stop the sale because the post-mediation agreement had not been complied with.   The injunction proceeding was allocated callovers to  set  a timetable, but  they were constantly adjourned  because of the prospects of settlement.   Settlement has indeed happened but unhelpfully without agreement as to costs.

[6]      The other strand to the matter is that Lawrence was not named as a party to the injunction proceedings. Seemingly, it was taking no steps as regards the Creative sale and Alusi maintains it therefore had no interest in the proceeding. However, Lawrence was concerned that the basis of Alusi’s pleading was that the post-mediation agreement was still applicable.  It was Lawrence’s view, and Creative’s, that the post-mediation agreement was spent and the foundation documents still governed.   Lawrence was concerned about Alusi’s reliance on the post-mediation agreement because of the risk that recognition of its ongoing existence might regenerate the earlier agreement for sale and purchase between Alusi and Lawrence. Accordingly, it sought joinder.

[7]      There was a separate hearing on this, at the end of which Williams J issued a minute which read:1

[2]       If the plaintiff does wish to resurrect its agreement with G J Lawrence Dental Ltd then it seems to me that company has a very good reason to be joined as a party to this proceeding.  On the other hand if the plaintiff has no interest in such an agreement, it is difficult to see how G J Lawrence Dental Ltd is a necessary party in accordance with the High Court Rules.  I am not to be understood as finally deciding this matter as I am still to hear from Mr Laurenson and Mr Upton QC, but it does seem to me that the position is relatively self-evident.

[8]      There is then a subsequent minute of the same day which says:2

[3]      Following the issue of my first minute in this matter, should either

Mr Upton QC  or  Mr Laurenson  wish  to  be  heard  further  on  the question of joinder, they may file written memoranda by the end of

business tomorrow.  I will then issue a decision if required.

Issue one – costs between Alusi and Creative

[9]      Each party seeks an award of costs. The standard rule is that the discontinuing plaintiff is liable to pay costs.3

[10]     Alusi says the proceedings were prompted by a dispute as to whether the foundation documents or the post-mediation agreement governed.  Alusi says this mattered because the mediation agreement cut Lawrence out of any role whereas the foundation documents required Creative to first offer its business to both Alusi and Lawrence. Alusi did not want Lawrence to have the right to purchase Creative.

[11]     Alusi says that its proceedings achieved their aim because the mediation agreement was thereafter followed, not the foundation documents.   The sale went ahead to the third party with Lawrence having no option.  (I have no information on whether it wanted one.) Alusi says Creative would not agree prior to the proceedings

to cut out Lawrence, but did so after the proceedings, and so the proceedings achieved

1      Alusi Ltd v Creative Dentistry Ltd HC Wellington CIV-2017-485-0728, 3 October 2017 (Minute of Williams J).

2      Alusi Ltd v Creative Dentistry Ltd HC Wellington CIV-2017-485-0728, 3 October 2017 (Minute

(No 2) of Williams J).

3      High Court Rules 2016, r 15.23.

their aim.  They were discontinued only because Creative did what Alusi said it had to, and accordingly Alusi should get costs.

[12]     Creative says the proceedings were unnecessary.   It was not asked for an undertaking and gave one once counsel had returned from overseas.   Creative maintains its position that the foundation documents governed, and still do. Creative’s perspective is that the unconditional sale has proceeded in accordance with those original  documents,  with Alusi  exercising  its  rights  to  consider  a  purchase  but ultimately declining to do so.

[13]     In his submissions Mr Upton QC summarises the relevant considerations when considering the costs on discontinuance:4

(a)       The court will not consider the merits of the respective cases, unless they are so obvious that they should influence the costs outcome.

(b)       The court will consider the reasonableness of the stance of both parties up to the point of discontinuance – whether it was reasonable for the plaintiff to bring and continue the proceeding, and for the defendant to oppose the proceeding.

(c)       Conduct  prior  to  the  commencement  of  the  proceeding  may  be relevant, for example, conduct by the defendant that precipitated the litigation.

(d)       The reason for discontinuing may be relevant, for example, a change of circumstances rendering the proceeding unnecessary.  However, it must be clear that the plaintiff would have succeeded had the circumstances not changed.

(e)       The court’s general discretion in Rule 14.1 [of the High Court Rules

2016] as to costs remains, and can also override the general principles relating to discontinuance.

[14]     Traversing these, I am unable to determine the merits, nor am I confident, in the absence of proper evidence, to base any conclusions on conduct prior to the commencement. As for reasonableness of positions, it is clear there is an argument to be had over which contract governed.  All parties are represented by experienced

counsel and I see no basis to conclude anyone was acting unreasonably.

4      Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12] and [26]–[29]; FM Custodians Ltd v Pati [2012] NZHC 1902 at [10]–[12]; and Opus International Consultants Ltd v Colac Bay Vision Ltd [2015] NZHC 1782 at [20]–[25].

[15]     The parties are still at odds over why there was a settlement and the basis on which Creative’s sale proceeded.  Alusi asserts a change in position, and therefore success.   Creative asserts nothing changed, and therefore the proceedings are unnecessary.

[16]     There is good reason why parties normally sort costs out between themselves before discontinuing.  I have set out the background in some detail to illustrate the difficulties a court faces in resolving these matters when the proceeding has been discontinued at an early stage. Having reviewed the material, I have not been satisfied there is good reason not to apply the standard rule in r 15.23 of the High Court Rules.

[17]     Accordingly, the defendant is entitled to an award of costs.  Creative seeks an uplift because the proceedings came as a surprise, Mr Langford was overseas at the time and another counsel needed to become involved although unfamiliar with the file. My assessment is that these things happen and I do not see it as a basis for increased costs. No issue has been taken with the defendant’s calculations so I award total costs of $5,352 to the defendant.

Issue two – costs for the joinder application

[18]     I consider the application for joinder was valid, and not only for the immediate concern held by Creative, namely the potential revival of the agreement between Alusi and Lawrence.  The purpose underlying Alusi’s reliance on the mediation agreement was to thereby shut out Lawrence of its rights under the foundation documents. In the absence of the plaintiff providing assurances that made Lawrence’s involvement unnecessary, the application for joinder was a valid and necessary step.

[19]     I award costs to Lawrence in the claimed sum of $3,791.

Simon France J