COMMERCIAL FACTORS LIMITED v SCENIC HOTEL GROUP LIMITED [2022] NZCA 300

COMMERCIAL FACTORS LIMITED v SCENIC HOTEL GROUP LIMITED [2022] NZCA 300 [8 July 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA495/2020[2022] NZCA 300BETWEEN COMMERCIAL FACTORS LIMITEDAppellantAND SCENIC HOTEL GROUP LIMITEDRespondentHearing: 8 September 2021Court: Miller, Clifford and Courtney JJCounsel: P J Dale KC and A J Steel for AppellantJBM Smith KC and JLW Wass for RespondentJudgment: 8 July 2022 at 10.30 amReissued: 28 November 2022JUDGMENT OF THE COURTA The appeal against [2019] NZHC 2370 is dismissed.B The cross-appeal against [2019] NZHC 2370 is dismissed.C The appeal against [2020] NZHC 2407 is allowed.D The issue of costs in the High Court is remitted to the High Court fordetermination.E We make no order as to costs on the appeal.____________________________________________________________________REASONS OF THE COURT(Given by Courtney J)Table of ContentsPara NoIntroduction [1]Issues arising on appeal [10]A brief history of eventsFactors and Scenic begin negotiations and Factors acquiresthe hotel[14]Pacific begins trading [21]Factors exits the joint venture [26]Pacific continues to trade while the parties negotiate Factors'exit terms[31]The case in the High CourtThe pleadings [39]Factors applies to join Pacific [41]The first High Court judgment [45]The judgment is recalled [54]The supplementary decision and final (reissued) decision [56]Issue 1: the finding of a joint venture between Factors and ScenicDid the Judge err in recording Scenic's concession? [59]Did the pleading permit consideration of a joint venture? [62]Was the finding of a joint venture between Factors and Scenicopen on the evidence?[66]Issue 2: the finding that Pacific was not indebted to Factors for$2.65m[75]Issue 3: reliefDid the lack of any asserted breach preclude consideration of adeclaration or an accounting?[81]Did the Judge err in declining to order the taking of an accountof the joint venture?[85]Appeal against the costs judgmentThe costs judgment [91]Appeal [93]Result [104]Costs on appeal [106]Introduction[1] In 1998 Commercial Factors Ltd (Factors) lent money under a debt factoringfacility to a New Zealand company, with the advances guaranteed by the company'sowners. Some of the advances were used for the construction of a hotel on leaseholdland in Tonga, which formed part of the security. The debtor defaulted. Factorseventually obtained judgment against the guarantors for NZ$5.731 million.1[2] The hotel represented the only means for Factors to recover its loss on the loan.One option was for Factors to acquire the leasehold of the hotel itself. But Factors hadno experience in hotel ownership or management. Its sole director, Mr TerenceHaydon, approached Scenic Hotel Group Ltd (Scenic) and proposed a joint venture toacquire and run the hotel. Scenic was interested and the parties began discussionsabout the basis on which Scenic might become involved. Scenic was represented inthose discussions by one of its directors, Mrs Lani Hagaman, and its ManagingDirector, Mr Brendan Taylor.[3] After Factors obtained judgment against the guarantors in January 2011, it andScenic began negotiating in earnest towards a joint venture to acquire and operate thehotel. The plan, broadly, was for Factors to acquire the leasehold of the hotel and sellit to a joint venture company owned by subsidiaries of Factors and Scenic incorporatedfor that purpose. Discussions proceeded on the basis of a sale price for the hotel ofNZ$6.25 million.2[4] The plan would require a joint venture agreement between the subsidiaries, anda sale and purchase agreement between Factors and the joint venture company. Thesubsidiaries were incorporated.3 The parties began to negotiate the terms of the jointventure agreement and the sale and purchase agreement. Factors purchased theleasehold of the hotel for $6.25 million. Negotiations continued. The joint venturecompany, Pacific Hotels Limited (Pacific), was incorporated.4 Negotiationscontinued. Pacific occupied the hotel and began trading. Negotiations continued. By2014, there were still no concluded agreements. Factors called time and ceasedcontributing to the hotel's operating costs. Pacific continued to trade, funded byScenic.1 Unless otherwise specified, all amounts referred to are in New Zealand dollars.2 This figure was based on a 2009 valuation on a going concern basis of Tonga Pa'anga (TOP) of$5.5 to 7 million with an allowance for the cost of bringing the hotel up to standard.3 Haydon 2 Ltd (Haydon 2), owned by Factors, was incorporated on 23 April 2010 and ScenicHotels (International) Ltd (Scenic International), owned by Scenic, on 20 June 2011.4 Incorporated on 21 March 2012.[5] Negotiations as to the terms of Factors' exit were unsuccessful. In 2016Factors brought proceedings against Scenic. It asserted a joint venture between it andScenic and wanted (among other things) an account taken of the joint venture's affairs.Its principal allegation was that the joint venture was indebted to it for $6.25 million.Factors sought to have that amount credited to it in any accounting, specifically inrelation to the respective shareholders' advances to Pacific.[6] Scenic denied the existence of any joint venture between it and Factors anddenied that it, or Pacific, was indebted to Factors for $6.25 million.[7] By the time the claim reached trial the hotel had been badly damaged byCyclone Gita and Pacific was insolvent. However, Pacific held an insurance policycovering material damage to the hotel and business interruption cover whichresponded to the loss. Factors applied, unsuccessfully, to join Pacific into theproceeding in order to address the status of insurance claim.5[8] Osborne J delivered his judgment on 19 September 2019.6 He found that ajoint venture existed between Factors and Scenic between June 2011 and 26 March2015 and made a declaration to that effect.7 But he held that neither Scenic nor Pacificwas indebted to Factors for the "intended purchase price" of the hotel, which was$6.25 million.8 Initially, the Judge ordered the taking of accounts of Pacific as thejoint venture vehicle on the basis that any insurance moneys be brought into account.9Subsequently, the Judge recalled that judgment.10 In a supplementary judgment heconcluded that an account was not appropriate because, by then, Pacific's liquidationwas inevitable and he considered that Pacific's indebtedness to Factors was bestdetermined in the context of the liquidation.115 Commercial Factors Ltd v Scenic Circle Hotels Ltd [2019] NZHC 568 [interlocutory judgment]at [16] and [28(a)].6 Commercial Factors Ltd v Scenic Hotel Group Ltd [2019] NZHC 2370 [first judgment].7 At [244] and [251]. The Judge described the relationship as a pre-contractual joint venture. Weconsider the more apt description is an operating joint venture but, for convenience, refer simplyto joint venture.8 At [242].9 At [265(b)].10 Commercial Factors Ltd v Scenic Circle Hotels Ltd [2019] NZHC 3243 [recall judgment].11 Commercial Factors Ltd v Scenic Hotel Group Ltd [2020] NZHC 1868 [supplementary judgment]at [40]. Pacific was ultimately placed in liquidation on 24 June 2021.[9] The judgment was reissued without reference to the taking of accounts and theonly relief granted was the declaration as to the existence and duration of the jointventure.12 Factors appeals and Scenic cross-appeals this final substantive judgment.Factors also appeals the subsequent costs judgment, in which the Judge awarded coststo Scenic, subject to a five per cent reduction to reflect the impact of Scenic's latedisclosure of the insurance policy.13Issues arising on appeal[10] Factors supports the finding that the operation of the hotel created arelationship which, whether labelled as joint venture or partnership, gave rise toequitable obligations. It challenges the finding that Pacific was not indebted to it for$6.25 million (the proposed purchase price of the hotel); it asserts that the hotel, at thatvalue, is properly viewed as a capital contribution by it to the joint venture and eitherowned by Pacific in equity or held by Pacific on a constructive trust for Factors. It saysthat the correct treatment of the hotel raises difficult questions that are not suitable fordetermination in the context of Pacific's liquidation and that an account should beordered.[11] Scenic says that the Judge's finding of a joint venture between Factors andScenic was not open on the pleadings and not supported by the evidence. It does notaccept that Pacific is indebted to Factors in relation to the hotel itself — Pacific's onlyindebtedness is to its shareholders, the subsidiary companies Scenic Hotels(International) Ltd (Scenic International) and Haydon 2 Ltd (Haydon 2), for advancesmade to meet operating costs. It also says that the Judge was not entitled to give reliefin the form of a declaration as to the existence of a joint venture. Scenic supports theJudge's conclusion that the issues between the parties are best resolved in the contextof Pacific's liquidation.[12] We approach the issues in relation to the final substantive judgment as follows:12 Commercial Factors Ltd v Scenic Hotel Group Ltd [2019] NZHC 2370 [final substantivejudgment].13 Commercial Factors Ltd v Scenic Hotel Group Ltd [2020] NZHC 2407 [costs judgment].(a) Was it open to the Judge on the pleadings and the evidence to find thata joint venture existed between Factors and Scenic? (cross-appeal)(b) Did the Judge err in finding that Pacific was not indebted to Factors for$6.25 million for the purchase of the hotel? (appeal)(c) Did the Judge err in his approach to relief, including by (1) making thedeclaration that a joint venture had existed; and (2) refusing to order anaccounting between the parties? (cross-appeal and appeal)[13] In relation to the costs judgment, the issues are:(a) Should Factors' success in establishing the joint venture have beenrecognised through costs, notwithstanding that it failed in each of itscauses of action?(b) Should costs on the recall have followed the event?(c) Was there adequate recognition of the effect of Scenic's late disclosureof the insurance arrangements?A brief history of eventsFactors and Scenic begin negotiations and Factors acquires the hotel[14] Negotiations towards the joint venture proceeded on the basis that Factorswould appoint a receiver, acquire the hotel from the receiver and sell the hotel to theyet-to-be-incorporated joint venture company. As noted earlier, the parties worked onthe basis of a purchase price of $6.25 million. Factors would leave the purchase pricein as vendor finance for an agreed period, after which the joint venture company wouldseek to refinance the vendor loan with a bank loan. The hotel would be managed undera separate contract by another Scenic subsidiary, Scenic Hotels (Tonga) Ltd (ScenicTonga).1414 Previously named Scenic Circle (Kaikoura) Ltd.[15] By June 2011 the shareholder subsidiaries — Haydon 2 and ScenicInternational — had been incorporated. A draft sale and purchase agreement wasproduced showing a purchase price of $6.25 million and full vendor finance. Otheraspects, particularly the interest rate and security to be provided for the vendor finance,were not yet settled.[16] On 8 April 2011 Factors appointed a receiver, Christine 'Uta'Atu. On 6 May2011 Scenic Tonga entered into an interim management agreement with the receiverto manage the hotel for 90 days during the sale process.[17] There were numerous issues to resolve. These included the tax implications ofthe proposed structure, the application of Tongan law to the joint venture agreementand sale and purchase agreement, the exact terms of the vendor finance to be providedby Factors and the basis on which Scenic would be reimbursed for providing themanagement services. Consideration was also given to whether the ground lease couldbe extended. Also to be factored into the process was the requirement for Cabinetapproval of the transfer of the ground lease from Factors to the joint venturecompany.15[18] In late June 2011, before Pacific had been incorporated and while negotiationswere on-going, Factors successfully tendered for the hotel at $6.25 million. Thepurchase price was satisfied by off-setting the judgment sum that Factors had obtainedagainst the guarantors under the debt factoring facility so no cash actually changedhands.[19] After Factors acquired the hotel, negotiations continued over the terms of thejoint venture agreement and the sale and purchase agreement. Particular pressurepoints were whether the joint venture parties should be subject to a restraint of tradethat would prevent either from embarking on another hotel venture in the area andFactors' request for a general security agreement (GSA) to secure the vendor finance.15 Under Tongan law, all land is owned by the Crown and the Cabinet of Tonga must approve thetransfer of all land leases. See Land Act 1988 (Tonga), s 89.[20] On 26 August 2011 Cabinet approved the transfer of the ground lease toFactors.16 The receiver assigned the leasehold of the hotel to Factors. She alsoassigned the interim hotel management to Factors.17Pacific begins trading[21] Although the parties had not reached a final agreement on the terms of sale ofthe hotel by Factors to Pacific, plans proceeded for Pacific to assume the operation ofthe hotel. In April 2012 it began trading as Scenic Hotel Tonga. There was a formalopening ceremony on 25 July 2012, which was the date from which accounts werelater produced showing Pacific's trading position.[22] Mr Wass, for Scenic, confirmed that to the extent that there was anything to bedone "on the ground", it was done by Scenic Tonga at the direction of Scenic itself.Pacific was not paying a management fee to Scenic Tonga. Nor was it paying rent toFactors. The parties had agreed that neither would be paid until Pacific was in aposition to do so. Operating expenses were shared between Factors and Scenicthrough Haydon 2 and Scenic International.[23] In practical terms, the funding was initially advanced by Scenic to Pacific andScenic's Group Finance Manager then sought repayment from Haydon 2 and ScenicInternational (which were, in turn, fully funded by Factors and Scenic). In addition,some expenses (insurance was given as an example) were paid directly by Scenic andthen "recharged" through Pacific.[24] Throughout 2012 negotiations continued, unsuccessfully, toward a formal jointventure agreement and agreement for the sale of the hotel to Pacific.[25] In 2013 there were adverse developments in the Tongan tourism industry. Theexisting airline servicing Tonga, Air Chathams, ceased operations as a result of anagreement reached between the Tongan Government and China for the provision of aplane to a rival airline. The New Zealand Government warned against flying on the16 The transfer was registered on 12 September 2011.17 The deed of assignment before the Court was executed by the receiver and Mrs Hagaman on behalfof Scenic Tonga.new plane because it was uncertified. Because the hotel was located close to theairport and relied to a significant extent on transit business, this was a significantconcern. In late 2013 another issue arose. Scenic became interested in the opportunityto acquire another hotel in Nuku'alofa. This reopened the question of a restraint oftrade clause, with Mr Haydon concerned about Scenic becoming involved in otherTongan hotels. Notwithstanding these problems the parties continued to negotiate.Factors exits the joint venture[26] In June 2014 Mr Haydon called Mrs Hagaman to say that an opportunity hadarisen for him to purchase another business. He talked about exiting the hotel ventureand having Scenic buy him out. Mrs Hagaman was prompted to obtain an indicativeassessment of the value of the hotel from Colliers, which had produced the 2009valuation. In August 2014 Mr Haydon wrote to Mrs Hagaman, floating the idea ofFactors continuing to fund the hotel for 10 years at 3 per cent interest, with the interestcapitalised, and Scenic buying Haydon 2's interest in Pacific for $2 million. Scenic'sresponse was negative. A few days later Colliers advised that its indicative assessmentof the hotel's value on a going concern basis was TOP2.5–$3 million, significantlyless than what Factors had paid.[27] Mrs Hagaman responded to Mr Haydon's email, commenting that "this isabout the worst time for you to want to exit the partnership", explaining: While we are building the business in line with the plan, it is still early daysand financially the company will experience another couple of years of losses.The recent assessment of the property value undertaken by [Colliers] wouldmean that any exit by you at this time would result in your equity (and ours)in [Pacific] having no value and you would need to write off a significantproportion of [the Factors] loan.[28] Mr Haydon responded that he was only "testing the water" as a result of theopportunity that had arisen in relation to the other business and concluded that as"there does not seem to be an acceptable way to exit for [Factors] and we havecommitted to Scenic and Tonga then that is our priority, to honour that commitment".[29] Towards the end of 2014, however, Mr Haydon became increasingly concernedabout the financial performance of the hotel. Mr Haydon questioned the financialreports being prepared by Scenic and in an email of 23 December 2014 Mrs Hagamanacknowledged that "numbers are very tight", that Scenic was "watching every penny"but that the real problem was "a lack of bums in beds rather than an overrun of costs".[30] Factors ceased contributing to the operating expenses, though did not giveformal notice to Scenic or Pacific of its intention to do so. In early 2015, with Scenic'sGroup Finance Manager signalling the need for further funding of Pacific, Mr Haydonadvised that he would not make further advances and was withdrawing from theoperation. On 26 March 2015, at a conference with Mrs Hagaman and Mr Taylor,Mr Haydon confirmed that Factors wanted to exit the venture.Pacific continues to trade while the parties negotiate Factors' exit terms[31] Efforts to negotiate a satisfactory exit arrangement were unsuccessful. Duringthose negotiations the parties took differing positions regarding the status of the jointventure and of the hotel. Notwithstanding Colliers' indicative assessment of thehotel's value at TOP2–3 million, Factors strongly maintained its view that Pacific wasindebted to it for $6.25 million. It was obvious that Pacific was not in a position torepay that amount. Factors was prepared to either leave the amount with Pacific asvendor finance or see the hotel sold at market value. In the latter case, however, itwould require the loss to be treated as a loss to Pacific and shared between theshareholders, Scenic International and Haydon 2.[32] At a meeting in August 2015 Mrs Hagaman asserted that Pacific was the ownerof the hotel and controlled the right to decide whether to sell it or not. At trial and onappeal Factors relied heavily on these statements. However, we view statements aboutthe legal position of the parties, made by a lay person in the context of negotiations,as of little probative value. Further, they are inconsistent with the fact that thenegotiations continued on the basis that a sale to Pacific was yet to be concluded.[33] From March 2015 Pacific continued to trade supported by Scenic.Mr Haydon's agreement to the placement of insurance was sought as his consent inhis capacity as a director of Pacific was needed. Otherwise, however, Factors playedno part in the hotel's operations. Nor did it seek rent for Pacific's ongoing use of thehotel. Factors was not provided with any financial or other reports relating to the hotelafter March 2015.[34] A formal valuation of the hotel by Colliers, on a going concern basis as at April2015, was TOP2.5–3.5 million. There were several reasons given for the significantdrop in value since 2009. Some were related to the market — the ongoing impact ofthe Global Financial Crisis had affected visitor forecasts, the departure of AirChathams had affected tourism and the impact of a newly refurbished hotel inNuku'alofa. Others were specific to the hotel itself — the ground lease had only 28years to run, there was extensive deferred maintenance and the hotel wasunderperforming.18[35] In February 2018 the hotel was badly damaged by Cyclone Gita. Scenic hadcontinued to insure the hotel in Pacific's name for material damage and businessinterruption and the policy responded to this event.19 Inexplicably, Scenic did notadvise Factors of either the damage or the insurance claim. In January 2019 the insurermade an offer of TOP5,032,644 (approximately $3.3 million) in settlement of bothmaterial damage and business interruption claims. Most of this related to the materialdamage claim and the insurer made an interim payment of TOP1,575,299.31 (theequivalent of $1 million) towards the material damage claim. Still Scenic did notadvise Factors.[36] In early 2019, without advising Factors, Scenic closed the hotel and removedthe hotel's chattels to New Zealand.[37] Factors finally learned of the cyclone damage, the insurance claim and theclosure of the hotel in March 2019, during preparation for trial. The interim insurancepayment is being held on trust; entitlement to the insurance moneys are the subject ofseparate proceedings in which Factors claims, in reliance on the Judge's finding of ajoint venture and declaration to that effect, that it is entitled to the funds.2018 Factors and Scenic cooperated in an initial effort to negotiate a new lease for 50 years but did notpursue it because of the price sought by the owner.19 First judgment, above n 6, at [14].20 The pleadings in the insurance proceedings were not before us.[38] Factors subsequently sold the hotel at a nominal amount, which Mr Dale KC,for Factors, described as a "fire sale".21The case in the High CourtThe pleadings[39] In its third amended statement of claim, Factors set out details of itsnegotiations with Scenic towards a contractual joint venture, the events leading to itswithdrawal of further funding and subsequent efforts to negotiate the terms on whichthe parties would disengage. It asserted that it was owed $6.25 million, plus interest,by the joint venture and had contributed a further $2,198,665. It referred to Scenic'scontributions during the course of the joint venture as $1,737,957.16 and notedScenic's claim to have contributed a further $1,848,208.32.[40] Factors pleaded three causes of action — estoppel, breach of concluded jointventure agreement and "partnership". The first cause of action, in estoppel, failed. Ithas no relevance to the issues arising in the appeal. The second cause of action restedon the assertion of a concluded joint venture and alleged that Scenic was in breach ofthe terms, including by refusing to acknowledge that Factors was entitled to anadjustment between the parties to reflect Factors' greater contributions. A declarationand an enquiry into Factors' losses were sought. The third cause of action repeatedthe same allegations and asserted that the parties had "entered into a partnership forthe purchase and operation of the Hotel". Factors pleaded the dissolution of thepartnership and sought declarations as to the partnership and its dissolution and anorder for the taking of accounts of the partnership.Factors applies to join Pacific[41] The trial was set down to begin on 1 April 2019. On 4 March 2019, Factorsreceived Mrs Hagaman's brief of evidence, together with further discovery. Fromthese documents it learned, for the first time, of the cyclone damage more than a yearbefore, the insurance policy in Pacific's name and the insurer's offer of approximately21 Mr Dale thought the sale price was either $100,000 or $65,000.$3.3 million. Further enquiries revealed that Mrs Hagaman was in negotiations withthe insurer in her capacity as a director of Pacific.[42] Factors applied to join Pacific as a defendant and amend its pleadings.22Initially, Factors proposed to seek Pacific's liquidation. After opposition on the groundthat joinder was unnecessary because Scenic International would agree to liquidation,Factors asserted that liquidation should be treated as a last resort to preserve tax lossesavailable to the shareholders. It maintained the application for joinder on the basisthat the question of liquidation should be left until the conclusion of the proceedingwhen the Court would be familiar with the issues between the parties.[43] The Judge refused the joinder application.23 He considered that the liquidationapplication would necessitate an adjournment of the trial, which was undesirable giventhat the case related to events then some 10 years old and the relief was sought partlyon equity and conscience.24 Further, he thought that Mr Haydon's wish to effectivelypark the liquidation application demonstrated that any liquidation application shouldbe pursued separately.25[44] With hindsight, it can be seen that it was an error not to join Pacific into theproceeding. On any view of the case, Pacific was a joint venture vehicle, and the onlysubstantial asset of the asserted joint venture was represented by the insurance claim.The parties' respective positions would have been better served dealing with that issuein the context of the existing proceedings.The first High Court judgment[45] In his judgment, delivered on 19 September 2019, the Judge recordedMr Dale's opening submissions on behalf of Factors:2647. The plaintiff has pleaded that the terms of the joint venture agreementwere actually agreed. However it recognises that the parties also22 Factors also sought to join Haydon 2 as a plaintiff but that aspect is not relevant to the appeal.23 Interlocutory judgment, above n 5, at [16] and [28(a)].24 At [16].25 At [17].26 First judgment, above n 6, at [141].agreed that those terms were to be reduced to writing and that theparties would not be bound until they had been signed. It does notfollow that there is no joint venture.50. The plaintiff says that consistent with the remarks of Tipping J [inChirnside v Fay] the test is whether the parties reached a pointwhere they had a common objective. Those negotiations were allbetween [Factors] and Scenic, and it is those parties which the plaintiffsays form the joint venture entity.52. Alternatively, if the Court concludes that the failure to execute thedocuments means there is no [joint venture] or partnership, it is stillopen to find in the estoppel cause of action that [Factors] relied uponScenic's assurances in committing to buy the hotel, would not havedone so but for those assurances, and that it has suffered loss as aconsequence.(Footnote omitted.)[46] The Judge held that the parties had not reached a binding contractualarrangement by 24 June 2011, when Factors tendered for the hotel.27 Nor had theyresolved outstanding material terms so as to reach a concluded joint venture agreementat any point thereafter.28 In relation to the second cause of action, the Judge consideredthat, to the extent the assertion of a "concluded joint venture agreement" was correctlyread as a cause of action in contract, it would fail for that reason.29 In relation to thethird cause of action the Judge held that the lack of any concluded contractualarrangement meant that a cause of action based on the assertion of a contractualpartnership must also fail for that reason.30 There is no challenge to either finding.[47] The Judge then turned to consider the possibility of a joint venture of the kinddescribed in Chirnside v Fay — a joint venture without any contractual basis —between Factors and Scenic.31 He prefaced his findings with observations about the"seismic shifting of the ground upon which [Factors] based its case" between its initialpleading and the trial.32 He noted that in 2016 Pacific was still running the hotel and27 At [191].28 At [191].29 At [221].30 At [229].31 At [232], citing Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [91]–[93] per Blanchardand Tipping JJ.32 At [238].appeared viable, with Scenic's ongoing support, though this would becomeincreasingly difficult, given the substantial advances needed for ongoing trading andthe unresolved issue of the terms on which Factors would exit the undertaking. By thetime the case came to trial the hotel had been closed and Pacific had no ongoingprospects.33 The Judge made the following observations:[242] At that point, [Factors'] aspiration of making (through this litigation)a significant recovery effectively disappeared, unless it had a right of actionin contract against Scenic (which I have found it does not). For completeness,I record that neither is the joint venture vehicle, [Pacific], indebted in contractor otherwise to [Factors] on account of the intended purchase price on thesale of the hotel to [Pacific]. It never entered into such a contract to purchase.In any event, [Factors] chose in this proceeding not to sue [Pacific] with theconsequence that even had I found (contrary to the finding I have made) that[Pacific] had become contractually indebted to [Factors] on account of theintended purchase price, relief in that regard could not be granted in thisproceeding against [Pacific].(Emphasis added.)[48] The Judge went on to conclude that:[244] a pre-contractual joint venture came to exist between [Factors] andScenic no later than June 2011 when [Factors] was successful in its tender forthe hotel. The context giving rise to the parties' mutual obligations was thatthey were working towards the hotel being purchased with the intention thatthat joint venture vehicle would buy the hotel from [Factors], [Factors] wouldbecome a mid-term financier of the [joint venture] company, and the [jointventure] company would be operated for the mid-term with a view toestablishing its financial viability to the point [Factor's] advances could berepaid. The parties then formed the [joint venture] company and caused the[joint venture] company to begin its operations, incurring the costs of re-establishing and then operating the hotel at significant cost to each shareholderentity.[245] In terms of Chirnside v Fay, a relationship of trust and confidencethereby arose, with each party entitled to expect from the other loyalty to thejoint cause. Neither was thereafter entitled to act solely in its own interests.[49] The Judge also determined the situation after Factors had ceased to contributeto the hotel operation. He recorded that it was common ground that the relationshipbetween Factors and Scenic had come to an end.34 He referred to Mrs Hagaman'sevidence that, as no documents had been signed, Mr Haydon could withdraw and ifnecessary the whole venture (including Pacific) could be wound up, but that Pacific33 At [240]–[241].34 At [248].would be insolvent without ongoing funding and she wanted to preserve the value thathad been built up and not risk damaging Scenic's reputation.35[50] The Judge found that the joint venture terminated with effect from 26 March2015 and after that date "the decision to continue to fund [Pacific] was, onMrs Hagaman's own evidence, a decision taken in the interests of Scenic and notdirectly in the interests of the previously jointly-interested two parties".36 The findingsare not under challenge.[51] The Judge indicated that he would make a declaration reflecting his finding asto the existence and duration of the joint venture and explained that:[253] The consequence of that declaration is that [Factors] and Scenic areentitled to be brought into account in the accounts of [Pacific] thecontributions made up to 26 March 2015 by or on behalf of Haydon 2 and[Scenic International] respectively. But for the period after 26 March 2015,when Scenic continued to fund [Pacific] for the reasons stated byMrs Hagaman in her evidence, Scenic was no longer funding [Pacific] as ajoint venture vehicle and will have no entitlement to bring the contributionsmade after 26 March 2015 into account.[52] The Judge then turned to consider whether the taking of an account should beordered. Relying on the statement in Chirnside that termination of a pre-contractualjoint venture proceeds by analogy to the termination of a formal partnership,37 theJudge concluded that:[260] Equally, the accounting between the pre-contractual joint venturepartners must proceed on the same basis in relation to the period during whichthe pre-contractual joint venture enured (that is, until 26 March 2015).Therefore, subject to the substitution of "Pacific Hotels Ltd", as thepre-contractual joint venture vehicle for the word "partnership", the reliefsought by [Factors] is the appropriate relief. There will be an order for thetaking of accounts of Pacific Hotels Ltd as the pre-contractual joint venturevehicle.[53] The terms of the order made required the insurance monies to be brought toaccount:3835 At [249]–[250].36 At [251].37 Chirnside v Fay, above n 31, at [92] per Blanchard and Tipping JJ.38 First judgment, above n 6, at [265(b)].(b) The plaintiff and first defendant are to procure the taking of accountsof Pacific Hotels Ltd, as their pre-contractual joint venture vehicle,for the period from incorporation to 26 March 2015, upon the basisthat all receipts from any insurance policy in relation to the hotel(whether received before or after 26 March 2015) shall be broughtinto account.The judgment is recalled[54] Scenic applied to have the judgment recalled on the basis that Factors had notsought relief in the terms ordered, namely the direction regarding how the insurancemoneys were to be treated and the period to which the account would relate. Sceniccomplained that it had not been put on notice that such relief as ordered might begranted.[55] The Judge accepted these submissions and directed that the judgment berecalled and reissued without reference to the order for the taking of accounts.39 Headjourned the proceeding for a further hearing on relief.The supplementary decision and final (reissued) decision[56] COVID-19 interrupted the planned timetable for the hearing on relief, whichdid not take place until July 2020.40 Scenic submitted that Factors had not actuallypleaded a pre-contractual joint venture. Further, there was no need for such relief nowthat the liquidation of Pacific was inevitable: Scenic and Scenic International hadgiven notice to Pacific requiring repayment of their advances and intended to placePacific in liquidation. Requiring an account would create undue complexity and theinsurance proceeds ought not to be included as an asset of the joint venture of the kindthe Judge had found to exist.[57] On 30 July 2020, the Judge delivered a "supplementary" decision in which heaccepted Scenic's argument:41[39] [Pacific] has not traded for some years. On the evidence adduced itappears to be insolvent. The shareholders are deadlocked.39 Recall judgment, above n 10, at [21(a)].40 By then Scenic had filed an appeal against the making of the declaration that there had existed apre-contractual joint venture between it and Factors but the hearing on relief proceeded on thebasis that the declaration was in force.41 Supplementary judgment, above n 11.[40] The appropriateness of a liquidation is apparent. A liquidation willbring benefits beyond those which the taking of accounts will achieve. It willimmediately move the shareholders of [Pacific] to a position where anindependent professional/s in the person of the liquidator/s will have thepower and responsibility to determine and get in the assets of [Pacific] and toresolve issues of liability. [41] I recognise, with rights of the parties resting on equitable principles,there may be issues which the liquidators themselves cannot resolve withoutCourt intervention but such would also be the position in relation to the takerof accounts.[58] The substantive decision was reissued, with the only relief a declaration in thesame terms as granted in the original judgment — that a pre-contractual joint venturebetween Factors and Scenic was terminated with effect from 26 March 2015.42Issue 1: the finding of a joint venture between Factors and ScenicDid the Judge err in recording Scenic's concession?[59] The Judge recorded Scenic's acceptance that:43[227] a limited, undocumented joint venture came into existence in thiscase, whereby the parties were working together to fund and manage the hotelin what was supposed to be the short term while they negotiated a contractualjoint venture agreement, a sale and purchase agreement and associatedagreements.[60] Mr Wass, who carried this aspect of the argument for Scenic, submitted thatalthough Scenic had always accepted the existence of a limited, undocumented jointventure between Haydon 2 and Scenic International, it had never accepted theexistence of such a relationship between it and Factors and the Judge had erred inrecording Scenic's position.[61] In its "mini-opening" in the High Court Scenic only acknowledged a jointventure relationship between Scenic International and Haydon 2. Factors' openingsubmissions in the High Court referred to Scenic's pleaded position as being that therewas no joint venture or partnership relationship, but that if there was a joint venturethe vehicle for that venture was Pacific and the joint venture partners would be42 Final substantive judgment, above n 12, at [255].43 Final substantive judgment, above n 12.Haydon 2 and Scenic International. We therefore accept the Judge erred in describingScenic's concession as he did.Did the pleading permit consideration of a joint venture?[62] Scenic argued that the pleadings did not permit the Judge to consider thepossibility of a joint venture between Factors and Scenic. Mr Wass submitted thatFactors had chosen to plead a concluded contractual arrangement and had not allegedany breach of fiduciary obligations. While he did not exclude the possibility of arelationship between Factors and Scenic that resulted in fiduciary obligations, such asan obligation not to take advantage of a valuable opportunity, Mr Wass distinguishedany such relationship from the basis on which the hotel was actually operated, whichhe maintained was undertaken by Scenic International and Haydon 2 through Pacific.[63] The pleading of partnership relied on the same facts as those relied on toestablish a contractual joint venture. It seems to us implicit that the pleading was oneof a non-contractual relationship. There was no purpose in seeking to establish acontractual partnership as well as a contractual joint venture. In our view the"partnership" pleading was directed towards the situation that would exist in theabsence of a concluded contractual joint venture. Further, the opening submissions onbehalf of Factors (referred to at [45] above) made it clear beyond doubt that this wasthe case being run. Although in Scenic's "mini-opening" in the High Court Scenicdisputed the parties to, and extent of, the joint venture asserted, there was no objectionto Factors advancing its case on that basis.[64] Nor do we see the use of "partnership" as opposed to "joint venture" asconclusive. The two categories of relationship are broadly defined and there will oftenbe a significant degree of overlap between them.44 At their core, both involve anassociation between two or more parties for the purpose of pursuing a common44 It has been suggested that a partnership is simply a specialised variety of joint venture: CommerceCommission v Fletcher Challenge Ltd [1989] 2 NZLR 554 (HC) at 616.commercial goal.45 Here the facts as pleaded asserted that the parties purchased andran the hotel, and both made capital contributions and contributions to the operatingcosts. Factors' reliance on a Chirnside style joint venture to support the third cause ofaction makes it clear that it was the existence of the relationship that was at stake, notthe label.[65] We therefore consider that the pleading was sufficient to permit considerationof the nature of the relationship between Factors and Scenic other than on a contractualbasis, including that it was a joint venture.Was the finding of a joint venture between Factors and Scenic open on the evidence?[66] We turn next to the question whether the Judge was right to conclude that ajoint venture existed between Factors and Scenic. Mr Smith, for Scenic, argued thatPacific received its funding from Haydon 2 and Scenic International and the fact thatthey, in turn, were funded by Factors and Scenic merely reflected the joint venturestructure the parties had agreed. He relied on Mrs Hagaman's evidence that whereScenic's interest was through a joint venture (as opposed to full ownership of a hotel)it deliberately structured its business to ensure that it is not exposed to liability forlosses incurred by the individual hotel business.[67] It is clear that the parties intended that their involvement in the proposedcontractual joint venture would be on the basis of subsidiaries incorporated for thatpurpose. However, they also intended that the joint venture based on this model wouldnot come into existence until the formal documentation was executed. Since that didnot happen, it cannot be said that the basis on which the parties actually conductedthemselves was based on that model. We accept that the funding of the hotel'soperating expenses was made by Factors and Scenic through Haydon 2 and ScenicInternational. However, other essential aspects of the hotel's operations were arranged45 Jessica Palmer and Charles Rickett "Joint Ventures and Fiduciary Law" in Maree Chetwin andPhilip A Joseph (eds) Joint Ventures Law (The Centre for Commercial and Corporate Law,Christchurch, 2008) 81 at 81–82. Joint ventures are typically distinguished from partnerships onthe basis that the former tends to have a specific object, such as the exploitation of a naturalresource, while the latter involves a more general, ongoing commercial arrangement. Howeverthis distinction is not always conclusive; the categorisation of the relationship is ultimately amatter of substance and intention: Commerce Commission v Fletcher Challenge Ltd, above n 44at 616.or funded by Factors and Scenic directly, notwithstanding the lack of a concludedagreement.[68] First, and most obviously, Factors provided the hotel. The terms on which itdid so are in dispute but the important point is that the hotel was the raison d'être ofthe planned joint venture and only Factors was capable of providing it. Haydon 2 hadno part to play in that aspect. On the evidence, the only available conclusion was thatFactors was a party to the joint venture.[69] Secondly, management of the hotel was provided by Scenic Tonga at thebehest, and cost, of Scenic. Scenic Tonga was a Scenic subsidiary, unrelated to ScenicInternational, except through the common ownership of Scenic. Under the interimhotel management agreement with the receiver dated 6 May 2011 Scenic Tonga didnot charge any management fee.46 The receiver assigned the interim agreement toFactors, and although there was no further assignment from Factors to Pacific, ScenicTonga continued to manage the hotel after Pacific began trading in 2012. Whilenegotiations for the permanent hotel management agreement contemplated a fee basedon a percentage of gross revenue, with management fees and interest payments on thevendor finance loan initially frozen to support the venture in the early stages, it appearsthat management services continued to be provided on the same terms as the interimhotel management agreement. The provision of management services by ScenicTonga at no cost can only be viewed as a contribution by Scenic itself to the jointventure.[70] Thirdly, the insurance arrangements are consistent with Scenic, rather thanScenic International, being a joint venture partner. Scenic was a substantialproperty-owning company in its own right, with expert advice available regarding allproperty matters including insurance. On Mrs Hagaman's evidence, Scenic arrangedmaterial damage and business interruption insurance over the hotel in anticipation thatPacific would ultimately own the hotel. However, although Scenic went to some careto avoid any commitment to costs until the joint venture had been formalised, it46 Although a monthly management fee was included in the first draft of the interim hotelmanagement agreement, Scenic ultimately agreed that no fee would be charged on the basis thatif Factors' tender was accepted, the cost would represent Scenic's contribution on entry to the jointventure.arranged the initial insurance over the hotel and paid the premium of $202,375 inDecember 2011, before Pacific had even been incorporated.47 Scenic International,incorporated to act as Pacific's shareholder, had no role until Pacific was incorporated.[71] It is not clear who the named insured was when the cover was first placed. Itwould be usual for an underwriter to seek details of the owner of the property whenaccepting a new risk, yet Factors seems not to have played any active part in theprocess. After Pacific was incorporated it appears always to have been the namedinsured, with no mention of Factors or its interests.[72] In an affidavit filed a few weeks before the trial in opposition to Factors'joinder application Mrs Hagaman explained that she was now concerned that it mightnot be appropriate for Pacific to retain the proceeds of the material damage insuranceif it did not own the hotel. She planned to advise the insurer of the current position.[73] In our view, there was an operating joint venture between Factors and Scenic.Broadly, it proceeded on the basis that Factors provided the hotel (we deal with thebasis on which it did so later), Scenic provided the hotel management services andPacific was used as the vehicle by which the hotel traded. It is not necessary, for thepurposes of the appeal, to determine what specific obligations the parties owed oneanother.[74] The Judge was correct, on the evidence, to find that a joint venture relationshipexisted between Factors and Scenic. This ground of cross appeal therefore fails.Issue 2: the finding that Pacific was not indebted to Factors for $2.65 million[75] At the conclusion of the argument before us, Factors' position was essentiallythat it had contributed the hotel to the joint venture at an agreed value of $6.25 million,and in the ultimate accounting that contribution must be recognised alongside the othercontributions made by both it and Scenic to the hotel's operation. It was accepted that47 Scenic's payment of the premium prompted Mr Haydon to express his surprise and satisfaction atthe "show of good faith" from Scenic. It seems that Scenic later asked for full reimbursement ofthe premium on the basis that an adjustment could be made after the joint venture was formallyagreed.there had been no sale of the hotel. The exact means by which the joint venture mighthave acquired the hotel in equity were not identified in either the pleadings orsubmissions.[76] We are satisfied Factors did not intend to, and did not, part with its beneficialinterest in the hotel. On the evidence, it allowed Pacific to occupy the hotel rent-freeduring the period of the joint venture. However, there is no evidence that Pacific paidthe ground rent for the leasehold or otherwise took any step consistent with anequitable interest in the hotel. Leaving aside its support of the operating expenses,Factors' contribution to the joint venture was simply the use of the hotel, without more.Thus, the parties conducted the joint venture on the basis that Factors allowed Pacificto occupy the hotel and Scenic provided the management services through ScenicTonga and both contributed to the operating expenses.[77] It is arguable that during the course of the joint venture, Pacific's occupationof the hotel constituted a licence for the purposes of pt 4 of the Property Law Act 2007.However, this possibility arose in the course of argument and was not developed. Inany event, while the use of the hotel and the provision of management servicesundoubtedly had a value, there is no evidence that the parties intended to put a dollarfigure on them for the purposes of the joint venture relationship.[78] After Factors withdrew from the joint venture, as the Judge held, Scenic wastrading on its own behalf. Nevertheless, Factors allowed Pacific to continue to occupythe hotel, rent-free. This was, necessarily, unconnected to the joint venture. Itundoubtedly reflected the reality that it was in the interests of both parties for Pacificto continue trading while they negotiated the terms of Factors' exit and Pacific wasnot in a position to pay rent. We are satisfied that, however the occupation of the hotelis viewed, it did not result in the joint venture, or Pacific itself, acquiring any interestthat could have resulted in it being indebted to Factors.[79] Further, although the parties took differing positions during the exitnegotiations as to whether Factors was entitled to sell the hotel, ultimately there wasan acceptance that it had the right to do so and that is what happened. Factors was,unquestionably, in a difficult position once Scenic closed the hotel and departed Tonga,but it was still the leaseholder and it sold the lease, apparently without any consultationwith or interest from Scenic or Pacific.[80] The Judge was correct in his conclusion that Pacific was not indebted toFactors for $6.25 million. This ground of appeal therefore fails.Issue 3: reliefDid the lack of any asserted breach preclude consideration of a declaration or anaccounting?[81] Mr Wass submitted that the existence of a joint venture between the partieswould create fiduciary obligations and that the failure by Factors to allege any breachof such obligations precluded relief being granted in the form of a declaration or anaccounting.[82] We do not accept this submission. A declaration simply pronounces upon theexistence or non-existence of a legal state of affairs; it is not enforceable against adefendant.48 Damage or infringement are not, therefore, prerequisites to theavailability of declaratory relief.49 The declarations sought in relation to this cause ofaction did not depend on breach of any obligation being pleaded.[83] Nor did the taking of an account require proof of any breach. The taking of anaccount has been described by this Court as neither a cause of action nor a remedy, butrather a preliminary exercise by which means a claimant can establish an evidentiarybasis for the imposition of some form of liability on a defendant.50 It is availablewhere a duty to account arises and the Court needs only to be satisfied that such anobligation exists.51 Partners owe one another a duty to account,52 and the taking offinal accounts typically follows the dissolution of a partnership.53 Joint venturers who48 Lord Woolf, Jeremy Woolf and Lord Eassie Zamir & Woolf: The Declaratory Judgment (4th ed,Sweet & Maxwell, London, 2011) at [1–02].49 At [1–12].50 Nicholls v Nicholls [2020] NZCA 346 at [76], citing Mitchell McInnes "Account of Profits forCommon Law Wrongs" in Simon Degeling and James Edelman (eds) Equity in Commercial Law(Lawbook Co, Sydney, 2005) 405 at 407.51 King v Library Covers (NZ) Ltd [1951] NZLR 133 (SC) at 134.52 Partnership Law Act 2019, s 54.53 Section 76. See also PRH Webb and Anthony Molloy Principles of the Law of Partnership (6thed, Butterworths, Wellington, 1996) at [5.152].have yet to reach formal agreement may also owe a duty to account on the basis thatthe relationship is analogous to that of a partnership. The following observations ofBlanchard and Tipping JJ in Chirnside are apt:54[91] A joint venture will come into being once the parties haveproceeded to the point where, pursuant to their arrangement or understanding,they are depending on each other to make progress towards the commonobjective. Each party is then proceeding on the basis that he or she is actingin the interests of all or both parties involved in the arrangement orunderstanding. A relationship of trust and confidence thereby arises; eachparty is entitled to expect from the others loyalty to the joint cause, loose asthe formalities of the joint venture may still be. [92] Because there is, as yet, no contract between the joint ventureparties, each will ordinarily be free to withdraw, on giving the other notice tothat effect. On the giving of that notice duties of loyalty for the future willcome to an end but confidentiality obligations may remain; and any assets,tangible or intangible, held on behalf of the joint venture will still usually beheld on trust for both the erstwhile joint venturers. Appropriate steps will benecessary to agree, or obtain some external resolution as to how those assetsare to be dealt with. There is, in a general sense, some analogy with the stepsnecessary when a formal partnership is dissolved.[93] The point, in short, is that joint ventures, like partnerships, cangenerally be brought to an end by appropriate notice. The previous jointventurers must, however, still act equitably towards each other in the stepsnecessary to bring the affairs of the joint venture to a conclusion which is fairto all concerned. The further the joint venture has progressed the morecomplex those obligations may be. In the absence of contractual regulation,equitable principles will supply the solution.(Footnote omitted and emphasis added.)[84] This ground of cross-appeal fails.Did the Judge err in declining to order the taking of an account of the joint venture?[85] Factors submitted that the liquidation of Pacific is an inappropriate means ofresolving the issues between the parties and the Judge therefore erred in declining toorder the taking of an account of the joint venture. Specifically, he pointed to the needto determine the precise terms of the joint venture, and the nature of the obligationsowed by the joint venture parties to one another during and after the joint venture. Inaddition, entitlement to the insurance moneys must be resolved. Mr Dale argued thatan accounting, supervised by the trial judge, was the most efficient means of resolving54 Chirnside v Fay, above n 31.the outstanding issues and avoid the risk of inconsistent findings in the separateproceedings brought to determine entitlement to the insurance moneys.[86] Mr Smith's response was that, no matter who the parties to the joint venturewere, any party who had a claim against Pacific could prove in its liquidation, thusensuring that all issues between the parties would be addressed. Likewise, allcontributions to the joint venture could be addressed in the liquidation, with partiesproving any debt claimed. The liquidation process would also adequately addressclaims relating to transactions in the period following the termination of the jointventure. To the extent there is dispute over the distribution of the insurance proceeds,Mr Smith submitted that the liquidators could seek directions from the Court.[87] We have concluded that the joint venture (which included Pacific) did notacquire any interest in the hotel. The questions for determination now are the parties'advances to Pacific during the periods of the joint venture and entitlement to theinsurance proceeds. The advances made during the period of the joint venture couldbe addressed readily either through the taking of an account or in the context ofPacific's liquidation. The entitlement to the insurance moneys is more difficult.[88] We have concluded that Factors was the legal and beneficial owner of the hotelat all times — during and after the joint venture — up until the hotel was finally sold.However, apart from use of the hotel rent-free, the terms on which Pacific occupiedthe hotel after the joint venture and the parties' obligations during that period have notbeen explored. These include any obligation on Factors to insure the hotel and itsobligations regarding the insurance moneys payable under the policy.[89] The taking of an account of the joint venture is not the appropriate means fordetermining these outstanding issues because, self-evidently, they post-date the jointventure relationship. The insurance issues will be determined in the separateproceedings brought for that purpose. We acknowledge Mr Dale's understandableconcern at the possibility of inconsistent outcomes in the two proceedings; althoughthe findings in this appeal are binding on Scenic, strictly, our conclusions are notbinding on Pacific's liquidators. However, that fact cannot lead to relief being giventhat would be ineffective to resolve the outstanding issues.[90] We therefore find that there was no error in the Judge declining to order thetaking of an account. This ground of appeal fails.Appeal against the costs judgmentThe costs judgment[91] In the High Court, Factors maintained that:(a) it was entitled to recognition in costs because it had successfullyestablished the existence of a joint venture relationship between it andScenic and that an adjustment to the parties' respective positions wasrequired, even if the mechanism for that adjustment was not the one ithad sought;(b) costs on the recall should lie where they fell because they were incurredas a result of error by the Court; and(c) Scenic should be disentitled to costs because of its late disclosure of theinsurance policy.[92] The Judge treated Scenic as the successful party on the basis that, althoughFactors had succeeded in establishing a joint venture between it and Scenic andsecured a declaration to that effect, it had nevertheless failed on all three causes ofaction and costs should follow the event.55 The Judge also held that costs shouldfollow the event in relation to the recall of the first judgment.56 The Judge did,however, allow a five per cent reduction of the costs associated with the preparationfor the trial and the trial itself as a result of Scenic's late disclosure of informationabout the insurance arrangements. The Judge considered this late disclosure had asmall impact on the way the issues were explored at trial.5755 Costs judgment, above n 13, at [10]–[11].56 At [18].57 At [24].Appeal[93] We start by noting that the fixing of costs involves the exercise of a discretion,albeit one to be exercised in accordance with well-recognised principles.58 As a result,an appellate court will not interfere with a costs award unless it is satisfied that thejudge acted on a wrong principle, failed to take into account a relevant consideration,took into account an irrelevant consideration or was plainly wrong.59[94] On the first issue (whether Factors' success in establishing the joint ventureshould have been recognised in costs) Factors argues that it should be entitled to costsbecause it had shown that the parties were in a business relationship that had beenvalidly terminated in March 2015 and that an adjustment of their respective positionswas required. The fact that it was refused the relief it sought (taking of an account)was solely due to the Court's view that the preferable forum for determining theparties' entitlements was Pacific's liquidation.[95] Scenic does not accept this argument. It points out that all three of Factors'pleaded causes of action failed, by a substantial margin. No contractual relationshipexisted. No pre-contractual joint venture was pleaded. There was therefore no basison which to treat Factors as successful for the purposes of costs.[96] In treating Scenic as the entirely successful party, the Judge made no referenceto r 14.7(d) of the High Court Rules 2016. Rule 14.7(d) provides that a court mayrefuse costs or reduce a costs award where, although the party claiming costssucceeded overall, it failed in relation to a cause of action or an issue whichsignificantly increased the costs of the party opposing costs. In our view the failure toconsider r 14.7(d) was an error. It is evident that a good deal of time was spent in theHigh Court addressing the nature of the relationship between the parties. Numerousdocuments were produced, substantial evidence was given, and extensive submissionswere made in an effort to determine the issue. As we have held, the fact that Factorsowned the hotel throughout and that Scenic provided the management services58 Kinney v Pardington [2021] NZCA 174 at [1]; and Shirley v Wairarapa District Health Board[2006] NZSC 63, [2006] 3 NZLR 523 at [15]–[17].59 Shirley v Wairarapa District Health Board, above n 58, at [15].throughout meant, inevitably, that they were parties to the joint venture. Yet in theHigh Court (and before us) Scenic forcefully maintained that a joint venturerelationship existed only between the parties' respective subsidiaries, which were notparties to the litigation. Had Scenic accepted the existence of a joint venture betweenitself and Factors the Court could have focussed on the terms and implications of thatarrangement and the ambit of the trial would have been much narrower. As a result,consideration should have been given to a reduction in costs under r 14(7)(d).[97] The second issue (whether the costs associated with the recall should havefollowed the event) overlaps with the third issue (whether Scenic should be disentitledto costs because of the position it took in relation to the joinder of Pacific and its latedisclosure of the insurance claim).[98] In addressing the impact of Scenic's late disclosure of the insurance policy andclaim on the trial, the Judge properly considered the application of r 14.7(f)(iv) and(g) of the High Court Rules and made a reduction that reflected his assessment of thatimpact.60 Usually, an appellate court would not interfere with such an assessment.However, it is apparent to us that Scenic's failure to disclose the insurance policy andclaim at an earlier stage had a much more significant impact than the Judge recognised,because of its effect on the recall of the first judgment. As a result, the Judge failed totake a relevant consideration into account in making his assessment.[99] Factors says that Scenic's conduct in relation to the insurance policy and claimprecluded an important issue being determined at the trial, thereby creating a risk ofinconsistent findings on the status of the insurance money. Scenic responds that theexistence of the insurance policy was disclosed in Mrs Hagaman's brief of evidencein accordance with the agreed timetable. We do not see this fact as helpful to Scenic;it will be clear from our reasoning regarding the joint venture relationship that theinsurance policy was relevant to the central issue in the trial. The policy and the claimshould have been disclosed well before Mrs Hagaman filed her brief. If that had beendone, many of the difficulties that beset this case could have been avoided. At theleast, disclosure of them would have assisted in determining the existence of the joint60 Costs judgment, above n 13, at [23]–[24].venture. Scenic also relies on the fact that Factors' interlocutory applications to joinPacific and amend its pleadings were substantially unsuccessful and not the subject ofany appeal. Again, this is not helpful to Scenic. Scenic had resisted Factors' attemptto join Pacific and, realistically, there was no prospect of Factors retaining its trial dateif it pursued an appeal against the refusal to join Pacific.[100] Nevertheless, the impact of the insurance policy and claim was felt; the Judge'smisapprehension regarding relief was grounded in the relevance of the insuranceproceeds, and the terms on which the recall was allowed permitted this issue to beaddressed. The recall was granted on the basis that neither party had been put onnotice that the Judge was contemplating the order ultimately made.61 The Judgeconsidered that allowing the parties the opportunity to present submissions aboutwhether there should have been a grant of relief at all was a very special reason thatrequired that judgment to be recalled.62[101] Factors had opposed the recall, in part due to concern it would open up issuesoutside the ambit of the original trial. This concern was well-founded. The recallconsiderably extended the life of the proceedings in the High Court, requiring furtherevidence, written submissions and another hearing, and resulting in the supplementarydecision. This further evidence included an explanation by Mrs Hagaman of thehistory and detail of the insurance arrangements, and a statement produced byPeter Rhodes, Scenic's Group Finance Manager, of Pacific's financial position as at26 March 2015.[102] These matters were relevant to the question of costs. They should have beenrecognised in the assessment of impact that Scenic's conduct had on the case. Aprincipled response could have been either a larger reduction in the costs awarded toScenic or an order that the costs connected to the recall should lie where they fell.That is a matter properly considered afresh by the Judge.61 Recall judgment, above n 10, at [16].62 At [20], citing Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633.[103] The appeal against the costs judgment therefore succeeds. The issue of costsin the High Court is to be remitted to the High Court for reconsideration on the basisof the findings in this judgment.Result[104] We have concluded that:(a) A joint venture existed between Factors and Scenic between June 2011and 26 March 2015.(b) Pacific is not indebted to Factors for $6.25 million for the purchase ofthe hotel or on any other basis.(c) The Judge was entitled to make the declaration as to the existence ofthe joint venture.(d) The Judge did not err in declining to order the taking of an account.(e) The Judge erred in fixing costs.[105] Therefore:(a) The appeal against the final substantive judgment is dismissed.(b) The cross-appeal against the final substantive judgment is dismissed.(c) The appeal against the costs judgment is allowed. We remit the issueof costs to the High Court for determination.Costs on appeal[106] Given that neither party has succeeded in the appeal and cross-appeal againstthe final substantive judgment, we make no order for costs on those appeals.[107] Factors has succeeded on its appeal against the costs judgment. However, thatappeal took little time at the hearing and, as a result of unfortunate omissions in thesubmissions, a recall of this judgment was necessitated to address the issue properly.In the circumstances, we make no order for costs on this appeal.Solicitors:Kootelle, Auckland for AppellantMeares Williams, Christchurch for Respondent