Worldwide Holidays Limited v Liu

[2019] NZHC 2091

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-001556

[2019] NZHC 2091

BETWEEN

WORLDWIDE HOLIDAYS LIMITED

Plaintiff

AND

YING LIU

Defendant

On the papers
Judgment:	23 August 2019

JUDGMENT OF HINTON J

[Re Costs]

This judgment was delivered by me on 23 August 2019 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Counsel/Solicitors:

David Bigio, Queen’s Counsel, Auckland Lee Salmon Long, Auckland

Grove Darlow & Partners, Auckland

WORLDWIDE HOLIDAYS LIMITED v LIU [2019] NZHC 2091 [23 August 2019]

Introduction

[1]    In my judgment of 20 December 2018, I dismissed a proceeding brought by the plaintiff, Worldwide, because the Court lacked jurisdiction to determine the matter.1 This was because the parties had agreed to a mandatory dispute resolution procedure, which required any dispute to be submitted to arbitration. The defendant, Ms Liu, worked for Worldwide as a tourism provider, first as an employee then as a contractor. She then worked for a competitor. Worldwide alleged she had not returned confidential customer information stored on various of her devices.

[2]    Worldwide also sought interlocutory orders requiring Ms Liu to hand over any devices she used in the course of her duties, relying on the Court’s inherent jurisdiction. I declined to make those orders, finding the Court did not have jurisdiction. This was the real substance of the judgment.

[3]    I held the defendant is entitled to costs. Unfortunately, the parties have not been able to come to an agreement on the quantum. The defendant seeks indemnity costs, relying on the proposition – drawn from English and Australian authority – that if a party launches proceedings in breach of a contract, and determines to continue with those proceedings, that party should pay indemnity costs. The defendant says, in the alternative, that indemnity costs are appropriate on the basis that the plaintiff acted improperly or unnecessarily in commencing and continuing the proceeding,2 or on the basis the plaintiff unreasonably refused a settlement offer.3

[4]    The plaintiff submits that costs should follow the event in the ordinary way, and the defendant should be entitled to costs on a 2B basis.

Discussion

[5]    I will first address the defendant’s argument that indemnity costs should follow as a general rule where a party brings proceedings in breach of a contract and determines to continue with those proceedings.

1      Worldwide Holidays Ltd v Liu [2018] NZHC 3443.

2      A ground for indemnity costs under r 14.6(4) of the High Court Rules 2016.

3      Rule 14.6(3)(b)(v). This is only a ground for increased costs.

[6]    In support of this proposition, the defendant cites the following passage from the decision of Coleman J in the High Court of England and Wales:4

There can be no question but that the procedural consequence of conduct by a party to an arbitration or jurisdiction agreement which amounts to a breach of it and causes the opposite party reasonably to incur legal costs ought to be that the innocent party recovers by a costs order and/or by an award of damages the whole, and not merely part, of its reasonable legal costs. Against that background, it is necessary to ask whether there is any sustainable policy consideration which would require that unless there were some special circumstances, excluding the fact that it was an arbitration or jurisdiction agreement that had been broken, the successful party should have to forgo part of its costs or alternatively to bring a separate claim for damages to cover any shortfall on assessment of costs. The relevant considerations point very strongly indeed against either result. To forgo part of the loss would be unjust. To be placed in a position where the balance of the recoverable damages could not be quantified until after the costs had been formally assessed would involve delay in obtaining compensation properly due and a formalistic and cumbersome procedure which would in itself involve more costs and judicial time.

In my judgment, provided that it can be established by a successful application for a stay or an anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis.

[7]    Coleman J’s judgment was considered by Martin CJ in the Supreme Court of Western Australia in Pipeline Services Wa Pty Ltd v Atco Gas Australia Pty Ltd, the other case referred to by the defendant.5 Martin CJ adopted the principle in A v B and determined it should apply in Western Australia, finding it was consistent with and furthered the purpose of the Western Australian costs regime. Martin CJ noted that the principle can be justified, inter alia, because a party’s bringing proceedings despite a binding dispute resolution clause is a clear breach of that contract, and the costs the innocent party must incur in obtaining a stay of proceeding are a direct consequence of that breach.

[8]    The plaintiff responds by citing two New Zealand cases where, they submit, this argument was considered and rejected. The first is Marac Finance Ltd v Vero Liability Insurance Ltd.6 That case involved a refusal by Vero to appoint an investigative specialist or an arbitrator, in breach of a dispute resolution clause.

4      A v B (No 2) [2007] EWHC 54 (Comm) at [10]–[11].

5      Pipeline Services Wa Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 at [6]–[25].

6      Marac Finance Ltd v Vero Liability Insurance Ltd [2014] NZHC 1974 at [49].

Courtney J considered A v B, but decided it could be distinguished on the facts. This was because A v B involved costs on a successful stay application, whereas the case before her involved an application for costs on the substantive proceeding, in a situation where Marac Finance Ltd had chosen to litigate rather than seek a stay.7 So, because this case is an application for costs on a successful stay, Marac does not really assist the plaintiff.

[9]    The second case is Tamihere v MediaWorks Radio Ltd.8 That case was similar to this one, involving costs on a successful application to stay based on an agreement to arbitrate. After considering A v B and Pipeline Services, Simon France J held that to the extent those cases suggested that a discrete category should be recognised where indemnity costs are the norm or the presumption, such a proposition was inconsistent with the High Court Rules.9 This is because r 14.6(4)10 identifies the specific situations where indemnity costs may be awarded, and adopting indemnity costs as the norm for situations where proceedings are in breach of an arbitration agreement would be inconsistent with the rationale of that provision, being that indemnity costs should be awarded only in exceptional circumstances.11

[10]   Simon France J did write that the more blatant the breach of an arbitration agreement, the more likely indemnity costs should be awarded, but he said that is not the same as a presumption for indemnity costs.12

[11]   I consider, as did Simon France J,13 that the decisions of both Colman J and Martin CJ are well reasoned. But I also agree with Simon France J that reversing the presumption for scale costs would be inconsistent with the High Court Rules. A claimant arguing for indemnity costs on a successful application to stay in these circumstances must still establish in terms of r 14.6(4) that indemnity costs should be granted.

7      Vero Liability Insurance Ltd v Heartland Bank Ltd [2015] NZCA 288 at [111].

8      Tamihere v MediaWorks Radio Ltd [2015] NZHC 268.

9      At [6]–[7].

10     Rule 14.6(4) was unchanged by the High Court Rules 2016.

11     Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [28].

12     Tamihere v MediaWorks Radio Ltd [2015] NZHC 268 at [7].

13 At [7].

[12]   As an alternative argument, the defendant does rely on r 14.6(4)(a) and submits she should be awarded indemnity costs on the basis the plaintiff acted improperly and unnecessarily in commencing and continuing the proceeding. The defendant says the case was almost certain to fail. Her counsel repeatedly advised the plaintiff that the proceeding would fail for want of jurisdiction and that an application for indemnity costs would follow.

[13]   The plaintiff submits that the ultimate fate of the substantive proceeding should assume limited significance. It accepted at an early stage that the substantive dispute would need to be stayed, and the defendant was not required to take any real steps towards defending the substantive claim. Rather, says the plaintiff, the real battle was as to the extent of the Court’s jurisdiction to issue an interim injunction where there is an agreement to arbitrate.14 They say the legal issues involved were not straightforward, and that this Court had previously made orders of the kind they were seeking.

[14]   I accept the real battleground was over the application for interim injunction and that the plaintiff’s case on that application was not hopeless. I did accept that the Court may have jurisdiction to make interlocutory orders outside the bounds of the Act, but not in this case. For these reasons, I do not consider indemnity costs are appropriate.

[15]   The defendant also submits that the plaintiff unreasonably rejected a settlement proposal that it says would have resolved the plaintiff’s concerns. However, the plaintiff says that proposal failed to adequately protect its position, so it was justified in rejecting it. In particular, the plaintiff says the proposal provided no assurance that the defendant had not already provided the confidential information to a third party and it was in full and final settlement, which would have prevented the plaintiff from recovering any loss if the defendant had already passed on the information.

[16]   As already foot-noted, a failure to accept a reasonable settlement offer is a ground for increased costs, not indemnity costs.15 In the circumstances of this case, I

14 As I wrote in my judgment at [1].

15     High Court Rules 2016, r 14.6(3)(b)(v).

do not consider increased costs are appropriate. I accept the plaintiff’s submission that the settlement proposal did not address all of the plaintiff’s concerns, and it was not so unreasonable in rejecting it, as to activate r 14.6(3).

Conclusion

[17]I consider that scale costs are appropriate on a 2B basis in the amount of

$10,927. This is the defendant’s calculation, which the plaintiff accepts as being correct.

Costs on costs

[18]   Both parties have raised the issue of costs on this costs application. The plaintiff notes that there are parallel lines of authority on whether costs should be granted on costs.16

[19]   I do not consider it necessary to reconcile the authorities here, nor to make any order for costs on costs.

Hinton J

16 See Jeffreys v Morgenstern [2013] NZHC 1361; and Haricot Investments Ltd v Maerewhenua District Water Resource Company Ltd [2015] NZHC 518. See further David Bullock and Julian Long Costs of costs applications [2014] NZLJ 348.