Kenealy v Morton-Jones

[2015] NZHC 297

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-1237 [2015] NZHC 297

BETWEEN

TIMOTHY WILLIAM KENEALY

Plaintiff

AND

ALAN STUART MORTON-JONES First Defendant

GRAEME ALASTAIR MORTON-JONES Second Defendant

Hearing:	(on the papers)
Counsel:	B Gustafson and S J Nicolson for Plaintiff P J Kennelly for First and Second Defendants
Judgment:	27 February 2015

JUDGMENT OF HEATH J

This judgment was delivered by me on 27 February 2014 at 11.00am pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Lowndes Jordan, Auckland Kennelly Law, Orewa Counsel:

B Gustafson, Auckland

KENEALY v MORTON-JONES [2015] NZHC 297 [27 February 2015]

Introduction

[1]      Dr Kenealy entered into an agreement with Messrs Alan and Graeme Morton- Jones to acquire investment properties.   He contends that it had the status of a partnership.  The participants intended to garner profits from rent and the benefit of any capital gains.  On 23 May 2014, Dr Kenealy issued proceedings in this Court alleging  misconduct  on  the  part  of  Messrs  Morton-Jones.    He  sought  an  order

dissolving the partnership, and ancillary relief.1

[2]      On the same day, Dr Kenealy made an application for an interim injunction. That application was designed to restrain Mr Alan Morton-Jones from dealing with funds  in  a  partnership  bank  account  to  prevent  Messrs  Morton-Jones  from obstructing  or  interfering  with  the  mortgagee  sale  of  one  of  the  partnership properties, in Greenway Rise, Gulf Harbour.

[3]      The interim injunction application came before Andrews J on 23 May 2014. It was adjourned to the Duty Judge List on 28 May 2015, for timetabling directions and the allocation of a hearing.  Directions were made by Faire J on 28 May 2014, and the application adjourned for further mention on 25 June 2014, after a notice of opposition, affidavits in opposition and reply affidavits had been filed and served. At that time, Messrs Morton-Jones appeared in person but indicated an intention to instruct solicitors to oppose the application.

[4]      The interim injunction was listed for further mention on 25 June 2014, when Katz J allocated a half day fixture.   Subsequently, a memorandum indicating that settlement might be reached was filed.  When the application came before Lang J on

3 November 2014, a hearing was allocated for 19 February 2015.  That hearing was vacated following withdrawal of the application.

Costs applications

[5]      Notwithstanding the fact that Dr Kenealy withdrew his application, he seeks costs against Messrs Morton-Jones.  He does so on the basis that a settlement was

reached rendering the need for the relief sought to be granted.  It is unnecessary to

1      Partnership Act 1908, ss 32, 38 and 44.

traverse the reasons for that.  Messrs Morton-Jones also seek costs on the basis that no order was made against them.

[6]      Mr Gustafson, for Dr Kenealy, acknowledges that the application should be treated  in  a  manner  akin  to  the  discontinuance  of  a  proceeding.2      Generally,  a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant.3     On a discontinuance, it is necessary for the Court to determine that withdrawal should not be interpreted as failure.4    Submitting that presumption has been displaced on the material before the Court, Mr Gustafson seeks costs on a 2B basis.

[7]      Mr  Kennelly,  for  Messrs  Morton-Jones,  submits  that  the  conduct  of  Dr Kenealy tells against an award of costs.  He refers to Dr Kenealy’s ability to sell at mortgagee sale, and the fact that Mr Graeme Morton-Jones had offered to pay the principal due under the mortgage.   While they have not been determined, Mr Kennelly submits that the affidavit evidence proffered by Dr Kenealy is, in material terms, disputed.

[8]      Mr Kennelly makes a submission that “the motivation for the proceedings was … vexatious and a waste of the Court’s time”.

Analysis

[9]      The differences evidenced by counsel’s respective memoranda highlight the reason why a Court is generally reluctant to embark into an inquiry on the merits or conduct of parties in cases where an application is withdrawn, or a proceeding discontinued.  Delivering the judgment of the Court of Appeal in a discontinuance

case, Powell v Hally Labels Ltd,5 Miller J said:

[24]     The Court’s reluctance to embark on inquiries into merits or conduct

reflects the objectives of the rules, which allow a plaintiff by discontinuance

2      See McCracken v Massey University HC Palmerston North CIV-2006-454-878, 9 February 2007 at para [10].

3      High Court Rules, r 15.23.  See also, as a recent illustration of the principle, Powell v Hally Labels Ltd [2014] NZCA 572, applying Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150 (2008) 18 PRNZ 973 at para [12].

4      Powell v Hally Labels Ltd [2014] NZCA 572 at paras [19]–[23].

5 Ibid, at para [24].

to end its proceeding unilaterally and fix its liability for costs at that point, and further contemplate that the liability should be predictable and the quantum readily calculable.   To conduct a post-discontinuance inquiry into the merits or the reasonableness of the parties’ conduct is ordinarily contrary to these objectives; the inquiry causes the litigation to linger on its deathbed and puts the parties to further expense in pursuit of an uncertain award,  all of which discourages discontinuance in other cases.  Faced with the prospect of such an inquiry, Lord Denning MR said:

It is plain that neither side wishes to go on with the action so as to get his own costs.   But neither side wishes to pay the other side’s costs.  Each will fight rather than pay the other side’s costs.  So what is to be done? Is this case to go on simply about costs? I think not.

[10]     While there are similarities between the principles to be applied in relation to costs on discontinuance of a proceeding and withdrawal of an application for interim relief, the analogy should not be taken too far.  An important difference is that the proceeding continues and is yet to be determined.

[11]     The application for interim relief was but part of the dispute encompassed within the litigation.   Although the Court is generally enjoined to fix costs on an opposed interlocutory application when it is determined, it may decline to do so if “there are special reasons to the contrary”.6   Indeed, if an order for costs is made on an interlocutory application, the Court retains jurisdiction to “reverse, discharge, or vary an order … if satisfied subsequently that the original order should not have been made”.7

[12]     The merits of the application for interim relief in this case may coincide with or be different from the merits of the substantive proceeding.  I do not consider that this is a case in which it is appropriate for me to address the respective merits of the cases advanced by the parties, or their conduct, on the application for interim relief. The information before me is too sparse to enable an informed view to be expressed.

[13]     Notwithstanding the analogy with cases in which discontinuance occurs, I

consider that the appropriate course in this case is to fix costs on a 2B basis together with  reasonable  disbursements  but  to  reserve  the  incidence  of  those  costs  for

6      High Court Rules, r 14.8(1).

7      Ibid, r 14.8(2).   Rule 14.8 reflects the fact that the merits of a particular application and the substantive proceeding may be different: see Chapman v Badon Ltd [2010] NZCA 613 at para [12].

determination at the conclusion of the substantive proceeding.  In my view, the fact that there are unresolved factual disputes about the appropriateness of the interim relief application gives rise to “special reasons” for declining to make an order at this time.  Reservation of the incidence of costs preserves the position of each party.

Result

[14]   For those reasons, I fix costs on a 2B basis, together with reasonable disbursements, but reserve the incidence of those costs until determination of the substantive proceeding.

[15]     The Registrar is directed to allocate a case management conference before an

Associate Judge as soon as practicable, in order to progress the substantive proceeding.

P R Heath J

Delivered at 11.00am on 27 February 2015