TCC Bayfair Limited v Swan
[2024] NZHC 2112
•31 July 2024
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2024-470-40
[2024] NZHC 2112
UNDER Part 7 of the High Court Rules 2016 IN THE MATTER OF
an application for interim relief
BETWEEN
TCC BAYFAIR LIMITED
First Plaintiff
TCC TAURANGA CROSSING LIMITED
Second PlaintiffAND
SARAH SWAN
Defendant
Hearing: On the papers Counsel:
K W Clay for Plaintiffs
D M Fraundorfer for Defendant
Judgment:
31 July 2024
JUDGMENT OF O’GORMAN J
This judgment was delivered by me on 31 July 2024 at 12.30 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
…………………………………
Solicitors/Counsel:
K W Clay, Christchurch
Canterbury Legal, Christchurch D M Fraundorfer, Tauranga
JK Hamilton, Tauranga
TCC BAYFAIR LIMITED v SWAN [2024] NZHC 2112 [31 July 2024]
[1] This proceeding was commenced on 28 March 2024. TCC Bayfair Ltd (TCC Bayfair) and TCC Tauranga Crossing Ltd (TCC Crossing) pursue claims of breach of contract by Sarah Swan, who entered into two consecutive agreements with TCC Bayfair, and one with TCC Crossing. Under those contracts, Ms Swan was engaged to carry out services such as providing cosmetic treatments for TCC patients. The contracts included a non-solicitation clause, and other clauses that addressed confidential information and intellectual property.
[2] On or about 5 December 2023, Ms Swan emailed the plaintiffs to terminate the contracts, providing 30 days’ written notice. By agreement, the TCC Crossing contract was terminated immediately, with effect from 5 December 2023. The TCC Bayfair contract was terminated after 7 December 2023.
[3] The two causes of action in the plaintiffs’ statement of claim allege that, in breach of contract, the defendant:
(a)solicited or dealt with the plaintiffs’ patients or former patients during the six-month restraint period, by providing cosmetic services through her own business; and
(b)made use of the plaintiffs’ confidential information and intellectual property to market and promote her new business using before and after photographs of the plaintiffs’ clients.
[4] At the same time the proceeding was commenced, the plaintiffs filed a “without notice” application for an interim injunction. They sought to prohibit the defendant from soliciting or dealing with any of their patients or former patients (from within the prior 12-month period), and that the defendant disclose the names of any such clients with whom she had had communications or provided services since the dates of termination. The application also sought disclosure of financial documents relating to such services.
[5] On 28 March 2024, Johnstone J declined to deal with the interlocutory application on a without notice basis, so it was listed for mention on 9 April 2024.
[6] On 5 April 2024, counsel for the defendant filed a memorandum noting that the contracts have arbitration provisions, so at that stage the defendant did not submit to the Court’s jurisdiction. Counsel for the defendant also advised that there was an active matter before the Employment Relations Authority about whether the defendant was an employee of the plaintiffs rather than an independent contractor. A timetable was sought for opposition documents to be filed for the injunction application. Meanwhile, the defendant took the position that the injunction was misguided and should be withdrawn:
(a)The alleged restraint was a non-solicitation clause rather than a non-compete obligation; some patients had simply chosen to follow Ms Swan once they saw her public Instagram account.
(b)In any event, the plaintiffs had delayed seeking an injunction and the restraint had less than two months to run.
(c)Damages would be an adequate remedy (the amounts in question being less than $30,000).
[7] As recorded in a minute of Becroft J dated 9 April 2024, the interim injunction issues were resolved by the defendant (through her counsel) providing two undertakings:
(a)that until 8 June 2024, Ms Swan would not identify the plaintiffs directly or indirectly, or mention that she has ever worked for the plaintiffs, in any of her social media or other advertising; and
(b)that until 8 June 2024, Ms Swan would not accept for business any previous clients of the plaintiffs, subject to two exceptions, being:
(i)immediate family members; and
(ii)“friends” named on a list to be provided on 10 April 2024 and agreed to by the plaintiffs by 11 April 2024 (as referred to below, the description of who could be named on this list was later adjusted/clarified).
[8] After the parties filed memoranda on 12 and 14 April 2024 about the wording of the undertakings, on 15 April 2024 Becroft J issued a minute clarifying that the second undertaking did not have any requirement that Ms Swan must have provided services to those friends before her contracts with the plaintiffs. Instead, the requirement was that they only came to the plaintiffs specifically because of their friendship with Ms Swan. On this “clarification point”, Becroft J directed that costs lie where they fall.
[9] On 6 May 2024, the parties filed a joint memorandum seeking timetable directions to progress the proceeding, noting that these steps would apply equally if the matter were transferred to the District Court. Jagose J made those directions in a minute issued on 6 May 2024.
[10] As recorded in a joint memorandum filed on 19 July 2024, it has now been agreed that the defendant will submit to court proceedings (rather than requiring arbitration) and the matter will be transferred to the District Court. In terms of the timetable steps ordered on 6 May 2024, the statement of defence has been filed and the parties have provided discovery.
[11] The final step in this jurisdiction is determination of a disputed question of costs, following which the proceeding will be transferred to the District Court. The parties have filed their respective memoranda on costs and have agreed for those issues to be determined on the papers.
Legal principles
[12] Section 96 of the District Court Act 2016 applies on the issue of costs for any proceeding transferred between the High Court and District Court:
96 Costs in cases transferred
(1) This section applies to a proceeding or counterclaim or set-off and counterclaim (a transferred proceeding) that is transferred—
(a)from the District Court to the High Court; or
(b)from the High Court to the District Court.
(2) Any order for costs in a transferred proceeding must be made by the court to which the proceeding is transferred.
(3) Subsection (2) is subject to an order of the court that made the order to transfer the proceeding.
(4) An order for costs in relation to part of a proceeding transferred to the District Court that takes place in the High Court—
(a)must be made in accordance with the High Court Rules 2016; and
(b)subject to any order by a High Court Judge, may be made by a District Court Judge.
…
[13] This section provides that the discretion as to costs is vested in the court to which the proceedings are removed. Subsection 96(4)(a) provides that where proceedings have been commenced in the High Court and continued in the District Court, the costs on the part of the proceedings in the High Court shall be calculated according to the High Court Rules 2016. Subsection 96(4)(b) confers the power to award such costs on a District Court Judge. However, any such discretion will be subject to any High Court orders already made.
[14] Rule 14.8 of the High Court Rules creates a presumption that costs on opposed interlocutory applications are to be fixed by the court when the application is determined. In Chapman v Badon Ltd, the Court of Appeal said:1
[12]… Apart from applications for summary judgment, the general approach to costs in respect of interlocutory applications is that they are dealt with at the time the applications are determined rather than being held over until the outcome of the proceedings is known. This reflects the fact that the merits of particular applications and the merits of the substantive proceedings are different matters.
1 Chapman v Badon Ltd [2010] NZCA 613, (2010) 20 PRNZ 83 (footnote omitted).
[15] Interlocutory applications are “determined” for the purpose of the above rule when the court decides them, or alternatively when they are withdrawn.2 By analogy with r 15.23 (when a proceeding is discontinued), the default position is that the applicant who withdraws an application is required to pay costs unless the court orders otherwise.3 Exceptions are based on an assessment of who was the successful party.
[16] In any event, there is a residual discretion where there are “special reasons to the contrary” not to fix and order costs.4 That discretion has been exercised previously, in cases where “unresolved factual disputes about the appropriateness of the interim relief application” gave rise to “special reasons to decline to make an order for costs”, as the Court had not had an opportunity to examine the merits of the case.5 In Alarm New Zealand Ltd v 15 Hopetoun Ltd, costs of an interim injunction application and review of the freezing order were reserved pending the outcome of the substantive hearing.6
Submissions on costs
[17] The plaintiffs seek costs of $3,585 for preparing for the “first case management conference”, for appearing at the first telephone conference call at 9 am on 28 March 2024, for appearing at a subsequent telephone conference at 4 pm on the same date, and for filing the interlocutory application. In addition, the plaintiffs seek disbursements of $1,988 for the filing fees for commencing the proceeding and filing the interim relief application, as well as office expenses of $138.
[18]The plaintiffs seek those costs on the following grounds:
(a)the plaintiffs should be treated as the successful parties in the interlocutory application;
2 Ip v Ip [2016] NZHC 528 at [12]; Winton v Winton [2018] NZHC 486 at [15]–[17]; Peterberic v Eady [2020] NZHC 2079 at [7]; and SKP Incorporated v Auckland Council [2019] NZHC 1665 at [5].
3 Ip v Ip, above n 2, at [16] and [19].
4 High Court Rules, r 14.8(1).
5 Alarm New Zealand Ltd v 15 Hopetoun Ltd [2016] NZHC 2080 at [18], referencing Kenealy v Morton-Jones [2015] NZHC 297; and Commercial Factors Ltd v Veda Advantage (NZ) Ltd HC Auckland CIV-2010-404-6798, 21 June 2011, where interim injunction applications were discontinued.
6 At [23].
(b)as the interlocutory application could not have been sought without the filing of proceedings in the High Court, disbursements for commencing the proceeding are also sought;
(c)the plaintiffs have not sought costs for the “clarification point” steps in respect of which Becroft J ordered that costs lie where they fall; and
(d)the 2B costs sought for commencing the proceeding will be sought in the District Court if the plaintiffs are successful in that jurisdiction.
[19] In addition, the plaintiffs also seek costs for preparing their costs memorandum, in the sum of $956.
[20] In contrast, counsel for Ms Swan contends that no order for costs is appropriate:
(a)the plaintiffs were not the successful parties, taking into account that the plaintiffs’ without notice application for an injunction was declined and then placed on notice and never determined;
(b)r 14.8 does not apply because there was no determination of any opposed interlocutory application — no opposition was ever filed;
(c)the costs sought are wrong, including costs sought for a “first case management conference” that did not occur; and
(d)the interim position was resolved by a consent position, which was only agreed by Ms Swan (behaving reasonably) because the costs of a defended injunction hearing would have been wholly disproportionate.
[21] Overall, the defendant submits that no award of costs is appropriate, because the plaintiffs were not successful and Ms Swan’s position is that their application completely lacked merit. Counsel for the defendant sought a small award of costs on a 2B basis for the step of preparing an unnecessary memorandum on costs.
Analysis
[22] I accept the submissions of the defendant that the default position in r 14.8 does not apply, given that the Court did not determine the merits of an opposed interlocutory application. The interlocutory application was effectively treated as withdrawn because it had been resolved by agreement. In some cases, the substance of an agreed position might indicate that the applicant was effectively the successful party. I do not accept that such a conclusion can be reached in this case. I accept that the defendant offered the two undertakings (different from the terms of the injunction orders sought) for pragmatic reasons, without prejudice to her argument that the injunction was misguided for the reasons listed in [6] above.
[23] In any event, my assessment is that there are “special reasons” not to fix and order costs at this stage. The appropriate award of costs for the injunction-related steps, including the wisdom of commencing the proceeding in the High Court, is better assessed in the context of the overall merits once the outcome of the proceeding is known. Those merits are interrelated.
Result
[24] For those reasons, my decision is that costs should be reserved (other than those already ordered to lie where they fall, and costs for the memoranda seeking costs7).
[25] If the proceeding is transferred to the District Court, then s 96 of the District Court Act 2016 will apply and a District Court Judge will have jurisdiction to determine these reserved cost issues at a suitable time.
O’Gorman J
7 Costs on costs are unusual and the Court is reluctant to award them: Zheng v Deng [2024] NZHC 1773 at fn 9, referencing SKP Incorporated v Auckland Council [2019] NZHC 1665 at [9]. Therefore, I do not award any costs for the memoranda seeking costs dated 6 June 2024 and 10 June 2024.
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