Ex Ucl Limited v Solarix Networks Limited
[2017] NZHC 693
•11 April 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2864 [2017] NZHC 693
UNDER The Arbitration Act 1996 IN THE MATTER
of an appeal against a further award of Mr
W M Wilson QCBETWEEN
EX UCL LIMITED Plaintiff
AND
SOLARIX NETWORKS LIMITED Defendant
Hearing: On the papers Appearances:
S D Munro and JWC Nicolle for the Plaintiff
JEM Lethbridge for the DefendantJudgment:
11 April 2017
FINAL JUDGMENT OF MUIR J
This judgment was delivered by me on Tuesday 11 April 2017 at 12.30 am
Pursuant to Rule 11.5 of the High court Rules.
Registrar/Deputy Registrar
Date:…………………………
Counsel/Solicitors:
Anderson Lloyd Lawyers, Christchurch (S D Munro and JWC Nicolle) Grove Darlow & Partners, Solicitors, Auckland (JEM Lethbridge)
EX UCL LIMITED v SOLARIX NETWORKS LIMITED [2017] NZHC 693 [11 April 2017]
Introduction
[1] In my interim judgment, reissued 20 July 2016, I reserved for further submission two issues, namely:
(a) Whether, having allowed the appeal from the Arbitrator’s further award dated 21 August 2015, I should set aside an earlier costs award (made in the Arbitrator’s final award dated 2 February 2015) in favour of the defendant and award costs in favour of the appellant.
(b) How interest was appropriately calculated on my judgment.
[2] No agreement has been possible in respect of these peripheral issues. Through an oversight the Registry did not provide me with the parties’ submissions or a letter of inquiry in relation to progress with my judgment until 7 April 2017. I had assumed therefore that the outstanding issues had been resolved. I express my apologies to counsel and the parties that this has occurred.
[3] I now give my final judgment in the proceedings.
The Arbitrator’s costs
[4] The originating application in respect of which my interim judgment was given was against the Arbitrator’s “further” award of 21 August 2015. It sought, inter alia, an order, “…setting aside any costs award made by the Arbitrator”. The only such award was one in the amount of $17,250 (being half of the Arbitrator’s fee) made in favour of the defendant in the earlier “final” award dated 2 February
2015.
[5] At the conclusion of the hearing I allowed the plaintiff to seek an amendment to the pleading to capture the relevant challenge. All submissions proceed on the assumption of such amendment and without taking issue with it. Accordingly, I will treat the application as relevantly including an application to set aside the Arbitrator’s award of costs in his final award and to award costs in favour of the plaintiff.
[6] The award of costs which the plaintiff now seeks is $47,250 (being the same
$17,250 plus an uplift of $30,000).
[7] In support of that application the plaintiff relies on the decision of Gendall J in Cotton v Sound Living (NZ) Ltd1 in which his Honour distinguished an earlier High Court decision in Cullen Investments Ltd v Lancaster2 and, having allowed an appeal from the Arbitrator on liability, both set aside the Arbitrator’s costs award and allowed costs to the ultimately successful party.
[8] Because costs are generally at the discretion of the Arbitrator, it will be a rare case in which a question of law sufficient to engage cl 5(1) of the Second Schedule to the Arbitration Act 1996 (the Act) will result from an award of costs. Cullen reflects such limitations. In that case the respondent had sought by way of cross appeal an increase in costs in circumstances where the appellant had challenged the substantive partial award. That can be contrasted with the position in Cotton where the appellant had successfully established that the Arbitrator had erred in his conclusion as to liability so that failure to set aside the costs award meant that it did not reflect the ultimate outcome.
[9] I accept that a similarly anomalous result would occur in this case because if the Arbitrator’s costs order stands then, despite having ultimately succeeded, the plaintiff will be left with a liability premised on its failure. I accept that in the generality of cases this will offend the principle (one of law within the context of an overall discretion) that costs should ordinarily follow the event.
[10] Nor am I persuaded by the defendant’s argument that the insertion of subcl 10 in cl 5 of the Second Schedule several years after Cotton changes that result. The new subclause defines, by way of inclusion and exclusion, various matters relevant to the definition of “question of law”. The exclusions are not relevant to the issues
raised in this case.
1 Cotton v Sound Living (NZ) Ltd HC Wellington CIV-2004-485-62, 18 February 2005.
2 Cullen Investments Ltd v Lancaster HC Auckland M908-IM01, 11 April 2003.
[11] However, in my view there are insuperable jurisdictional problems with the
plaintiff’s application. Schedule 2, cl 6 of the Act relevantly provides:
(3) Where an award or additional award made by an arbitral tribunal fixes or allocates the costs and expenses of the arbitration, or both, the High Court may, on the application of a party, if satisfied that the amount or the allocation of those costs and expenses is unreasonable in all the circumstances, make an order varying their amount or allocation, or both. The arbitral tribunal is entitled to appear and be heard on any application under this subclause.
…
(5) An application may not be made under subclause (3) after 3 months have elapsed from the date on which the party making the application received any award or additional award fixing and allocating the costs and expenses of the arbitration.
[12] The amended application seeking to challenge both the allocation and amount of costs falls substantially outside the time bar specified in subcl 5. I do not consider there is any proper basis on which it can now be entertained albeit that the result is anomalous. I do not accept the plaintiff’s submission that there was no earlier basis on which the plaintiff could have challenged the costs award.
[13] However, if I am wrong in that conclusion then I make some brief observations as to how, if I had quashed the costs award, I would have dealt with the plaintiff’s own application for costs. I do so taking into account the evident intention of the parties to pursue every available issue to the point of exhaustion.3
[14] In Cotton, Gendall J stated that this was “very much a matter for the discretion of this Court”.4 He continued:
[25] …If the Arbitrator had correctly interpreted the relevant clause of the contract, it is problematical as to what might have followed. This Court cannot speculate, but it does not automatically follow that costs at a level sought would have been awarded in favour of the present appellants by the Arbitrator. He may have done so but he would have had before him a wealth of material which he would have been entitled to consider in the exercise of his discretion.
3 An application for leave to appeal to the Court of Appeal from my interim judgment has already been filed, together with an application for stay, both of which appear to be strenuously defended.
4 At [25].
[15] The plaintiff accepts that I would have been faced with the same difficulty in terms of any award in its favour.
[16] It did, however, provide the following context to assist the exercise of my discretion (had I considered it appropriate), none of which is challenged by the defendant.
(a) The defendant had calculated scale costs on a Category 2B basis for the entire arbitration at $30,248 plus disbursements of $29,064.29 (primarily accountancy fees).
(b)Due to the additional preparation and hearing time required by the defendant’s alternative arguments, all of which were rejected, the Arbitrator considered that, apart from the influence of the defendant’s Calderbank offer, the costs of the Arbitrator should be shared equally and costs between the parties should lie where they fall.
(c) Based on the defendant’s Calderbank offer at 6.53 pm on 16
September 2014, the defendant claimed costs of $46,464.79 made up of its own actual post hearing costs, travel costs to the hearing, its expert accountant’s fee and payment of half of the Arbitrator’s fees.
(d)It was on the basis of that offer that the Arbitrator awarded $17,250 to the defendant consisting of Solarix’s contribution towards the Arbitrator’s fees.
(e) The plaintiff made its own without prejudice save as to costs settlement offer to Solarix at 11.02 am on 17 September 2014.
[17] On the assumption that the plaintiff’s own Calderbank offer would have placed the defendant in a more favourable position than it finds itself in as a consequence of my interim award I would, if I had been jurisdictionally able, have adopted the converse of the Arbitrator’s award and given judgment for costs in favour of the plaintiff in the amount of $17,250. I would have declined the
plaintiff’s application for an additional $30,000 costs which it justifies in its memorandum on no grounds other than that “it has now succeeded on all of the issues before the Arbitrator”.
The interest calculation
[18] In its prayer for relief the plaintiff sought:
Interest on the sum of $177,096.39 at the rate of 6.32 per cent from 1 May
2014 to the date of payment in full.
[19] The basis on which the interest rate of 6.32 per cent was specified is unclear from the pleading.
[20] The relevant facts are:
(a) The plaintiff calculated the sum of the Trade Debts Payment Sum
(TDPS) at $234,144.24 and advised the defendant of that sum on 1
April 2014 immediately after completion of the contract.
(b)Such sum was not paid. On 7 May 2014, the defendant disputed liability to pay $177,096.39 of the TDPS and invoked cl 3.2(e) of the contract to pay the disputed amount into the Trust account of the plaintiff’s then solicitors Buddle Findlay. Following the award in favour of the defendant by the Arbitrator, that amount was released to the defendant on 15 December 2014 (together with accrued bank interest).
[21] The relevant provisions of the contract are:
(i) 1.1(r) “Default Interest Rate” means the rate which is determined by the Purchaser or the Vendor (whichever is to be the recipient of the overdue amount) to be 3% per annum above the bank bill “bid” rate for 90 day bank accepted bills as quoted on the Reuters monitor at or about 10.45 am on the day the amount was originally due and each day 90 days after that (or if that day is not a Business Day, on the next Business Day).
(ii) 3.2 Trade Debt Payment Sum:
Payments
(a) In addition to the Purchase Price, the Purchaser will pay to the Vendor the following in respect of the Trade Debts within 31 days of Completion:
(i) an amount equal to 100% of the invoiced sum of each Trade Debt that:
(1) is not yet due for payment as at the Effective
Time; or
(2) was invoiced 30 days or less before the
Effective Time,
(together referred to as the (“100% TDPS Portion”));
(ii) an amount equal to 80% of the invoiced sum of each Trade Debt that is overdue for payment between one (1) day and thirty (30) days (inclusive);
(iii) an amount equal to 30% of the invoiced sum of each Trade Debt that is overdue for payment thirty-one (31) days or more,
(together referred to as the “TDPS”). For the avoidance of doubt, if Completion does not occur on the Completion Date due to Purchaser default, payment of the TDPS must be made within 31 days of the Completion Date.
Estimation of TDPS for the purposes of the TDPS Guarantee:
(b) On or before five (5) Business Days before the Completion Date, the Vendor and the purchaser shall agree an estimate of the TDPS for the purposes of the TDPS Guarantee (making allowance for likely receipt of Trade Debts between this date and the Completion Date).
(c) If the Vendor and the Purchaser cannot agree an estimate of the TDPS for the purposes of the TDPS Guarantee by the Completion Date then the estimate of the TDPS for the purposes of the TDPS Guarantee shall be set by the Vendor at no higher than $300,000.
(d) Immediately following Completion, the Vendor and Purchaser shall agree the TDPS. If any dispute arises as to calculation of the TDPS within 5 Business Days of the Completion Date, the matter shall be determined by an expert to be appointed in accordance with clause 21.5. Upon agreement by the parties or determination by an expert of the final calculation of the TDPS, the parties agree that the difference between the invoiced sum of the Trade Debts to which the TDPS relates and the TDPS will be deemed to be a deduction from the Purchase Price.
Payment of Disputed Sum:
(e) The Vendor acknowledges if the Purchaser disputes liability for payment of a part of the 100% TDPS Portion or where the parties are in dispute about whether the Vendor has accounted to and paid the Purchaser for any amounts in respect of Trade Debts received by the Vendor after the Completion Date under clause 13.2, then the Purchaser shall pay the disputed sum and/or the sum alleged not to have been accounted for to the Vendor’s solicitor’s trust account to be held pending resolution of the dispute in relation to such dispute. If the parties are unable to resolve the dispute within 10 Business Days of the Purchaser raising the dispute, the matter shall be determined by an expert to be appointed in accordance with clause 21.5. Interest shall follow the funds.
(Emphasis added).
(iii) 22.4 Payments
…
(b) If a Party falls to pay a sum due from it under this agreement on the due date of payment in accordance with the provisions of this agreement, that Party shall pay interest on the overdue sum from the due date of payment until the date on which its obligation to pay the sum is discharged at the Default Interest Rate (whether before or after judgment). Interest accrues and is payable from day to day.
[22] Whereas cl 3.2(d) envisaged a reference to expert determination in the event of a dispute about the TDPS, the plaintiff proposed and the defendant agreed that their differences should be arbitrated. In correspondence between solicitors the terms of payment into Buddle Findlay’s trust account were, despite the change in dispute resolution mechanism, agreed to likewise be on the basis that “interest will follow the funds”. In addition, Buddle Findlay’s letter of 9 May 2014 specifically recognised that the funds be held “in accordance with cls 21 1(sic) to 21.4”.
[23] The plaintiff claims that it is entitled to interest on $177,096.39 commencing
2 May 2014, being the date 31 days after the due date of completion. It now says that such calculation should be made in accordance with the default interest rate calculations in cl 1.1(r). To the extent that this requires an amendment to its originating application in which interest at 6.32 per cent was claimed, I allow it. There has never been any disagreement that the default interest rate provided by the contract is that specified in cl 1.1(r). This calls for a calculation based on a margin
over the Bank Bill Rate for 90 day Bank Accepted Bills calculated on the 90 day roll over basis. If, as I assume from the pleading, the relevant rate was 6.32 per cent (including the 3 per cent premium), as at 1 May 2014 it was undoubtedly subject to minor fluctuations in the 90 day intervals thereafter. I can see no prejudice in a claim which is accurately calculated in accordance with the rule 1.1(r) requirement. Indeed, no such prejudice is alleged by the defendant beyond a stated entitlement to be “informed of the case against it”.
[24] More significantly however, the defendant says that interest only accrues
from the date of any judgment setting aside the Arbirtator’s further award dated 21
August 2015.
[25] It says that it was not until that date that it could be said that its dispute had been resolved and the payment of the TDPS sum was therefore due.
[26] As a subsidiary argument it says that any contractual entitlement to interest was waived by the agreement of the plaintiff’s solicitors that the payment into its trust account should be made on the basis that “interest will follow the funds”. The implication of that submission is that if the plaintiff is to receive any interest at all, it should be limited to the actual interest credited on the sum deposited with Buddle Findlay for the period 7 May 2014 through to 15 December 2014 when that amount was repaid to the defendant.
[27] To some extent these issues are inter-related in that the defendant says the provision in cl 3.2(e) (and adopted in Buddle Findlay’s letter) about interest following the funds reinforces the proposition that “contractual entitlements are suspended in the event of a dispute”.
[28] Each parties’ submissions proceed on the premise that I should decide these
issues rather than remit them to the Arbitrator.
[29] I do not accept the underlying premise of the defendant’s argument. Clause
3.2(a) provides that, in addition to the purchase price, the purchaser will pay an amount equal to 100 percent of the invoiced sum of the trade debts 31 days after
completion. Clause 22.4(b) provides that the interest calculation runs from the due date of payment until the date on which the obligation to pay the sum is discharged.
[30] In terms of my judgment the defendant had a liability to pay, by 1 May 2014, a sum $177,096.39 greater than it did. I awarded that amount and held over the question of interest for further submissions.
[31] The defendant cites no authority for the proposition that interest obligations under a commercial contract are, for the reason that no sum is “due” until the dispute is resolved, appropriately suspended where the party liable raises such a dispute; or for the proposition that they attach only at the point judgment is given. If that were the case it would give rise to a range of perverse consequences and, in particular, would be a charter for the prosecution of unmeritorious disputes. In the absence of authority to the contrary, I am unpersuaded to adopt an interpretation which I consider so commercially unrealistic.
[32] I find that the defendant has, within the terms of cl 22.4, failed to pay a sum which, consistent with my interim judgment, is deemed to have been payable by 1
May 2014. Interest accordingly follows.
[33] Nor do I regard the “interest will follow the funds” agreement as advancing the defendant’s claim. In my view such provision had a simple purpose (whether in the context of cl 3.2(e) or Buddle Findlay’s agreement in respect of the arbitration). The amount claimed by the defendant to be in dispute was to be remitted to the Vendor’s solicitors’ trust account. In the event the defendant’s argument prevailed the defendant was to be the beneficiary of the interest which accrued on such deposit. In the event it was unsuccessful the same interest would accrue to the plaintiff’s benefit but there is no suggestion that such accrued sum should define the limits of the Vendor’s interest entitlements. They were elsewhere defined in cls 22.4(b) and 1.1(r). The last sentence in cl 3.2(c) is, in that context, to be seen as a mechanical provision defining what happens to the accrued interest on resolution of the dispute. No more nor less.
[34] In the result, I award interest on the sum of $177,096.39 from and including
2 May 2014 to the date of payment calculated in accordance with the provisions of
1.1(r) of the parties’ agreement.
[35] I have not been provided with the relevant Bank Bill “bid” rates as quoted on the Reuters’ monitor on the relevant dates. The plaintiff is to provide the necessary calculations to the defendant at least 14 days before it seeks to seal judgment. In the event the defendant disputes any part of the calculation, the matter may be referred to the Registrar. Despite the seeming inability of the parties to resolve any of the issues that arise between them, my expectation is that such issue, at least, should be capable of agreement. This modest commercial dispute has already occupied
resources quite disproportionate to the sums involved.
Muir J
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2864
UNDER The Arbitration Act 1996
IN THE MATTER of an appeal against a further award of
Mr W M Wilson QC
BETWEEN EX UCL LIMITED Plaintiff
ANDSOLARIX NETWORKS LIMITED Defendant
Counsel: S D Munro and JWC Nicolle for the Plaintiff
JEM Lethbridge for the Defendant
Minute: 11 April 2017
MINUTE OF MUIR J
Solicitors/Counsel:
Anderson Lloyd Lawyers, Christchurch (S D Munro and JWC Nicolle) Grove Darlow & Partners, Solicitors, Auckland (JEM Lethbridge)
[1] Simultaneously with this Minute I will be publishing my final judgment.
[2] There are extant applications for leave to appeal my interim judgment and for stay of execution. Were I to grant leave, my provisional view is that the concerns raised by Mr Rasmussen about the defendant’s ability to recover the judgment amount would be adequately met by the plaintiff’s provision of a bank guarantee (which it has said is available).
[3] Given the history of this matter and as previously observed (refer [3(a)] of my minute dated 18 July 2016), applications for leave to appeal (or cross appeal) from the results in my final judgment cannot be excluded.
[4] Accordingly:
[a] Any amended application for leave (and any cross application) is to
be filed within 14 days of today’s date.
[b] Any amended notice of opposition (or notice of opposition to cross application) is to be filed within a further 14 days.
[c] The parties should then confer with Ms MacDonald for the hearing of the application for leave before me (half day). In view of the delay in referring counsel’s submissions on costs and interest to me I request that such fixture be allocated at the earliest opportunity consistent with my existing commitments.
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