SWISHER HYGIENE FRANCHISE CORPORATION V HI-GENE LTD HC AK CIV-2009-404-001573

SWISHER HYGIENE FRANCHISE CORPORATION V HI-GENE LTD HC AK CIV-2009-404-001573 30 March 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2009-404-001573BETWEEN SWISHER HYGIENE FRANCHISE CORPORATION Plaintiff AND HI-GENE LIMITED Defendant Hearing: 29 March 2010 Appearances: A C H Clemow and N P Tetzlaff for the Plaintiff W G C Templeton for the Defendant Judgment: 30 March 2010JUDGMENT OF DUFFY J [Re Costs on Judgment]This judgment was delivered by Justice Duffy on 30 March 2010 at 4.30 pm, pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar Date:Counsel: W G C Templeton P O Box 5444 Wellesley Street Auckland 1141 for the Defendant Solicitors: Gaze Burt P O Box 91345 Victoria Street West Auckland 1142 for the Plaintiff Foley and Hughes P O Box 6829 Wellesley Street Auckland 1141 for the Defendant[1] On 2 December 2009, I delivered a judgment in which I found that the defendant, Hi-Gene, had failed to make out the grounds of its application that an arbitral award obtained by the plaintiff, Swisher, should not be recognised and enforced. I also found that Hi-Gene had failed to make out its opposition to Swisher's application to this Court to recognise and enforce the same arbitral award as a judgment. [2] The arbitral award was issued to determine a dispute between the parties over the application of the terms of a franchise agreement (the Master Licensing Agreement) into which they had entered. The proceeding in this Court was focused on whether the arbitrators' conduct of the arbitral proceeding so offended against the requirements of procedural fairness, as recognised in clause 36 of the First Schedule of the Arbitration Act 1996, that this Court should refuse to recognise and enforce the arbitral award. Thus the inquiry in this Court did not address the merits of the dispute that had led to the making of the arbitral award. [3] Following its success, Swisher now seeks costs on an increased basis; the increase being 50 per cent above an award based on category 2B of the High Court Rules. Hi-Gene accepts that Swisher is entitled to an award of costs. However, Hi- Gene contends that the costs should be no more than category 2B. The only issue to determine, therefore, is whether or not costs should be on an increased basis and, if so, what the increase above category 2B should be. [4] The approach for increased costs is set out in Holdfast NZ Ltd v Selleys PTY Ltd (2005) 17 PRNZ 897. The approach involves four steps. They are: i) Categorisation of the proceeding under r 14.3; ii) Identifying a reasonable time for each step in the proceeding under r 14.5; iii) As part of the step two exercise, a party can under r 14.6(3)(a) apply for extra time for a particular step; andiv) The applicant for costs should step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs under r 14.6(3)(b), it should do so, but any increase above 50 per cent on the costs produced by steps one and two is unlikely, given that the daily recovery rate is two-thirds of the daily rate considered reasonable for the particular proceedings. [5] Swisher has not sought to argue for extra time for a particular step in the proceeding. This means Swisher accepts that under steps one to three of Holdfast, they are limited to the standard costs that apply to a proceeding categorised 2B. Swisher's case for increased costs rests on an early without prejudice save as to costs offer to settle, which it had made to Hi-Gene. That such an offer was made can support an increase of costs above the scale: r 14.6(3)(b)(v). The rule reads:Failing without reasonable justification, to accept an offer of settlement whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding Swisher's reliance on r 14.6(3)(b)(v) necessitates a close look at the offer Swisher made to Hi-Gene. [6] The offer was made to Hi-Gene on 28 November 2007. This was at a time before the arbitral hearing process to resolve the parties' dispute over the Master Licensing Agreement was commenced. The offer was on the basis that Swisher would forgive and write off all sums owing to it by Hi-Gene (which in the letter is assessed as being US $100,000); the master licence agreement between Swisher and Hi-Gene was to be surrendered and terminated by consent; the parties would go their separate ways; Hi-Gene would "de-stripe" and refrain from using the Swisher name or any Swisher marks or intellectual property, save that Hi-Gene could retain the source codes to the software that Swisher had provided; and sub-franchisees, who had contracted with Hi-Gene, were to be given a choice of whether they would go with Hi-Gene or remain part of the Swisher system. The offer was a full and final settlement. It was open to Hi-Gene to accept for seven days. The letter concluded by saying that unless the offer was accepted, or a meaningful and sensible counter offer put forward, the matter would proceed to arbitration.[7] Hi-Gene says that at the time it received this letter, it was considering a counterclaim against Swisher in the order of $2m, and the seven day timeframe was insufficient for Hi-Gene to be able to come to a sensible view on whether or not to accept the offer. [8] Rule 14.6(3)(c)(v) refers to r 14.10 for the purpose of defining one of the types of offer that can support an award of increased costs. Rule 14.10 specifically addresses written offers made without prejudice save as to costs. Such offers must relate "to an issue in the proceeding": see r 14.10(1)(b). I consider that the "proceeding" referred to in r 14.10(1)(b) is the court proceeding for which an award of increased costs will later be sought. It follows that the "issue" referred to in r 14.10(1)(b) must be an issue arising in the court proceeding for which an award of increased costs will later be sought. [9] The offer Swisher relies on for the purpose of r 14.6(3)(b)(v) is not an offer within r 14.10 as it does not relate to an issue in the proceeding. Swisher's offer was made at a time when there was a dispute between the parties over the application of the terms of the Master Licensing Agreement. The dispute with which this Court was concerned was the character of the conduct of the arbitral proceeding, and whether it was so contrary to procedural fairness that this Court should refuse to recognise and enforce the award. Hence, the issues arising in the proceeding in this Court were different from the issues in dispute that led to the arbitral award. [10] Can the offer of 28 November 2007 be said to be another offer to settle or dispose of the proceeding in terms of r 14.6(3)(b)(v)? Once again I consider that the "proceeding" being referred to is the court proceeding for which an award of increased costs will be sought. As I have already concluded the written offer of 28 November 2007 was not an offer that related to an issue in the proceedings before me. [11] Hence, the offer does not meet the requirements of rr 14.10 or 14.6(3)(b)(v). Consequently, the offer cannot provide a foundation for an award of increased costs. It follows that Swisher is unable to support its argument for an award of increased costs. It is entitled to no more than an award of costs that accords with category 2 B.[12] The parties appeared to be agreed that the schedule of costs at category 2B which Swisher had prepared was correctly calculated. I find, therefore, that Swisher is entitled to costs of $9,015. Swisher is also entitled to reasonable disbursements. If these are not agreed, they are to be fixed by the Registrar. Duffy J