Skids Programme Management Limited v McNeill [2012] NZCA 491 (25 October 2012)

Last Updated: 31 October 2012

IN THE COURT OF APPEAL OF NEW ZEALAND

CA315/2011 [2012] NZCA 491

BETWEEN SKIDS PROGRAMME MANAGEMENT LIMITED First Appellant

AND SKIDS HOLDINGS LIMITED Second Appellant

AND SAFE KIDS IN DAILY SUPERVISION LIMITED Third Appellant

AND BARBARA WINSOME MCNEILL First Respondent

AND MCNEILL ENTERPRISES LIMITED Second Respondent

AND NATASHA MAY-BABETTE MCNEILL-O'KEEFFE Third Respondent

AND AATA BAYKIDS LIMITED Fourth Respondent

AND KIDS CHOICE LIMITED Fifth Respondent

Hearing: 23 May 2012

Court: Ellen France, Venning and Asher JJ

Counsel: M A Karam and R R Griffin for Appellants K M Quinn for Respondents

Judgment: 25 October 2012 at 3 pm

JUDGMENT OF THE COURT
(Costs)

1. Costs for the appeal in this Court in favour of the appellants are awarded for a standard appeal on a Band A basis less one-third, together with the appellants’ full disbursements as approved by the Registrar.
2. The agreed costs of $55,610 based on the judgment of 28 October 2011 are replaced by a costs order of $33,366. There is no change to the High Court order granting the respondents disbursements. Any further matters arising in relation to costs are to be dealt with in the High Court.

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REASONS OF THE COURT

(Given by Asher J)

Introduction

[1] The appellants’ appeal to this Court against parts of the High Court decision was successful in part.[1] Our judgment concluded with a direction that costs were reserved for further submissions if necessary. The parties have now filed further submissions. The appellants’ submissions which ran to a total of 28 pages were unhelpfully long.
[2] It is necessary to review briefly what has happened in this proceeding so far.
[3] Proceedings were commenced in March 2010 in the High Court alleging a number of causes of action including breach of restraint of trade clauses, breach of confidence and breach of copyright. The appellants sought an interim injunction. They failed to obtain such an interim injunction after a defended hearing, although certain undertakings were provided. These undertakings were later varied after another defended hearing in which there was strong opposition to those variations from the appellants.
[4] An urgent trial took place in November/December 2010. Judgment was delivered on 20 April 2011.[2] The appellants failed to establish a breach of the equitable duty of confidence. They failed to obtain any relief against the second, third and fourth respondents and failed to get any injunctive relief against any party. Ultimately they obtained judgment against the first and fifth respondents on two of the causes of action for $2,000 as compensatory damages, and against the fifth respondent for a further $1,000 as additional damages on account of the flagrancy of its actions.
[5] In a separate costs judgment,[3] costs on a 2B basis were awarded in favour of the respondents on a global basis. The parties later agreed on the calculation arising from the judgment, which came to the sum of $55,610.
[6] There was then a stay judgment[4] which resulted in a direction that, of the costs order, $28,000 was to be paid directly to the third respondent and $14,000 directly to the first respondent. The balance of $13,610 together with interest was to be paid into the respondents’ solicitors trust account to be held on trust there.
[7] In this Court the appellants succeeded in that the cause of action for breach of the equitable duty of confidence was upheld against the first and fifth respondents (although the appellants had already succeeded against the first respondent for breach of the contractual term of confidence, and against the fifth respondent for breach of copyright). The sum of additional damages awarded under s 121(2) of the Copyright Act 1994 payable by the fifth respondent was increased from $1,000 to $20,000. Also the sum of $20,000 was ordered as exemplary damages against the first respondent. The first and fifth respondents were held jointly and severally liable for the total damages of $22,000, which included the $2,000 award of compensatory damages against which there had been no appeal.

Measuring success in this Court

[8] Rule 53A(a) of the Court of Appeal (Civil) Rules 2005 applies. The party who fails with respect to an appeal should pay the costs to the party who succeeds.
[9] Although the appeal was allowed, the appellants failed on one of their primary grounds of appeal, namely that there had been a breach of the restraint of trade clause by the first respondent. Therefore despite the appellants achieving success in persuading us that they had a protectable interest under the restraint of trade clause, the victory was pyrrhic as we found there was no breach. The appellants, however, succeeded on their claim that there had been a breach of the equitable duty of confidence as well as a contractual breach. They did not succeed in establishing a breach in using enrolment information.
[10] In practical terms the success achieved by the appellants was in obtaining orders for additional damages and exemplary damages of $20,000 against the first and fifth respondents, rather than the $1,000 ordered against the fifth respondent only. In our assessment, despite the failures, they were more successful against the respondents than the respondents were against them. However, where a party fails on issues which have significantly increased the costs of the party opposing costs, there may be a reduction.[5] We consider that an appropriate reduction in this case is one-third.

The High Court costs

[11] We turn to the position in the High Court. This Court may quash or vary orders for costs made in the Court appealed from.[6]
[12] We will not remit this case back to the High Court for the re-assessment of costs, which would be the usual position, as it is in the interests of the parties to avoid a significant further round of expense. This is a matter where the sums involved are modest, and the resources of at least the respondents are also modest. Also, given the nuanced outcome of the appeal, this is a case where this Court has a particular advantage in assessing the overall costs result.
[13] We agree with the respondents that the primary remedy sought by the appellants was an order by way of injunction stopping the respondents from trading for the two year period of the restraint of trade clause. The appellants failed to achieve this on an interim basis and in the substantive hearing in the High Court, and that is consistent with the approach taken in this Court. The appellants’ efforts to obtain injunctions to stop the respondents trading (as distinct from copying the policy documents) could not succeed. Evidence on this issue occupied much of the hearing time, and took some 48 paragraphs of the High Court judgment. The attempts to stop the third and fifth respondents from trading lay, in our opinion, at the heart of the case. It is also relevant that the appellants failed entirely in the High Court against the individual person who was running the business in competition with them, the third respondent.
[14] Compensatory damages of $120,183 were sought in the High Court, as well as exemplary damages and additional damages. The appellants failed to obtain these, save for $2,000 in compensatory damages. There was a challenge to the quantum of damages but it failed in this Court, and the award for compensatory damages of $2,000 did not change on appeal. Thus, although the appellants succeeded on appeal in establishing the breach of the equitable duty of confidence, in addition to the breaches of the contractual duty of confidence and of copyright, they did not succeed on their primary claim for damages.
[15] The one area where the appellants were decisively successful in an area which had practical consequences, was in relation to the quantum of the award for additional damages and exemplary damages. This was significantly increased on appeal. However, flagrancy for those causes of action had already been established in the High Court, and was taken into account by Woodhouse J in his assessment of costs.
[16] We think it right to look at the respondents’ and appellants’ costs in the round. In the end each group of parties had a single group of lawyers and counsel acting for them. Thus, while the appellants failed entirely against the second, third and fourth respondents and succeeded, although modestly, against the first and fifth respondents, we see no point in trying to tailor any costs award to success or failure against a particular respondent.
[17] The decision on costs in the High Court was predicated on the basis that the appellants succeeded on only one of a number of claims against the first and fifth respondents, and failed entirely on the claims against the second, third and fourth respondents. The Judge concluded that the assessment of success was “overwhelmingly in favour of the [respondents]”. The success of the appellants was described as “modest” and focussed on the conduct of Mrs McNeill.
[18] This position has not fundamentally changed, but in the light of the additional success on two further causes of action and the increased additional and exemplary damages awarded on appeal, some re-assessment of the High Court award is warranted. It can no longer be said that the success was “overwhelmingly” in the respondents’ favour. The appellants were successful in some causes of action against the first and fifth respondents. Nevertheless, the respondents are entitled to be regarded as the entirely successful parties in the injunction proceedings and restraint of trade proceedings, as on our findings the primary injunctive relief could never have been granted. They were largely successful in their resistance to the significant sums sought for compensatory damages.
[19] We do not consider that the forwarding of a Calderbank letter by the respondents offering payments of approximately $8,000 and a period of restraint from operating in a wider area alters the costs position, as the respondents submit. That offer was less than the $22,000 the respondents were ordered to pay, and the offer of restraint was not of great significance as it did not stop the ongoing existing trading of the fifth respondent. We do recognise, however, that in order to hold the interim position and avoid injunctive relief pending the hearing, the respondents gave undertakings that forced them to observe some real operational restraints pending trial.
[20] On our overview the respondents were more successful than the appellants. Thus we are not minded to change the general thrust of the High Court decision on costs.
[21] There is a further factor emphasised by the appellants. That is Mrs McNeill’s pursuit of her defence that there was no copying, which was entirely lacking in merit. While the Judge in the High Court recognised this conduct as flagrant, and took it into account in his costs decision,[7] her misconduct was given greater weight by us on appeal, and we have emphasised her persistent denials. We accept Mr Karam’s argument that under r 14.6(3)(b) of the High Court Rules relating to increased costs awards her position during the trial on this point could be seen as “taking ... an argument that lacks merit” and “failing, without reasonable justification, to admit facts ... or a legal argument”. We recognise that a penalty has already been imposed for her misconduct in this area, but the costs award can reflect, from a costs of litigation perspective, her refusal at trial to admit the true position. Thus the reduction we propose to make of the costs award in the High Court will be increased further because of this factor.
[22] It would be unduly generous to the respondents to leave them in receipt of full costs for the High Court proceeding, given the measure of success that the appellants have enjoyed on appeal. We consider that despite that success the award for High Court costs must be ultimately in favour of the respondents given their greater degree of success on the substantive issues.
[23] We conclude that in respect of the High Court judgment, the costs award must be adjusted. The costs order in favour of the respondents resulting in an agreed sum of $55,610 is reduced by 40 per cent to reflect the appellants’ greater measure of success in the Court of Appeal, and as a consequence the increase in additional/exemplary damages to $20,000. The reduction also reflects Mrs McNeill’s entirely unmeritorious denial of the copying throughout, which added to costs.
[24] The net result is that the High Court costs in favour of the respondents are reduced to $33,366. This will mean that some refund is due from the respondents to the appellants, which can presumably be met partly by the funds presently held on trust.

Result

[25] Costs for the appeal in this Court in favour of the appellants are awarded for a standard appeal on a Band A basis less one-third, together with the appellants’ full disbursements as approved by the Registrar.
[26] The agreed costs of $55,610 based on the judgment of 28 October 2011 are replaced by a costs order of $33,366. There is no change to the High Court order granting the respondents disbursements. Any further matters arising in relation to costs are to be dealt with in the High Court.

Solicitors:
Kemps Lawyers, Auckland for Appellants
Stewart Germann Law Office, Auckland for Respondents

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[1] Skids Programme Management Ltd v McNeill [2012] NZCA 314.
[2] Skids Program Management Ltd v McNeill HC Auckland CIV-2010-404-1696, 20 April 2011.
[3] Skids Program Management Ltd v McNeill HC Auckland CIV-2010-404-1696, 28 October 2011.

[4] Skids Program Management Ltd v McNeill HC Auckland CIV-2010-404-1696, 20 December 2011.
[5] Court of Appeal (Civil) Rules 2005, r 53F(d).
[6] Rules 48(4) and 53J.

[7] Skids Program Management Ltd v McNeill HC Auckland CIV-2010-404-1696, 28 October 2011 at [7].