IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE	
CIV-2018-485-446
[2019] NZHC 583	

UNDER	section 261 of the Property Law Act 2007, Part 19 of the High Court Rules 2016	
IN THE MATTER OF	an application for an order that the lessors renew the lease granted by Deed made on 5 April 2011	
BETWEEN	OPENYD LIMITED
Applicant	
AND	GARY JOHN LAWRENCE, AND JASON PETER SILK AS TRUSTEES OF THE G J LAWRENCE FAMILY TRUST, AND DIANE SHERYL LAWRENCE AND JASON PETER SILK, AS TRUSTEES OF THE D S LAWRENCE FAMILY TRUST, TOGETHER TRADING AS THE
LAWRENCE FAMILY TRUSTS
Respondents	

Hearing:	On the papers	
Counsel:	C J Griggs for Applicant
A C Skelton for Respondents	
Judgment:	26 March 2019	

JUDGMENT OF CLARK J (COSTS)

Background

[1]	In my judgment delivered 31 January 2019 I granted the respondents’ interlocutory application for an order dismissing the underlying proceeding for want

OPENYD LIMITED v LAWRENCE & ORS [2019] NZHC 583 [26 March 2019]

of jurisdiction.1 The underlying proceeding was brought by the applicant and sought an order requiring the respondents to renew a lease. The respondents succeeded and I confirmed costs followed the event.2

[2]	The applicant, Openyd, applies to vary the costs order pursuant to r 14.8(2) of the High Court Rules 2016. Openyd proposes that the respondents, (who I refer to as the Lawrence Trusts, or Trusts) are awarded the cost of filing the interlocutory application,3 but that Openyd is awarded the costs of preparation of submissions, the bundle for the hearing and the appearance at the hearing.4 Openyd submits an award of reduced costs under r 14.7(f)(v) of the High Court Rules is justified because the Trusts failed, without reasonable justification, to accept Openyd’s offers to settle or dispose of the proceeding.

[3]	The Lawrence Trusts oppose any variation of the order and seek a further order that particular costs, calculated on a 2B basis, are awarded.

Applicable principles

[4]	Although r 14.1 provides that all matters relating to costs are at the discretion of the court, “it would almost invariably be wrong” to depart from the general principle that the party who fails with respect to a proceeding should pay costs to the party who succeeds.5 The longstanding principle that the losing party should pay the winning party’s costs is reflected in r 14.2(1) which provides:

The following general principles apply to the determination of costs:

(a)	the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:

As the Supreme Court said of the former r 47(a), the predecessor to r.14.2—6

… reflects the longstanding principle that, unless there are exceptional reasons, costs should follow the result. That is, the loser, and only the loser pays.

1	Openyd Ltd v Lawrence [2019] NZHC 46 [the interlocutory judgment].
2	At [58].
3	Item 2 of sch 3 to the High Court Rules 2016.
4	Items 24, 25 and 26 of sch 3.
5	Shirley v Wairarapa District Health Board (2006) NZSC 63, [2006] 3 NZLR 523 at [12].
6	At [19].

[5]	Rule 14.6 confers power on the court to order increased or indemnity costs in the circumstances listed in that rule, while r 14.7 empowers the court to refuse or reduce costs in the situations specified at 14.7(a)–(g).

[6]	In this case Openyd relies on r 14.7(f)–(v) pursuant to which the court may refuse to make an order for costs or reduce costs otherwise payable if —

the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by —

…

(v) failing, without reasonable justification, to accept  an  offer  of  settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding;

[7]	The court must assess the reasonableness of the rejection of a settlement offer at the time the offer was made, without the benefit of hindsight.7 Whether an offer of settlement was refused “without reasonable justification” is to be assessed by reference to the timing of the offer, its size, the reasonable expectations of the party who refuses the offer and whether the party or parties were in a position to assess the merits of the offer when it was received.8

[8]	The focus of the assessment is on the conduct of the recipient of the offer. If the recipient contributed unnecessarily to the time and expense of the proceeding, it is likely the failure to accept was unreasonable.9 The later an offer is made, the less its impact on costs.10

[9]	If the settlement offer is a Calderbank offer, rr 14.6 and 14.7 must be read together with r 14.11(3):11

Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—

(a)	offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

7	McGechan on Procedure (online loose-leaf edition) at HR14.6.02(3)(iii).
8	At HCR14.6.02(3)(iii). See also Samson v Mourant [2016] NZHC 1119; and Weaver v HML Nominees Ltd [2016] NZHC 473.
9	Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
10	Rodgers v Advanced Creative Technologies Ltd [2013] HC 1095, [2013] NZCCLR 17.
11	Sims Court Practice at HCR14.11.3.

(b)	makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.

[10]	This rule codifies the English Court of Appeal decision in Calderbank.12 The rule incentivises parties to settle by limiting their exposure to costs.13 If a Calderbank offer has been made, it is still at the Court’s discretion to award increased costs having regard to the circumstances listed in 14.6 and 14.7.14

The settlement offer and negotiations

[11]	The relevant events leading to the Lawrence Trusts’ rejection of the settlement offer are outlined below:

(a)	3 October 2018 — Mr Skeleton on behalf of Openyd proposed that Openyd would withdraw its opposition to the protest to jurisdiction if the respondents agreed, inter alia, that:

(i)	the renewal of lease dispute was to be submitted to arbitration by mutual consent;

(ii)	there was no issue as to costs;

(iii)	the respondents would take no issue with the submission of the application for relief outside the three-month period following the respondent’s refusal to renew;15 and

(iv)	the arbitration between Openyd and the respondents would be heard before the arbitration between Openyd and GJ Lawrence Dental Ltd.

(b)	18 October 2018 — The respondents refused the proposal unless Openyd agreed to the arbitration between Openyd and GJ Lawrence Dental Ltd being heard first.

12	Calderbank v Calderbank [1975] 3 All ER 333 (CA).
13	Sims Court Practice at HCR14.11.3.
14	Junior Farms Ltd v Commissioner of Inland Revenue (2011) 25 NZTC 20-064 (HC).
15	Under s 262(b) of the Property Law Act 2007.

(c)	25 October 2018 — Openyd repeated the 3 October offer and proposed further that the arbitration between Openyd and the Lawrence Trusts be “managed and administered together” with the arbitration between Openyd and GJ Lawrence Dental Ltd “provided that they are heard separately”.

(d)	30 October 2018 — The Lawrence Trusts refused again the 3 October offer unless Openyd agreed to the arbitration between Openyd and   GJ Lawrence Dental Ltd being heard first.

(e)	14 November 2018 — The Lawrence Trusts filed and served submissions and bundle of documents.

(f)	15 November 2018 — Openyd filed a memorandum seeking a stay of proceedings and an order that the arbitration application was to be treated as having been made within the period prescribed under s 262(b) of the Property Law Act 2007.

(g)	16 November 2018 — respondents filed a memorandum opposing the orders sought and seeking dismissal of the proceeding.

Assessment

[12]	The settlement offer contained two essential conditions. Openyd would submit to arbitration if:

(a)	Lawrence Trusts took no issue with the submission of the application for relief to arbitration, outside the statutory three-month period following the Trust’s refusal to renew;16 and

(b)	the arbitration between Openyd and the Trusts would be heard before the arbitration between Openyd and GJ Lawrence Dental Ltd.

16	Property Law Act 2007, s 262(b).

[13]	Mr Griggs for Openyd submitted the “practical effect” of the interlocutory judgment “is the same as that which was offered to the respondents by Openyd from 3 October 2018 during settlement negotiations and openly offered in the memorandum of 15 November 2018”. There was accordingly no reasonable justification to reject this offer.

[14]	I find the point unconvincing. The effect of the interlocutory judgment was to dismiss Openyd’s application for relief and send the parties to arbitration on the basis s 262 of the Property Law Act was no barrier; the three month period prescribed by s 262 for the filing of proceedings does not govern referrals of disputes to arbitration.17

[15]	The practical effect of the 31 January 2019 decision may be similar to the essential conditions in Openyd’s settlement proposal but this does not avail Openyd in its application to vary costs. The offer is not a Calderbank offer under r 14.11. The ultimate outcome was not “more beneficial” to the recipient of the settlement offer than the judgment which the Trusts obtained against Openyd. Had Lawrence Trusts accepted the offer their position would not have been practically the same. In fact, their position would have been less favourable. They would have been obliged to arbitrate ahead of the arbitration between Openyd and GJ Lawrence Dental Ltd.

[16]	Accordingly, Lawrence Trusts did not unreasonably reject the settlement offer. As Mr Skelton for Lawrence Trusts put it, a “major issue” between the parties was the Trusts’ concern that fundamental underlying issues between the parties should be resolved ahead of the “downstream disputes” regarding the lease. An examination of the correspondence between the parties during October and November 2018 evidences a primary focus on the order of arbitration proceedings. It strikes me that the condition proposed by Openyd as to the sequence of the ordering of the disputes was a key reason for the Trusts’ rejection of the proposal. In his letter conveying his instructions from the Trusts in response to Openyd’s first letter dated 30 October 2018, Mr Skelton advised:

… our clients are unable to agree to the proposal in your 3 October letter [the initial proposal]. In particular…our clients consider that the arbitration involving G J Lawrence Dental Ltd and the lease arbitrations should be

17	Openyd Ltd v Lawrence [2019] NZHC 46 at [55] and [57].

managed/administered together, and that the fundamental underlying issues which have led to the disputes between the parties…should be heard and determined ahead of the lease matters.

[17]	It was not unreasonable for Lawrence Trusts to reject the offer and try their hand at dismissing the underlying proceeding for want of jurisdiction without having to concede to the ordering condition which Openyd proposed. The rejection did not contribute unnecessarily to the time and expense of the proceeding which was filed on 19 June 2018. The settlement offer was not made until 3 October 2018, nearly four months after the parties had expended considerable time and expense in preparation for the contested interlocutory application set down to be heard on 21 November 2018.

[18]	Nor do I accept Mr Grigg’s argument that Openyd had a success in respect of the time bar issue, which “ought to be reflected in the costs award”. Mr Griggs argued the respondents were “unsuccessful in having the Court confirm their assertion” the claim was time-barred under s 262(b) of the Property Law Act 2007. He referred to one of the orders Openyd sought in the memorandum of counsel dated 15 November 2018 namely, a direction:

… that for all purposes including section 262(b) of the Property Law Act 2007, the application to be referred to arbitration under the stay is to be treated as having been made within the period prescribed in that provision.

[19]	Mr Griggs contended in his 15 November 2018 memorandum that if the direction was not made, the question arose as to whether the arbitration agreement was capable of being performed due to the time limitation in s 262(b) of the Property Law Act. Openyd’s position did not assist the Court in its determination that s 262 does not apply to arbitration proceedings. More fundamentally, the so-called time bar issue was incidental to the two primary legal questions that arose from Openyd’s opposition to the Trust’s application to dismiss or stay the underlying proceeding. First, Openyd argued the Trust had waived the arbitration agreement. I determined there had been no waiver but if there had been a waiver, it was validly retracted.18

[20]	The second legal issue was whether the Court had jurisdiction to hear and determine the underlying proceeding. I concluded the Court had jurisdictional

18	Interlocutory judgment at [20]–[39].

competence to hear and determine the underlying proceeding but that it would be inappropriate to do so.19 The statutory timeframe in s 262(b) was mentioned in passing at [55] of the judgment. Having observed that my conclusion did not create “issues of access to justice” for the parties because they were free to resolve their disputes through the arbitration process to which they had agreed, I expressed the view s 262 did not restrict them in pursuit of that course.

[21]	I do not share Openyd’s view that the practical effect of the interlocutory judgment is the same as the effect of the proposal on offer from 3 October 2018.

Result

[22]	Openyd’s application to vary the costs order is dismissed.

[23]	In accordance with my original order that costs follow the event the respondents are entitled to costs, calculated on a 2B basis, in respect of the following steps (referenced to sch 3 High Court Rules):

(a)	item 8 (Notice of appearance with protest to jurisdiction);

(b)	item 22 (Filing an interlocutory application);

(c)	item 24 (Preparation of written submissions);

(d)	item 25 (Preparation by applicant of bundle for hearing);

(e)	item 26 (Appearance at hearing of defended application for sole or principal counsel); and

(f)	item 29 (Sealing order or judgment).

Solicitors:
Lawler & Co, Auckland for Applicant
Keesing McLeod, Lower Hutt for Respondents

19	At [40]–[53].