Club Marine (NZ) Limited v Quadrant Yachts Limited

[2019] NZHC 48

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-000992

[2019] NZHC 48

BETWEEN

CLUB MARINE (NZ) LIMITED

Appellant

AND

QUADRANT YACHTS LIMITED

Respondent

Hearing:	11 October 2018
Counsel:	G J Beresford for appellant T G Aherne for respondent
Judgment:	1 February 2019

JUDGMENT OF KATZ J

This judgment was delivered by me on 1 February 2019 at 3.00 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:      Kennedys Solicitors, Auckland

Aherne Legal, Auckland

CLUB MARINE (NZ) LIMITED v QUADRANT YACHTS LIMITED [2019] NZHC 48 [1 February 2019]

Introduction

[1]    Club Marine (NZ) Ltd (“Club Marine”) was the insurer of a 24 metre superyacht, the Crystal Blue (“the yacht”). Quadrant Yachts Limited (“Quadrant”) was engaged as a sales broker, to sell the yacht. Having failed to find a purchaser in New Zealand, the yacht was sent to Australia on a container ship, to be sold there. Unfortunately, it was damaged in transit.

[2]    Club Marine paid for the repairs to the boat, but then sought to recover the repair costs from various parties, by way of a subrogated proceeding brought in the name of Crystal-Line Limited (“Crystal-Line”), the boat’s owner. One of the defendants was Quadrant. (I will refer to this proceeding as “the substantive proceeding”).

[3]    Prior to trial, Club Marine reached a settlement with all of the defendants except Quadrant. Club Marine then discontinued the substantive proceeding. Quadrant did not seek a costs award on discontinuance, as it was entitled to do. Instead Quadrant issued a separate proceeding against Club Marine in which it sought to recover the legal costs it had incurred in the substantive proceeding, as damages.     (I will refer to this as “the recovery proceeding”).

[4]    Club Marine applied for defendant’s summary judgment in the District Court. It claimed to have a complete defence to Quadrant’s claims, on the basis that Quadrant was not an insured under the relevant insurance policy. Club Marine argued that judgment should therefore be entered in its favour. Judge Nicola Mathers declined to grant the defendant’s summary judgment.1 Although she had serious reservations as to the strength of Quadrant’s claims, she ultimately found that there was “just enough” to persuade her that there was an arguable case. Club Marine now appeals that decision.

1      Quadrant Yachts Ltd v Club Marine (NZ) Ltd [2018] NZDC 7989.

Defendant’s summary judgment

[5]    Summary judgment may be given against a plaintiff if the defendant establishes on the balance of probabilities that none of the causes of action against them in the statement of claim can succeed.2 The onus of proof is on the defendant. The question is whether there is no real question to be tried. The court must be left without any real doubt or uncertainty.3 Issues of law can be determined on an application for summary judgment, even when difficult.4 However, if there is a dispute on the facts which is material to the result, the case is not suitable for summary judgment.5

Further factual background

[6]     Crystal-Line is the owner of the yacht. Christopher Coon and his wife Yvonne Coon each own 50 per cent of the shares in Crystal-Line and are two of four directors of the company.

[7]    On 12 March 2012, Quadrant entered into an agency agreement with Crystal-Line to sell the yacht. In the agency agreement Mr Coon (on behalf of Crystal-Line) warranted to Quadrant that:6

…the vessel is insured, and I will maintain the insurance on the vessel until it is sold and no longer at my risk.

[8]    When the yacht failed to sell in New Zealand after a couple of years, Quadrant recommended it be offered for sale in Australia. It was to be transported to Australia as cargo on a large ship.

[9]    On 10 February 2015, Mr Coon took out an insurance policy for the yacht (“the Pleasurecraft Policy”), which took effect from that date. It covered accidental loss or damage, fire and/or explosion and theft within New Zealand. Transit cover

2      High Court Rules 2016, r 12.2.

3      Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3; Armstrong v Mitchell [2018] NZHC 2353 at [19(a)].

4      See Armstrong v Mitchell [2018] NZHC 2353 at [20]; International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd [1987] 1 NZLR 9 (CA) at 16.

5      Jones v Attorney-General [2003] UKPC 48, [2004] 1 NZLR 433 at [5], cited with approval in

McNamara v Auckland City Council [2012] NZSC 34, [2012] 3 NZLR 701 at [81].

6      The Agency Agreement, cl 2(v).

was not included, nor was transport by road, rail, air or sea-going vessel. The Pleasurecraft Policy schedule named Mr Coon as the insured.

[10]On 3 April 2015, Mr Coon emailed Club Marine and advised that:

We are planning to send the Crystal Blue to Queensland on board a big ship and to be on show and then in an auction. Can you advise if insurance covers this and if not, what we would need to do?”

[11]   Club Marine advised Mr Coon that the existing policy did not include transit cover. Emails arranging transit cover were then exchanged. A second insurance policy (“the Transit Policy”) was issued by Club Marine on 10 April 2015, to cover the yacht’s transit to Australia. It extended the wording of the Pleasurecraft policy to cover the contract conditions of Institute Cargo Clauses (A) (ie, it extended the cover to risks arising from transit by sea). The “subject matter insured” was the Crystal Blue. Mr Coon was again named in the Transit Policy Schedule as the Insured. The definition of “you”, “your”, or “Named Insured(s)” in the Transit Policy was the same as in the Pleasurecraft Policy. In other words, it meant “the persons/company named on the Schedule as the Named Insured(s)”.

[12]   It was common ground on appeal that the yacht was owned by Crystal-Line, not Mr Coon personally, and that Mr Coon was not an assured under the Transit Policy because he had no insurable interest in the yacht. Ms Aherne submitted that the fact that Mr Coon (rather than Crystal-Line) was the named insured was of some significance, although her arguments in this respect were somewhat contradictory. Ultimately, however, I was not persuaded that the fact that the policy named Mr Coon as the insured, rather than Crystal-Line, has any significance for present purposes.

[13]   It would have been open to Club Marine to run an argument that Crystal Line, the owner the yacht, was not insured because Mr Coon (a director of the company) was named in the policy rather than Crystal-Line itself. Club Marine did not, however, seek to evade liability by advancing this technical (but  unmeritorious)  argument. Mr Wagstaff of Club Marine, under cross-examination in the District Court, explained that Club Marine accepted that Crystal Line was the insured under the policy despite not being expressly named because “we would struggle as a company to decline a claim for someone who is a director of a company, you know, if it was his company”.

In effect, Club Marine made the pragmatic decision to accept that Mr Coon had signed the Transit Policy as agent for, or on behalf of, the legal owner of the yacht, Crystal Line. In my view, this was an entirely responsible approach which clearly accorded with the intentions of the parties that the owner of the yacht be insured.

[14]   Returning then to the chronology of key events, Club Marine emailed a PDF copy of the Transit Policy  to Mr Coon on 10 April  2015.   The Judge found that   Mr Coon forwarded it on to Quadrant on the same day.

[15]   During the course of its transit to Australia, the yacht was damaged during a storm in the Tasman sea. Club Marine accepted that the damage was covered by the Transit Policy, and paid out Crystal-Line as owner of the yacht. Club Marine then brought a subrogated proceeding in the name of Crystal-Line, seeking to recover the costs of repairing the damage to the yacht. Its claim against Quadrant was that Quadrant had been negligent (and had also breached an implied term of the agency agreement) by failing to recommend a shipping option that would result in the safe shipping of the yacht to Australia.

[16]   Quadrant denied Crystal-Line’s claim and pleaded an indemnity pursuant to the agency agreement, on the basis that it was a co-insured. It also pleaded contributory negligence.

[17]   The substantive proceeding was settled with all of the defendants except Quadrant, following a judicial settlement conference. Crystal-Line then discontinued its claim against Quadrant.

[18]Rule 15.20 of the District Court Rules provides that:

15.20 Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

Quadrant was therefore entitled to costs on discontinuance.7 Costs could not, however, be agreed between Crystal-Line and Quadrant. Quadrant sought costs of $113,294.93. Crystal-Line was unwilling to pay costs at that level, given that its entire claim was for $179,093.93, and the proceedings had settled well in advance of trial.

[19]   Somewhat unusually, Quadrant did not pursue the issue of costs by seeking a costs award in the substantive proceeding. It decided, instead, to seek to recover its costs, as damages, in the recovery proceeding. It initially sought damages of

$113,294.93. Its claim was updated in March 2018 to $141,522.65, which includes legal costs of $77,183 and claimed loss of earnings by one of Quadrant’s directors in the sum of $64,339.65.

[20]   Quadrant’s first cause of action against Club Marine claims that under the Transit Policy, Quadrant was entitled to an indemnity from Club Marine in respect of the claim, the defence costs, and the expenses in the substantive proceeding. Club Marine is said to have failed to indemnify the plaintiff, in breach of its obligations under the Transit Policy.

[21]   Quadrant’s second cause of action against Club Marine is also for breach of contract. The relevant pleading, in its entirety is as follows:

26To the extent that the proceeding against [Quadrant] were taken by way of subrogated recovery action by [Club Marine] in the name of [Mr Coon] or his agents, [Club Marine] has breached its obligation under the policy to [Quadrant] as agent for [Mr Coon] and a party with an insurable interest in the subject matter;

27[Club Marine] has, as a result of its breach and the issuing of proceedings, caused [Quadrant] to incur the above costs and expenses.

[22]   Quadrant’s position is that it is an insured party under the relevant insurance policy. On that analysis, in bringing the substantive proceeding against Quadrant, Club Marine was suing its own insured. Ms Aherne explained that the relevant

7      Dane Developments Ltd v Burford HC Auckland CIV-2005-404-5655, 24 November 2010 at [10]; Vector  Gas Ltd v Todd  Petroleum Mining Company Ltd HC Wellington  CIV-2004-485-1753,   7 December 2010 at [14].

“obligation” under the policy that underpins the second cause of action, was an obligation on Club Marine not to sue its own insured.

[23]   There was some focus at the appeal hearing on the issue of whether Quadrant had an “insurable interest” in the yacht, given that it had no ownership interest in it (its pecuniary interest in the yacht was limited to its commission). In my view, however, this issue is a red herring. The key issue in respect of both causes of action is not whether Quadrant had an insurable interest, but whether Quadrant was actually an insured under the Transit Policy.

[24]   Club Marine submitted, and I accept, that the outcome of this appeal therefore turns on a single issue – did Club Marine insure Quadrant for the loss that arose? If it is not reasonably arguable that Club Marine insured Quadrant for the loss that arose, then both causes of actions are untenable.

Is it reasonably arguable that Club Marine insured Quadrant for the loss that arose?

The agency agreement

[25]   Quadrant submitted that, pursuant to the agency agreement, it is entitled to be indemnified under the Transit Policy, as a co-insured. It followed, Quadrant submitted, that Club Marine had an obligation not to sue Quadrant, because Quadrant was its own insured. The subrogated proceedings were therefore brought in breach of contract.

[26]   Quadrant relied on the agency agreement to establish that it was an insured under the Transit Policy. In that agreement, Mr Coon warranted that he would maintain insurance for the yacht. Quadrant says that, given this undertaking, it necessarily follows that Quadrant must have been covered by the insurance policies taken out by Mr Coon in respect of the yacht. It was not therefore necessary for it to maintain its own insurance cover. Mr Coon, it submitted, had an obligation to arrange insurance cover for not only the benefit of the owner of the yacht, but also for Quadrant, and did so.

[27]   Quadrant did not have any ownership interest in the yacht. The damage to the yacht did not therefore cause any direct financial loss to Quadrant, save that it had the potential  to  impact  on  Quadrant’s  commission.8 Quadrant  would  have  had no entitlement to any share of the repair costs payment made by Club Marine to Crystal-Line. It was not a “co-insured” in that sense.

[28]   Crystal-Line’s claim against Quadrant in the substantive proceeding was that Quadrant had been negligent (and had also breached an implied term of the agency agreement) by failing to recommend a shipping option that would result in the safe shipping of the yacht to Australia. To succeed in one or both of its causes of action in this proceeding, Quadrant must establish that the Transit Policy can be interpreted as providing insurance cover to Quadrant in respect of such claims. If the Transit Policy did not insure Quadrant for its own professional negligence (or in respect of the performance of its own contractual obligations to Crystal-Line under the agency agreement) then its claims in the recovery proceeding are doomed to failure.

[29]   Quadrant relies on the agency agreement it entered into with Mr Coon to sell the yacht as, in effect, extending the Transit Policy to it. In particular, it relies on cl 2(v) of the agency, in which Mr Coon warranted the Quadrant that:

… the vessel is insured, and I will maintain the insurance on the vessel until it is sold and no longer at my risk.

[30]   Quadrant argues that the legal effect of that clause was to make it an insured under the Transit Policy (which was entered into the following month).

[31]   In my view, it is not reasonably arguable that the Transit Policy, when considered together with the agency agreement, can be interpreted as not only providing transit cover in respect of damage to the yacht, but also insuring Quadrant against its own professional negligence or breach of contract. There is nothing in the policy terms themselves that would support such an interpretation. Nor is there any correspondence that suggests that Club Marine ever agreed to provide professional negligence (or other) insurance cover to Quadrant in relation to the yacht. There is no

8      I understand, however, that Quadrant did ultimately sell the repaired yacht, and received its commission for that sale.

evidence at all of any contractual relationship between Club Marine and Quadrant. Further, there is nothing in the email correspondence between Mr Coon and Quadrant that suggests that Mr Coon had agreed to arrange insurance for Quadrant against the types of losses Quadrant claims to have suffered. Neither the PleasureCraft Policy nor the Transit Policy conferred, nor purported to confer, any benefits on Quadrant. In my view, it is clear that Club Marine did not insure Quadrant, and it was not requested to do so.

[32]   Clause 2(v) of the agency agreement (whereby Mr Coon/Crystal Line agreed to maintain insurance on the vessel until it was sold) does not assist. An obligation on an owner to “maintain” insurance on a vessel cannot fairly be construed as an obligation on the owner to take out professional negligence (or other) insurance for the benefit of a third party. Mr Coon had no obligation to arrange professional negligence insurance in favour of Quadrant, and there is no evidence that he did so. One would expect that, if Quantum sought to be insured for such liability, significant supporting information would be required to enable Club Marine to assess the relevant risk.

[33]   Quadrant needed to either maintain its own profession indemnity insurance or make it explicit to persons who placed vessels for sale with it, that it required them to take out professional indemnity insurance, at their own expense, in respect of Quadrant’s negligence (or breach of contract).

[34]   Mr Beresford drew the analogy of a real estate transaction. If a person listed their home for sale with a real estate agent, would they be expected to obtain professional indemnity insurance for the benefit of the real estate agent, to cover events such as the house burning down due to the agent’s negligence? Mr Beresford submitted (and I accept) that one would not expect a property owner to take out such insurance unless there was a clear contractual obligation on them to do so in the agency agreement with the real estate broker.

[35]   The present situation is no different. In my view, a commitment to “maintain the insurance on the vessel until it is sold” cannot reasonably be interpreted as a

commitment to purchase or obtain additional insurance indemnifying the sales agent (Quantum) against their own liability for professional negligence or breach of contract.

[36]   For the reasons outlined, I am satisfied that it is not reasonably arguable that Club Marine insured Quadrant for the loss that (potentially) arose in this case, namely against liability for its own professional negligence, or breach of the agency agreement. It necessarily follows that both the first and second causes of action are untenable.

General principle that costs cannot be claimed as damages

[37]   During the course of oral argument, I drew to counsel’s attention the well- established principle that legal costs may not be claimed as damages, with a few settled exceptions.9 The policy reason for this rule is that it encourages parties to exercise restraint in the funds expended on litigation. Further, it would undermine the costs regime set out in rules of Court if a party could circumvent those rules by claiming any unrecovered costs as damages in separate proceedings, in addition to (or instead of) seeking costs in the proceeding in which they were incurred.10

[38]   There are two exceptions to the rule that costs cannot be recovered as damages. The first is where costs were incurred in proceedings involving a third party. The second is that, even when the claim is between the same parties, where the claimant is relying on an independent cause of action, costs may be recovered.11 Cases explaining this second exception refer to the academic article Costs as Damages by Louise Merrett, which provides in depth analysis regarding the policy reasons behind the rule. The author’s view is that the second exception only applies if an additional requirement is fulfilled, which is that costs can only be recovered as damages in the subsequent proceeding on an independent cause of action if no costs were recoverable in the original proceeding. By way of example, the author referred to case law where,

9      Carr v Gallaway Cook Allan [2016] NZHC 2065 at [731]. See Simpson v Walker [2012] NZCA 191, (2012) 28 FRNZ 815 at [75].

10     Chick v Blackwell [2013] NZHC 1525 at [152]–[153].

11     Peters v Peters (No 2) [2013] NZHC 1061, (2013) 3 NZTR 23-004 at [95]; Chick v Blackwell

[2013] NZHC 1525 at [152]–[153].

on the basis of jurisdiction, costs had not been recoverable in the original proceedings.12

[39]   In Carr v Gallaway Cook Allan (“GCA”), a client of GCA sued GCA on a number of grounds, one of which was for the wasted costs of an arbitration undertaken between the client’s interests and GCA, attempting to resolve the question of GCA’s liability for negligence. After referring to Costs as Damages and Heath J’s decision in Peters v Peters (amongst others), Thomas J held:13

It follows that generally, the costs of an arbitration on the same issue being dealt with by the courts would not be recoverable as damages. If the arbitration agreement between Mr Carr and GCA had not been flawed and Mr Carr challenged the decision in the High Court, it would not have been appropriate to award the costs of the arbitration as damages in that subsequent proceeding. The parties were the same in both proceedings, and both proceedings dealt with GCA's liability for the failure of the ASA. An arbitrator typically has the authority to award costs, so the public policy reasons which apply in terms of protecting the courts' costs regime would similarly apply.

[40]   There is no dispute in this case that costs could have been sought in the substantive proceeding, pursuant to r 15.20 of the District Court Rules. Quadrant has not taken that course but has, instead, endeavoured to circumvent the costs regime in the District Court Rules by bringing these proceedings. Presumably Quadrant hoped to make a greater costs recovery that way.

[41]   I have already found that Quadrant’s causes of action against Club Marine are untenable, for the reasons outlined. I note for completeness, however, that in my view it is strongly arguable that Quadrant’s claims fall outside of the two recognised exceptions to the principle that legal costs may not be claimed as damages. If so, this would provide a further basis on which the proceeding should be struck out. Given, however, that counsel did not have an opportunity to fully consider and argue this point, and it is not necessary to formally determine it, I decline to do so.

12     Louise Merrett “Costs as Damages” (2009) 125 LQR at 490.

13     Carr v Gallaway Cook Allan [2016] NZHC 2065 at [738].

Should the cross-appeal be allowed?

[42]   Quadrant filed a cross-appeal. It argued that, while the decision Judge Mathers reached was correct and should be upheld, two factual findings she made were wrong, and those errors ought to be rectified.

[43]   First, Quadrant submitted that Judge Mathers was wrong to find that Club Marine had a right of subrogation, essentially on the basis that Crystal-Line was not an insured under the Transit Policy. I have previously rejected this argument, for the reasons outlined above. I am satisfied that Crystal-Line was insured under the policy, and also that Club Marine had a contractual right of subrogation under the policy.

[44]   Quadrant also sought a reversal of Judge Mathers’ factual finding that Mr Coon emailed the two policies to Quadrant, including the two schedules, prior to transit.14 In light of the conclusions I have reached above, nothing turns on this finding. Whether or not Quadrant received a copy of the Transit Policy is irrelevant to whether it was an insured under that policy.

[45]   Finally, I heard submissions on costs from both parties at the conclusion of the hearing. It was common ground that an award of 2B scale costs to the successful party would be appropriate.

Result

[46]   The appeal is allowed. Summary judgment is entered on Club Marine’s statement of defence, and Quadrant’s causes of action against it are dismissed.

[47]The cross-appeal is dismissed.

[48]   Costs are awarded in Club Marine’s favour in respect of the appeal, on a     2B scale basis.

Katz J

14     Quadrant Yachts Ltd v Club Marine (NZ) Ltd [2018] NZDC 7989 at [5].