Sails Motor Inns Limited v Sails Motor Inns Hamilton Limited
[2019] NZHC 2969
•14 November 2019
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2019-419-178
[2019] NZHC 2969
BETWEEN SAILS MOTOR INNS LIMITED
Plaintiff
AND
SAILS MOTOR INN HAMILTON LIMITED
First Defendant
PATRICK LOUGHLIN MCGUIRE and LOAN THI KIM NGUYEN
Second Defendants
Hearing: On the papers Counsel:
J Niemand for the Plaintiff
D J Taylor for the Defendants
Judgment:
14 November 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
[Costs]
This judgment is delivered by me on 14 November 2019 at 11.00 am pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors/Counsel:
Niemand Peebles Hoult, Hamilton D J Taylor, Barrister, Hamilton
Case Officer:
Sunaina Chand
SAILS MOTOR INNS LTD v SAILS MOTOR INN HAMILTON LTD [2019] NZHC 2969 [14 November 2019]
[1] The defendants apply for an order for costs following the discontinuance of this proceeding on 27 September 2019.
[2] Following the discontinuance, counsel agreed on a timetable for the filing of written submissions on costs, and I have received and considered the memoranda. I now give judgment on the defendants’ application for costs.
Background
[3] The plaintiff is the lessor of certain motel premises in Hamilton. The first defendant is the lessee, and the second defendants guaranteed the lease under a form of Deed of Assignment of Lease to which they were parties. The lease contained a clause (clause 37) providing for the reference of all differences and disputes to the arbitration of two arbitrators and their umpire under the Arbitration Act 1908.
[4] The plaintiff says that, from approximately July 2016, various differences and disputes arose between the parties relating to the motel premises. A mediation took place on 6 April 2017, but no resolution was reached.
[5] Thereafter, the plaintiff attempted to persuade the defendants to refer the matters it considered were in issue to arbitration. It proposed Mr Tony Lendrum as sole arbitrator, and it tentatively booked Mr Lendrum for an arbitration hearing in June 2018.
[6] The plaintiff’s proposal to appoint Mr Lendrum as arbitrator met with no response from the first defendant. A follow-up email repeated the plaintiff’s request to refer matters to arbitration. On 29 March 2018 the second defendant replied that there was no dispute.
[7] The plaintiff then set out details of the matters it said were in dispute, in a letter to the first defendant dated 5 April 2018.
[8] There was still no response from the first defendant. Further efforts were made by the plaintiff to secure the defendants’ agreement to the appointment of an arbitrator, but the defendant either claimed there was no dispute or it did not respond.
The plaintiff’s claims
[9] In June 2019 the plaintiff filed the present proceeding. It pleaded two causes of action, both in breach of contract.
[10] In the first cause of action, the plaintiff contended that the first defendant was in breach of its obligations under the arbitration provision in the lease, by refusing and/or omitting to attend arbitration as requested by the plaintiff.
[11] The plaintiff’s second cause of action referred to the guarantee given by the second defendants. It alleged that the second defendants were aware of the differences and disputes between the plaintiff and the first defendant, and of the first defendant’s failure to comply with its obligations under the arbitration clause in the lease, and that the second defendants were in breach of their obligations under their guarantees in failing to procure the first defendant’s performance of its obligations to refer the disputes and differences to arbitration.
[12]On its first cause of action, the plaintiff sought the following relief:
A. An order that the first defendant is in breach if its obligations pursuant to paragraph 37 of the Lease.
B. An order that the first Defendant attends arbitration, in accordance with paragraph 37 of the Lease.
C. An order that in the event that the First Defendant fails and/or omits to take all necessary steps to facilitate an arbitration taking place and attend an arbitration then the plaintiff shall be entitled to attend an arbitration and seek a decision from the arbitrator, provided that the Plaintiff has met its obligation pursuant to paragraph 37 of the Lease and provides the First Defendant with written notice of the arbitration hearing date at least 28 days prior to the arbitration hearing date.
D. An order for costs against the First Defendant in favor of the Plaintiff on an increased basis, being full solicitor/client costs.
E. Such other orders as this Honourable Court deems appropriate.
[13]On its second cause of action, the plaintiff asked for the following relief:
A. An order that the Second Defendants are in breach of their obligations pursuant to the Deed of Assignment of Lease.
B. An order that the Second Defendants attend an arbitration in accordance with paragraph 37 of the Lease, in the event that the First Defendant fails and/or omits to attend arbitration.
C. An order for costs against the Second Defendant in favour of the Plaintiff on an increased basis, being full solicitor/client costs.
D. Such other orders as this Honourable Court deems appropriate.
[14] The plaintiff formed the view that the defendants had no defence to its claims, and it applied for summary judgment.
The hearing on 18 August 2019
[15] A notice of opposition was filed, and the case came before me in the summary judgments list on 19 August 2019. In my Minute of the hearing that day I said:
…
[2] The lease provides for each party to appoint an arbitrator, but there have been difficulties in this case in that the defendants have contended that the plaintiff has failed to sufficiently identity a relevant dispute or difference caught by the arbitration clause.
[3]Both parties accept that there is a binding arbitration agreement.
[4] My preliminary view is that a failure by a party to an arbitration agreement to comply with its obligations with regard to the nomination of an arbitrator or arbitrators, is a matter normally dealt with under the provisions of the Arbitration Act 1996, in particular Article 11 of Schedule 1. While Article 11 did provide for the High Court to determine disputes over the appointment of an arbitrator or arbitrators, my understanding is that the amending legislation in 2016 effectively moved the jurisdiction of this Court with regard to disputes under Article 11(3) to (6) from this Court to an approved body nominated by the Minister of Justice (Arbitration Act 1996, s 6A). Mr Taylor tells me that there is only one approved body, being the Arbitrators and Mediators Institute of New Zealand Inc.
[16] I invited counsel for the plaintiff to reconsider the provisions of the Arbitration Act 1996 (the Arbitration Act), and I adjourned the matter to the list on 30 September 2019.
The discontinuance
[17] By joint memorandum of counsel dated 27 September 2019, the parties advised that they had reached an agreement for the appointment of a single arbitrator. A notice of discontinuance of the proceeding was filed with the joint memorandum.
The defendants’ claim for costs
[18]Mr Taylor asks for costs on a category 2, band B basis, in the total sum of
$1,784. He also asks for disbursements, being the filing fee of $110 on filing the notice of opposition.
[19] Mr Taylor referred to r 15.23 of the High Court Rules 2016, which addresses the issue of liability for costs when a proceeding is discontinued. Rule 15.23 provides:
15.23 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.
[20] Mr Taylor submitted that the proceeding was misconceived from the outset, substantially on the basis set out at paragraph [4] of my Minute dated 19 April 2019.1
[21] On the defendants’ lack of response to the plaintiff’s requests that the first defendant nominate an arbitrator, Mr Taylor submitted that the defendants, then unrepresented, regarded the mediation as a “totally unstructured and confusing process”, and they had no understanding of the legal basis for the plaintiff’s claims. He said that, unfortunately, the result was that when the request for arbitration came from the plaintiff the defendants, fearing that history would repeat itself, adopted a “slow and probably unco-operative attitude”.
1 Reproduced at [15] of this judgment.
Plaintiff’s submissions
[22] Mr Niemand referred to the following approach generally adopted by the courts:2
(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 stances 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)the Court may consider conduct prior to the commencement of the proceeding (for example, if any conduct by a defendant precipitated the litigation), and the reason for discontinuing (for example, a change in circumstances rendering the proceeding unnecessary).
[23] Mr Niemand also referred to the judgment of Kós J in Ryde v Earthquake Commission, where his Honour summarised the applicable principles as follows:3
(a)Was it reasonable to bring the proceeding?
(b)Was it reasonable for the defendant to defend the proceeding?
(c)Why was the proceeding discontinued?
(d)Were the merits so obvious that they should influence the costs outcome?
(e)Does the outcome represent vindication of the plaintiff’s commencement of the proceeding?
(f)Has the plaintiff displaced the r 15.23 presumption?
2 McGechan on Procedure (Brookers) at HR15.23.01, citing Kroma Colour Prints Ltd v Tridonicatco NZ Ltd (2008) NZCA 150, (2008) 18 PRNZ 973; and F M Custodians Ltd v Pati (2012) NZHC 1902 at [10]-[12].
3 Ryde v Earthquake Commission [2014];; NZHC 2763 at [30].
[24] Mr Niemand accepted that r 15.23 creates a presumption that costs will be payable to a defendant when a plaintiff discontinues. However he submitted that the presumption may be displaced if the Court finds that there are circumstances making it just and equitable that the presumption should not apply. He submitted that such circumstances are present in this case, and that costs should lie where they fall.
[25] On the merits, Mr Niemand submitted that the facts favour the plaintiff. It was entitled to have an arbitrator appointed and attempted to achieve that. Furthermore, the plaintiff achieved its goal in issuing the proceeding, by having a single arbitrator appointed to resolve the disputes.
[26] Mr Niemand referred to the pre-commencement correspondence between the parties, submitting that the correspondence made it clear that the defendants were unwilling to engage in the process of appointing an arbitration panel. He acknowledged the problem created by s 6A of the Arbitration Act, and conceded that it was a factor counting against the plaintiff on the reasonableness of its decision to commence the proceeding.4 On the other hand, it was unreasonable for the defendants to defend the proceeding; they needed only to concede that arbitration was an inevitable process. These considerations cancel each other out - neither party should prevail on the “reasonableness” consideration.
[27] Addressing the reasons for filing the notice of discontinuance, Mr Niemand submitted that the discontinuance resulted both from the jurisdictional issue, and from the resolution of the dispute between the parties (which has enabled the arbitration to proceed).
Discussion and conclusions
[28]Section 6A of the Arbitration Act materially provides:
6A Minister of Justice to appoint body to resolve certain matters
4 Mr Niemand did not concede the point entirely. He submitted that there remains a question, which will not be resolved because of the discontinuance, as to whether the High Court retains an inherent jurisdiction to require a party to appoint an arbitrator.
(1)The Minister of Justice must, by notice in the Gazette, appoint a suitably qualified body to resolve the matters specified in article 11(3) to (6) of Schedule 1.
…
Article 11, Schedule 1, of the Arbitration Act materially provides:
11 Appointment of arbitrators
…
(2)The parties are free to agree on a procedure of appointing the arbitrator or arbitrators, subject to the provisions of paragraphs (4) and (5).
…
(4)Where, under an appointment procedure agreed upon by the parties,—
(a)a party fails to act as required under such procedure; or
…
…
any party may request the appointed body to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(5)A decision on a matter entrusted by paragraphs (3), (4), or (6) to the appointed body shall be subject to no appeal. The appointed body, in appointing an arbitrator, shall have due regard to any qualifications required of the arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator and, in the case of a sole or third arbitrator, shall, in the case of an international arbitration, take into account as well the advisability of appointing an arbitrator of a nationality other than those of the parties.
(6)In an arbitration, where—
(a)the parties have agreed to an arbitration with 2 or 4 or more arbitrators;
…
and no procedure for the appointment of arbitrators has been agreed upon, the appointed body may, upon request of a party, appoint the requisite number of arbitrators, having due regard to the matters referred to in paragraph (5).
…
[30] On 9 March 2017, the Minister of Justice gave notice in the Gazette appointing AMINZ to resolve the matters specified in article 11(3) - (6) of Schedule 1.
[31] In my view, s 6A of the Arbitration Act was intended to remove from the High Court a jurisdiction the legislature considered would be more appropriately carried out by an appropriately qualified body or bodies, acknowledging that the matters to be decided under article 11(3) to (6) could be carried out competently and well without the need to take up the parties’ time and resources applying to the High Court. The language of s 6(a), “to resolve the matters specified …” and the amendments to article 11 of Schedule 1 which removed the previous provisions that enabled this Court to appoint arbitrators, support that legislative interpretation. The provision in article 11(5) that there is to be no appeal from a decision of the appointed body points in the same direction – the intention was to replace the previous need to go to the Court for assistance if difficulties arose in the appointment of an arbitral tribunal with a less formal process, which would be cheaper and faster. In my view that intention could be defeated if it were open to a party to bypass the “appointed body” procedure by inviting this Court to exercise a parallel inherent jurisdiction.
[32] The effect of the changes to the Arbitration Act is that this proceeding was misconceived from the beginning, and it was not reasonable for the plaintiff to have commenced it. The lack of merit is sufficiently clear that in my view it is a factor that should influence the outcome of the costs argument.5
[33] I do not think it can be said that that outcome vindicates the plaintiff’s decision to commence this proceeding – no outcome could reasonably be said to have vindicated the commencement of a proceeding that was misconceived from the outset.
[34] To be weighed against those considerations, I accept that the defendants appear to have been obstructive in getting an arbitrator appointed to resolve the disputes. Their responses do appear to have been slow and unco-operative, and I accept that it was reasonable for the plaintiff to take some step to procure the appointment of an arbitral panel. The problem is that it took the wrong step.
5 Referring to factors (a) and (d) from the judgment of Kós J J in Ryde v Earthquake Commission,
above n 3.
[35] The issues, then, are the defendants’ pre-commencement conduct, and whether it was necessary for the defendants to go to the trouble of filing and serving a notice of opposition and affidavit in opposition once the proceeding was issued. If they had immediately gone to the plaintiff after service of the proceeding and made it clear that they accepted that the matters identified in the claim should go to arbitration, could they have saved some costs?
[36] There was clearly fault on both sides. The defendants appear to have behaved in an unreasonable fashion before the proceeding was issued, and the plaintiff then commenced an inappropriate proceeding. Thereafter, I have nothing before me to suggest that the defendants made any attempt to avoid the costs of filing a notice of opposition and an affidavit.
[37] On balance, I think there should be some award of costs to the defendants, but not at the level they have claimed. They did engage in unco-operative behaviour over the appointment of an arbitral panel, but they should still not have been put to the expense of being compelled to take legal advice on, and responding to, a legal proceeding that should not have been commenced. In my view the justice of the case will be met by an award of costs of $700 in favour of the defendants, plus disbursements of $110. I make orders accordingly.
Associate Judge Smith
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