ABC Developmental Learning Centres (NZ) Limited v Artemis Early Learning Limited [2011] NZCA 243 (1 June 2011)

Last Updated: 8 June 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA744/2010 [2011] NZCA 243

BETWEEN ABC DEVELOPMENTAL LEARNING CENTRES (NZ) LIMITED Appellant

AND ARTEMIS EARLY LEARNING LIMITED First Respondent

AND CHRISTOPHER NIGEL THORNLEY Second Respondent

Hearing: 18 May 2011

Court: Ellen France, Gendall and Allan JJ

Counsel: Z G Kennedy for Appellant L J Taylor and G M Richards for Respondents

Judgment: 1 June 2011 at 2.30 pm

JUDGMENT OF THE COURT

A The appeal is dismissed.

2. The appellant must pay the respondents costs for a standard appeal on a band A basis, together with usual disbursements.

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REASONS OF THE COURT
(Given by Gendall J)

[1] This is an appeal from a decision of the High Court at Christchurch delivered on 7 October 2010, in which French J declined to decide at that point an application for indemnity costs sought by the appellant against the second respondent.[1] Instead she reserved the question of costs pending the outcome of a substantive hearing.

Background

[2] The application for costs was made following the determination of an earlier application by ABC Developmental Learning Centres (NZ) Ltd (ABC) for an interim injunction to prevent Artemis Early Learning Ltd (Artemis) and Mr Thornley from operating a childcare centre in Blenheim. ABC operates four childcare centres in Blenheim and had purchased one of them from a company operated by Mr Thornley, Springlands Early Learning Centre Ltd (Springlands), pursuant to an agreement dated 14 December 2007. That agreement contained a provision requiring that a Restraint of Trade Deed (the Deed) be entered into by the vendor. The Deed restrained Mr Thornley and Springlands, directly or indirectly, from operating a childcare centre business within ten kilometres of the business being acquired by ABC, for a period of three years. (Artemis was not a party to the Deed. Springlands was placed in liquidation on 2 December 2008 and Artemis was incorporated by Mr Thornley for the purpose of constructing and operating a new childcare centre in Blenheim.)
[3] In an oral judgment given on 25 June 2010, French J dismissed the application for interim injunction brought against Artemis and Mr Thornley to prevent the operation of the childcare centre constructed by Artemis. [2]
[4] French J found that ABC had demonstrated there was a serious question to be tried and it had “what appears to be a strong case”.[3] She said that “on the evidence currently before me, there appears to have been a flagrant breach of the restraint of trade covenant”.[4] However, her Honour decided, “by the narrowest of margins not to grant an injunction”.[5] The determining factor was that innocent third parties might be detrimentally affected by an interim injunction, such as staff, teachers, children and families who were enrolled at Artemis’ childcare centre. French J added that the respondents had come “perilously close to an injunction being issued against them”.[6]

Indemnity costs application

[5] ABC sought indemnity costs based upon an express entitlement in the Deed, cl 5 of which provides:

5. Injunctive Relief

5.1 The Vendor and the Directors acknowledge and agree that the Purchaser may only be adequately compensated for a breach or threatened breach of this Deed by pursuing injunctive relief.

5.2 If the Purchaser brings any action against the Vendor, the Directors or the Covenantors or any of them for an injunction arising from this Deed, the Vendor and/or the Directors acknowledge and agree that they will not defend the action on the grounds that the Purchaser has other adequate legal remedies or such other similar defence.

5.3 Nothing in this clause prevents the Purchaser from seeking any other legal remedies available to it against the Vendor or the Directors if they fail to comply with their obligations in this Deed.

5.4 The Vendor and the Directors will be jointly and severally liable to pay all reasonable legal costs incurred by the Purchaser in enforcing or attempting to enforce the obligations of the Vendor and the Directors under this Deed.

[6] French J said that she “considered the interests of justice were best served by preserving each party’s position on costs until the outcome of the substantive hearing is known”.[7] We discern that she reserved the ultimate determination of costs because although the respondents had succeeded in an interlocutory application, much could be said in favour of the appellant on the merits and given the provisions in cl 5 of the Deed, it was preferable to await the ultimate disposal of the case before ruling on liability, and quantum of costs.

Counsels’ arguments

[7] On behalf of the appellant, Mr Kennedy contended that ABC had an immediate right to enforce its contractual entitlement to costs under the Deed and French J was required to award costs in favour of ABC at this stage.
[8] Mr Kennedy contended that the decision of French J was a judgment within s 66 of the Judicature Act 1908, that the Judge had no discretion to decline to award costs and that by deferring determination of ABC’s contractual claim for costs she had impliedly rejected it. He referred to Watson & Son Ltd v Active Manuka Honey Association where there was a contractual entitlement to legal costs on an indemnity basis.[8] This Court, in upholding the award of indemnity costs made by the High Court said:[9]

It is clear in principle and on authority that once it is established that the indemnity is applicable in the circumstances and that, properly construed, it includes solicitor–client costs, no discretion remains available other than on public policy grounds or as part of an assessment by the court as to whether the amount of the solicitor–client costs is objectively reasonable: ...

[9] On behalf of the respondents, Mr Taylor argued that this Court had no jurisdiction to entertain this appeal as it was not from a judgment, order or final determination as required under s 66. He contended that there had not been a final determination of the rights of the parties in respect of costs, but simply a reservation of that question. Mr Kennedy argued that the authority of Air Nelson Ltd v Airways Corporation of New Zealand Ltd,[10] supported the proposition that jurisdiction existed to entertain the appeal. There, the High Court had refused summary judgment and reserved the question of costs and this Court heard an appeal in relation to this and other grounds. It dismissed the appeal, holding that the High Court Judge was entitled in his discretion to reserve the question of costs.
[10] The respondents rely upon the decision of Association of Dispensing Opticians of New Zealand Inc v Opticians Board,[11] where this Court said that whilst appeals in interlocutory matters are common place, and there have been many instances where jurisdiction is not raised when those matters are argued, nevertheless:[12]

... s 66 could not be intended to confer jurisdiction to appeal every decision made by the High Court in relation to the proceeding and before delivery of the substantive judgment. ... there are numerous rulings which are simply procedural or administrative, not affecting rights or liabilities as such and where the rights immediately in issue will remain for substantive determination. ...

The real difficulty is to resolve in a principled way how to determine what decisions or rulings are sensibly intended to come within the description of judgment, decree or order for the purposes of s 66 and so where and how to draw the line.

Decision

[11] Rulings which have a substantive effect on the rights and liabilities of the parties and are realistically final in character will confer appellate jurisdiction on this Court. But here there has simply been a deferment of consideration of the costs question. There has been no refusal of the appellant’s application, nor a fixing of the quantum of costs, nor for that matter, an interim determination on the application for indemnity costs. Indeed the Judge expressly said she was preserving the parties’ position on costs. The reservation of costs very frequently occurs in the course of interlocutory determinations and the costs ruling by French J was in our view an ancillary decision outside the type of appealable order envisaged by s 66.
[12] The issue as to whether this Court had jurisdiction to deal with the appeal, or not, was not argued in Air Nelson and the appeal itself involved also a challenge to an order joining a further defendant in judicial review proceedings. We take the view that the approach in Dispensing Opticians is to be preferred.
[13] We conclude that no jurisdiction exists for the Court to entertain the appeal. Irrespective of that, we would have in any event reached the view that the Judge was entitled in her discretion to defer final consideration and determination of costs until the substantive issues had been resolved. We do not accept the argument of Mr Kennedy that cl 5.4 gave the appellant the right to have its application for indemnity costs determined now, rather than at the later conclusion of the proceedings. Assuming, for the present purposes only, that no public policy considerations arise, the clause is silent as to the point at which any entitlement to the payment of costs arises.
[14] The appeal is dismissed. The appellant must pay the respondents costs for a standard appeal on a band A basis, together with usual disbursements.

Solicitors:
Minter Ellison Rudd Watts, Auckland for Appellant
McFadden McMeeken Phillips, Nelson for Respondents

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[1] ABC Developmental Learning Centres (NZ) Ltd v Artemis Early Learning Ltd HC Christchurch CIV-2010-409-1198, 7 October 2010.

[2] ABC Developmental Learning Centres (NZ) Ltd v Artemis Early Learning Ltd HC Christchurch CIV-2010-409-1198, 25 June 2010.
[3] At [58].
[4] At [83].
[5] At [86].
[6] At [87].
[7] At [9].
[8] Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595.
[9] At [35].
[10] Air Nelson Ltd v Airways Corporation of New Zealand Ltd (1992) 6 PRNZ 1 (CA).

[11] Association of Dispensing Opticians of New Zealand Inc v Opticians Board [2000] 1 NZLR 158 (CA).
[12] At [34]–[35].