PHILLIPS V NGATI TAMA CUSTODIAN TRUSTEE LIMITED COA CA534/2011

PHILLIPS V NGATI TAMA CUSTODIAN TRUSTEE LIMITED COA CA534/2011 15 December 2011IN THE COURT OF APPEAL OF NEW ZEALANDCA534/2011[2011] NZCA 650BETWEEN DAVID WILLIAM PHILLIPSFirst AppellantAND OPEN GROUP LIMITEDSecond AppellantAND MVH GROUP LIMITEDThird AppellantAND NGATI TAMA CUSTODIAN TRUSTEELIMITEDFirst RespondentAND RODNEY IVAN MARTINSecond RespondentAND GREGORY LLOYD WHITEThird RespondentAND TE RUNANGA O NGATI TAMAFourth RespondentAND THE CUSTODIANS AND ELDERS ANDTRUSTEES OF NGATI TAMA IWIFifth RespondentAND HOMESOFT GROUP PTY LIMITEDSixth RespondentCA681/2011AND BETWEEN DAVID WILLIAM PHILLIPSAppellantAND NGATI TAMA CUSTODIAN TRUSTEELIMITEDFirst RespondentAND RODNEY IVAN MARTINSecond RespondentAND GREGORY LLOYD WHITEThird RespondentAND TE RUNANGA O NGATI TAMAFourth RespondentAND THE CUSTODIANS AND ELDERS ANDTRUSTEES OF NGATI TAMA IWIFifth RespondentAND HOMESOFT GROUP PTY LIMITEDSixth RespondentHearing: 16 November 2011Court: Arnold, Harrison and Fogarty JJCounsel: Mr D W Phillips in PersonD M Hughes and L M Van for First, Third, Fourth, Fifth and SixthRespondentsJ P Nolen for Second RespondentJudgment: 15 December 2011 at 10:30 AMJUDGMENT OF THE COURTA The "no appeal" agreement precludes Mr Phillips and the otherappellants from maintaining the appeal in CA 534/2011. Accordingly, that appeal is struck out.B The appeal in CA 681/2011 is dismissed.C The appellants are jointly and severally liable to pay the first, third, fourth, fifth and sixth respondents costs for a standard appeal on a band A basis plus usual disbursements.D The appellants are jointly and severally liable to pay the second respondent costs for a standard appeal on a band A basis plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Arnold J)Background[1] The principal issue in these appeals concerns the effect of a "no appeal"agreement. The background is that a dispute arose concerning the rights to a computer software programme known as My Virtual Home. The primary disputants are My Virtual Home International Ltd (in receivership and liquidation) (MVHI) and Ngati Tama Custodian Trustee Ltd (Ngati Tama). Parties associated with each are also involved, in particular Mr David Phillips on the MVHI side.[2] For present purposes, the details of this dispute are not relevant. It is sufficient to say that MVHI, Mr Phillips and two other companies of which he is a director, Open Group Ltd (Open) and MVH Group Ltd (MVH Group), were parties to proceedings against Ngati Tama and five other defendants (the respondents in this Court). After a series of interlocutory hearings, Heath J directed that three questions be determined as preliminary questions. The reason for this was that the liquidators of MVHI had prepared a report which made it plain that the ownership of certain intellectual property, including licences and source codes, was a central issue requiring prompt resolution:We note with concern that due to the nature of the primary assets under dispute (being software) and the potential for it to become obsolete over time without continued investment, urgent resolution is required by the court to determine the ownership of such assets and the validity of said agreements.[3] To facilitate progress, all relevant parties were joined to the present proceedings and agreement was reached that the central issue should be determined in advance of trial. The parties agreed that the three preliminary questions would bedealt with on a "no appeal" basis. As we understand it, it was not anticipated that the answers to these questions would resolve the substantive proceedings entirely. Rather, they would remain alive in some respects, in particular in relation to a claim for damages.[4] Venning J addressed the three preliminary questions in a judgment delivered on 3 August 2011, following a five day hearing and the filing of supplementary submissions.1 At the hearing, MVHI, Open and MVH Group were represented by Mr Orlov and Mr Phillips represented himself. All the respondents except the second respondent, Mr Martin, were represented by Mr Hughes and Ms Van Houtte. Mr Martin was represented by Mr Nolen. In essence, the questions were answered favourably to the defendants/respondents.[5] On 31 August 2011, Mr Phillips filed an appeal on behalf of himself, Open and MVH Group against the decision of Venning J. This is CA 534/2011.[6] Following this, Venning J dealt with costs in a judgment delivered on 16 September 2011.2 He made orders against Mr Phillips and the three other plaintiffs jointly and severally, awarding a single amount of $57,152 in respect of all the defendants except Mr Martin and the sum of $37,662.66 to Mr Martin. We willexplain the Judge‟s reasoning later in this judgment.[7] On 12 October 2011, Mr Phillips filed an appeal in his own name against the costs judgment. That is CA 681/2011. Mr Phillips also applied for a stay of execution pending resolution of the costs appeal. In a minute dated 14 October 2011, Arnold J said:[3] It seems to me preferable that the Court deal with the costs appeal as a matter of urgency rather than deal with the stay application. In that context the Court could address the jurisdictional point, namely whether the costs and/or substantive appeals are precluded by the "no appeal" agreement.The parties were invited to indicate whether or not they were prepared to deal with the matter in that way. As they were agreeable, we heard argument on this basis on 16 November 2001.1 My Virtual Home International Ltd (in rec and liq) v Ngati Tama Custodian Trustee Ltd HCAuckland CIV-2009-443-548, 3 August 2011 [the substantive judgment].2 My Virtual Home International Ltd (in rec and liq) v Ngati Tama Custodian Trustee Ltd HCAuckland CIV-2009-443-548, 16 September 2011 [the costs judgment].An application for adjournment[8] On the morning of the hearing, we received what was, in effect, an application for adjournment on behalf of Open and MVH Group. The application was filed by Ms Pender. She advised that she had been instructed the previous afternoon by Mr Phillips to act for Open and MVH Group on the appeals and that, as a result of unforeseen transportation difficulties, Mr Phillips had not been able to brief her on the issues.[9] Ms Pender appeared at the hearing, with Ms McMillan, to support the application. We indicated to her that we were not prepared to adjourn the hearing given the background previously described. We considered that Mr Phillips had had sufficient time to make arrangements for the representation of Open and MVH Group but had not done so in a timely way. We also considered that it would unfairly prejudice the respondents if we were to adjourn the hearing at such a late stage. Ms Pender indicated that, in these circumstances, she and Ms McMillan would not formally appear for Open and MVH Group, but asked whether they might sit through the argument as they expected that they would be instructed in relation to the remainder of the substantive proceedings. We agreed to this request.The "no appeal" agreement[10] We begin by describing in more detail the background to the "no appeal"agreement.[11] In his minute of 27 October 2010, Heath J identified the need to "determinepromptly the ownership of a source code and software which is in dispute among theparties to the present proceeding". He then went on to say:[2] After constructive discussion this morning, an agreement has been reached that three questions can be tried as preliminary issues to resolve that question of ownership.[3] The parties for whom Mr Hughes acts have also indicated awillingness to enter into a "no appeal" agreement in respect of those three questions. Such an agreement would only be binding if all parties to the current litigation agreed. The parties for whom Mr Orlov appears, Mr Phillips and Mr Martin shall have until 10 November 2010 to considertheir position. If the preliminary questions are to be determined on a "no appeal" basis, a memorandum confirming that agreement shall be filed by5pm on 10 November 2010.The Judge ordered under r 10.15(a) of the High Court Rules that the three questions be determined as preliminary questions.[12] On 10 November 2010 Mr Hughes (for all respondents except Mr Martin) filed a memorandum for Heath J, two paragraphs of which read:2 In paragraph 3 of your Minute [of 27 October 2010] you directed the parties to file a memorandum if it was agreed that the preliminary questions are to be determined on a „no appeal‟ basis. We confirmthat the first, third, fourth, fifth and sixth defendants are prepared to proceed on that basis.3 We have received an email from [Mr Phillips] today confirming thatthe plaintiffs also agree to proceed on a „no appeal‟ basis.Unfortunately Mr Orlov is out of the country until tomorrow and therefore unable to sign a joint memorandum today. Likewise, Mr Phillips is out of Auckland until the weekend. Therefore we are filing this memorandum on behalf of the first, third, fourth, fifth and sixth defendants and have provided a copy to the plaintiffs.[13] The joint memorandum read:1 Counsel refer to Your Honour‟s Minute (No 6) dated 27 October 2010 and to the hearing set down for 5 days commencing on 28 March 2011.2 In paragraph 3 of Your Honour‟s Minute you directed the parties tofile a memorandum if it was agreed that the preliminary questionsare to be determined on a „no appeal‟ basis.3 All parties confirm that they are prepared to proceed on that basis.There were then spaces for counsel and Mr Phillips to sign.[14] There are two copies of the joint memorandum in the record before us, one signed by Mr Hughes and Mr Nolen and one signed by Mr Orlov, Mr Phillips and Mr Hughes. What is clear from them is that all parties, through their representativesor personally, agreed to the preliminary questions being dealt with on a "no appeal"basis. That was certainly what Venning J understood to be the position.33 See [4] of the substantive judgment.[15] As we see it, two issues arise: are such agreements enforceable in principle? And, if so, what is the scope of the present agreement?(i) Are "no appeal" agreements enforceable in principle?[16] With the exception of decisions on appeals from inferior courts, there is a statutory right of appeal from a decision of the High Court to this Court.4Nevertheless, we consider it is clear that the parties can enter into an enforceable agreement that the decision of the High Court in a particular matter will be final. We say this for two reasons:(a) In Australian Temperance & General Mutual Life Assurance Society Ltd v Johnson5 this Court held that such an agreement was enforceable. In that case the appellant insurance company had issued an insurance policy which provided that "[a]ny decision of the Supreme Court of New Zealand [now the High Court] in regard tothis policy will be accepted by the Society as final". This Court heldthat the company was bound by that clause to accept a decision of the Supreme Court and could not appeal it.6(b) There is statutory recognition of "no appeal" agreements. Inparticular:Section 24E of the Judicature Act 1908 provides that the parties to any proceedings entered onto the commercial list may agree that the decision of the High Court shall be final.Section 73 of the District Courts Act 1947 provides that decisions of the District Court cannot be appealed to the High Court if the parties have agreed in writing that the decision of the District Court will be binding on them. Rule 13.1 of the4 Judicature Act 1908, ss 66 and 67. See also Siemer v Heron [2011] NZSC 133.5 Australian Temperance & General Mutual Life Assurance Society Ltd v Johnson [1933] NZLR408 (CA).6 Per Myers CJ at 454, MacGregor J at 462–463, Ostler J at 465 and Smith J at 467–468.District Courts Rules provides that an agreement not to appeal must be in a scheduled form and must be filed in court before trial.Rule 7.8 of the High Court Rules provides for a Judge to give directions about the recording of agreements to exclude or limit any right of appeal.7These provisions recognise that parties to litigation may agree in advance to forgo their statutory appeal rights and accept the decision of the trial court as final.[17] In the written material that Mr Phillips filed, he suggested that he had beencoerced into entering into the "no appeal" agreement. In argument before us,however, it became clear that his point was that he and the other plaintiffs entered into the agreement because they considered that they had no other viable option given the commercial exigencies which they faced. He went on to submit that the Court was unwilling to give the parties a hearing on the preliminary questions unlessthey entered into the "no appeal" agreement. Mr Hughes disputed that, arguing that the record does not bear Mr Phillips‟ claim out.[18] We accept Mr Hughes‟ submissions on this point. It is clear from Heath J‟sminute of 27 October 2010 that the Judge ordered the hearing of the preliminary questions before he knew whether or not the parties were prepared to enter a "no appeal" agreement. From the Judge‟s perspective, the making of such an agreementwas up to the parties and his order in relation to the preliminary questions was in no way dependent upon an agreement being made.[19] It may be that Mr Phillips and the other plaintiffs felt that, in the circumstances they were facing, there was little realistic alternative other than toagree to a hearing of the preliminary questions and to do so on a "no appeal" basis.But that does not mean that they can now have the agreement put to one side.7 This is in the context of the Judge‟s obligation under r 7.7 to seek admission or agreements at acase management conference.Commercial parties often enter into agreements because they believe that in the particular circumstances they have no viable alternative but to do so. That does not render the resulting agreements unenforceable, however.[20] We consider that the "no appeal" agreement is binding and enforceable. As aconsequence, Mr Phillips and his fellow plaintiffs are not entitled to appeal againstVenning J‟s decision on the three preliminary questions. The appeal in CA 534/2011 cannot therefore proceed.(ii) What is the scope of the "no appeal" agreement?[21] Mr Hughes argued that the "no appeal" agreement covered not only thedetermination of the preliminary questions but also the resulting costs decision. Mr Phillips contested this. We consider that Mr Phillips is right on this point.[22] The agreement refers only to the preliminary questions being determined on a"no appeal" basis. It does not refer to any resulting costs decision. We consider that before it can be shown that a party has agreed to forego a right of appeal, there must be either clear language or a necessary inference to that effect. Here there is no clear language nor do we consider that it can be logically inferred from the agreement not to appeal the High Court‟s determination of the preliminary questions that there wasalso an agreement not to appeal any resulting costs decision. The reason for the agreement in relation to the preliminary questions was that the circumstances in which the parties found themselves required that there be a prompt and decisive determination of rights in relation to the source code and software. That same imperative did not apply in relation to any decision as to costs.[23] Accordingly, we find that the "no appeal" agreement does not apply to Venning J‟s costs judgment.The merits of the costs appeal[24] At the conclusion of his judgment on the preliminary questions, Venning J said that costs should follow the event. He went on to say that, if the parties wereunable to agree costs, they should file memoranda by specified dates. As the parties were unable to agree, memoranda were filed. Mr Phillips filed extensive submissions and sought an oral hearing. Venning J refused to have an oral hearing and dealt with the matter on the papers.[25] Mr Phillips had argued that he was not aware that the plaintiffs would be at risk of an adverse costs decision if unsuccessful. Venning J described this claim as"disingenuous" and said that Mr Phillips should have been well aware of the risk. Venning J also rejected a submission that costs should be reserved until the outcome of the substantive proceedings was known, saying that there was no principled reason not to fix costs in relation to the hearing of the preliminary questions. Venning J rejected a submission that the plaintiffs should not be equally responsible for costs, given the circumstances in which the plaintiffs came to join in the litigation and their respective interests and roles in it.[26] The defendants had sought costs on a 2C basis. The Judge did not accept that this was appropriate and awarded costs on a 2B basis. He considered the plaintiffs‟contention that the defendants had not succeeded entirely on the first of the three questions, but held that because the defendants had in substance succeeded overall, and the plaintiffs had failed, there should be no reduction.[27] The defendants sought an uplift over scale costs in terms of r 14.6 of the High Court Rules. The Judge granted an uplift of one third, although in relation to Mr Martin that applied only to preparation, not to the hearing itself. The Judge granted an uplift because he considered that:(a) The plaintiffs had contributed unnecessarily to the time and expense of the proceedings.(b) The evidence led by the plaintiffs contained a large amount of objectionable material, necessitating a pre-trial hearing to determine admissibility issues.(c) There was a lack of structure and focus to the plaintiffs‟ case, whichcaused difficulty for the Court and for the other defendants.[28] In the result, he made a single costs award of $57,152 to the defendants except Mr Miller, to whom he awarded $37,662.66.[29] Mr Phillips‟ arguments before us were largely a repetition of arguments that he had made to Venning J. He emphasised four aspects in particular:(a) He argued that the process adopted by the Judge of hearing the matter on the papers was unfair to him. He said he was overseas at the time submissions were required to be filed and this created difficulties for him.(b) He repeated his contention that he was not aware of the risk of an adverse costs decision at this stage and submitted that costs should have been reserved until the final result of the litigation is known, including the appeal in CA 534/2011. He also submitted that the uplift was not justified.(c) He disputed the award of costs on a joint and several basis. He submitted that he was, in effect, simply a witness and should have been assessed for a more modest cost liability than that borne by the other plaintiffs.(d) In relation to Mr Martin, he contended that no award should have been made in any event. He submitted that Mr Martin was essentially a witness and did not need to be involved in the argument of the preliminary questions. Mr Martin had made his own decision to attend the hearing through counsel. In those circumstances, Mr Phillips said, the plaintiffs should not be liable for his costs.[30] Costs are at the discretion of the Court, albeit that that discretion is to some extent structured and confined.8 Accordingly, an appeal against a costs decision will succeed only if it can be shown that the Judge acted on a wrong principle, tookaccount of an irrelevant factor, disregarded a relevant factor or was "plainly wrong".9One difficulty for Mr Phillips in this context is that the various points he has raised were put to the Judge and the Judge addressed them.[31] We begin with Mr Phillips‟ submission that the Judge should have had an oral hearing rather than dealing with costs on the papers. The Judge‟s approach wasorthodox and we see nothing wrong with it in the context of this case. The Judge stated at the conclusion of his substantive judgment that he considered that costs should follow the event in the usual way. He invited the parties to confer to see whether they could agree costs and provided for the filing of submissions if agreement was not possible. Mr Orlov filed submissions on behalf of MVHI, Open and MVH Group and Mr Phillips filed a submission of 43 pages on his own behalf. The matters that Mr Phillips canvassed in that submission were essentially the same as those which he canvassed in argument before us. As Mr Hughes said, this suggests that he was not disadvantaged by the course followed by the Judge because he was able to raise everything that he considered to be relevant. In other words, Mr Phillips has not been able to show that he was prejudiced in any material way by the timing of the hearing or the fact that it was on the papers rather than oral. Mr Phillips had a hearing, albeit that it was not an oral one.10 Accordingly, we reject this submission.[32] Turning to the submission that costs should have been reserved, Mr Phillips advanced two reasons in support of this. He submitted first that he and the other plaintiffs did not appreciate that they were at risk of an adverse costs award at this stage. Second, he submitted that the plaintiffs may ultimately be vindicated once all the issues are determined following trial and are prejudiced by an award of costs in favour of the defendants at this stage.8 High Court Rules, r 14.1 and Shirley v Wairarapa District Health Board [2006] NZSC 63,[2006] 3 NZLR 523 at [15]–[17].9 Shirley v Wairarapa District Health Board at [15].10 See Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243 at[34]–[35], although in that case there was a particular statutory context.[33] Venning J rejected the first of these reasons, finding that Mr Phillips should have been well aware of the terms of the High Court Rules given the level of his involvement in the litigation and the fact that costs orders had already been made in the proceedings. There is simply no basis for us to reject the Judge‟s findings on thatpoint. As to the second reason, the normal rule is that costs follow the event including in interlocutory matters.11 The Judge could see no reason why the usual approach should not apply in this case. Nor do we. The fact that the plaintiffs may ultimately be successful in their proceedings is not sufficient to displace the usual approach in the present circumstances, nor does the fact that all parties benefitted from the early determination of the preliminary questions.[34] In relation to the uplift, Venning J considered the factors listed in r 14.6 of the High Court Rules and, in light of those identified at [27] above, determined that an uplift was appropriate. As the factors upon which he relied were undoubtedly legitimate, and no other error in his analysis has been demonstrated, we see no basis to intervene.[35] Mr Phillips also argued that the plaintiffs had had some success on the first of the three issues and this should be reflected in the costs award. However, their success on the first point was modest. They were held to have an interest in a particular source code, although not as substantial an interest as they claimed. The Judge obviously saw this as slight success in the overall context of the disputed issues and we are not in a position to gainsay that assessment.[36] As to the award of costs on a joint and several basis, we make two points. First, that is the default position under r 14.14. Second, it is apparent that Mr Phillips took a full part in the hearing including conducting significant cross- examination of witnesses. Mr Phillips said he was forced to participate activelybecause he became concerned at the quality of Mr Orlov‟s representation of the other plaintiffs. But whatever the reason, Mr Phillips did take an active part in the hearing and the Judge was entitled to take that into account in the way that he did.11 Rule 14.2(a) and Shirley v Wairarapa District Health Board at [19].[37] Turning to Mr Martin‟s position, in essence Mr Phillips claims that Mr Martin unnecessarily incurred legal costs in relation to the hearing of the preliminary questions. In this connection, Heath J had said in a minute dated 13 October 2010:[9] There is also, in principle at least, agreement to the notion that, while Mr Martin would need to remain a party to the proceeding to protect limitation issues, any proceeding against him could be stayed while the central issue is resolved. However, that would probably result in Mr Martin being called as a witness by Ngati Tama and he will need to reflect on whether he would prefer independent representation.[38] For Mr Martin, Mr Nolen submitted that the second of the three questionsframed by Heath J raised the issue of Mr Martin‟s conduct as the sole director ofMVHI. The plaintiffs claimed that he was in breach of fiduciary and statutory duties. Mr Nolen noted that Venning J had confirmed in directions given on 7 March 2011 that the hearing of the preliminary questions would involve"consideration of and findings as to whether [Mr Martin] has acted in breach offiduciary duty". In these circumstances, it was reasonable that Mr Martin shouldwish to be represented to ensure that his interests were protected.[39] Although the Judge does not explicitly address this point, it is clear from the order he made that he considered that Mr Nolen‟s participation on behalf of Mr Martin was appropriate. The Judge did accept, however, that the other defendants bore the larger burden at hearing. This was the reason that the one third uplift applied only to preparation in relation to Mr Martin and not to the hearing itself as with the other defendants.[40] In the result, we see no basis on which we could properly interfere with theJudge‟s order in respect of Mr Martin.Decision[41] Accordingly:(a) The "no appeal" agreement precludes Mr Phillips and the otherappellants from maintaining the appeal in CA 534/2011. Accordingly, we strike it out.(b) The appeal in CA 681/2011 is dismissed.(c) The appellants are to pay the first, third, fourth, fifth and sixth respondents costs for a standard appeal on a band A basis plus usual disbursements.(d) The appellants are to pay the second respondent costs for a standard appeal on a band A basis plus usual disbursements.Solicitors:Kensington Swan, Auckland for First, Third, Fourth, Fifth and Sixth RespondentsLowndes Associates, Auckland for Second Respondent