90 Nine Limited v Brown Trout Euphoria Limited

[2021] NZHC 1910

IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY

I TE KŌTI MATUA O AOTEAROA MĀWHERA ROHE

CIV-2021-418-000008

[2021] NZHC 1910

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of BROWN TROUT EUPHORIA LIMITED

BETWEEN

90 NINE LIMITED

Plaintiff

AND

BROWN TROUT EUPHORIA LIMITED

Defendant

Hearing:

On the papers

Counsel:

C T Zhang for Plaintiff

K L Rusher for Defendant

Judgment:

27 July 2021

COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 27 July 2021 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

90 NINE LTD v BROWN TROUT EUPHORIA LTD [2021] NZHC 1910 [27 July 2021]

[1]    The plaintiff commenced this proceeding seeking an order the defendant company be put into liquidation. The defendant company has now paid what was owed to the plaintiff as well as a sum of $4,092.74 on account of scale costs and disbursements. The proceeding will be discontinued when it is next called before the Court. However, the plaintiff is not satisfied with the amount the defendant company has paid towards its costs and expenses. It seeks solicitor-client costs and expenses totalling $17,474.84. The defendant company argues it has paid the appropriate amount.

[2]    The issue is whether the plaintiff is entitled to solicitor-client costs and expenses, and if not what further entitlement it has beyond what the defendant company has already paid it.

Factual background

[3]The defendant company is a trustee of The Trout Trading Trust.

[4]    The plaintiff describes itself as a debt recovery agency. It took an assignment of a debt said to be owed by the defendant company to Affleck O’Meara Ltd for its accountancy services. The amount of the debt was $7,756.10.

[5]    The notice of assignment is dated 22 September 2020 and signed on behalf of Affleck O’Meara Ltd by its directors. It purports to assign to the plaintiff:

.. all of its rights, title, and interest in all debts owing by [The Trout Trading Trust] to [Affleck O’Meara Ltd] for the amount of $7,756.10 plus interest and any other fees and/or charges (if any) ...

[6]    On 1 October 2020, the plaintiff gave notice of the assignment to the defendant company and demanded payment of the debt.

[7]    On 2 March 2021, the plaintiff served a statutory demand on the defendant company and when the defendant company did not comply with that demand, the plaintiff commenced this proceeding on 7 May 2021.

[8]    The application to liquidate the defendant company was called in Court on  28 June 2021. Prior to the hearing the plaintiff’s counsel, Mr Zhang, filed a

memorandum dated 24 June 2021 stating the plaintiff would be seeking an order for liquidation and costs on a 2B scale basis amounting to $3,346 and disbursements of

$746.74. He described these costs as “fair and reasonable”.

[9]    When the case was called on 28 June 2020, Mr Zhang appeared for the plaintiff by audio visual link. There was an appearance in person on behalf of the defendant company by its director, Mr Gavin Pegley. Mr Pegley advised me the plaintiff would be paid from the sale of a property which was imminent. He sought an adjournment. This was opposed by Mr Zhang who wanted an immediate order for liquidation of the defendant company. I was not prepared to liquidate the defendant company in the circumstances Mr Pegley described.   I adjourned the matter to 9.00 am on Friday,    2 July 2021 for a telephone conference and asked Mr Pegley to instruct his lawyers to appear. I did this so that I could be better informed as to the status of the sale of the property.

[10]   At the telephone conference on 2 July 2021, the defendant company was represented by counsel, Ms Rusher. She advised that settlement of the sale of the property was to occur that day from which there would be funds available to pay the plaintiff. Notwithstanding the high degree of comfort the plaintiff had that it would be paid within a matter of hours Mr Zhang again sought an immediate order for liquidation.1 I did not make such an order.

[11]   During the conference, Ms Rusher asked for confirmation of the exact amount the defendant company had to pay to the plaintiff to resolve the proceeding. Mr Zhang confirmed the debt owed to the plaintiff was $7,756.10 and costs were claimed on a 2B scale basis amounting to $3,346 plus disbursements of $746.74. These were the same amounts set out in his memorandum of 24 June 2021. However, he stated the plaintiff wished also to claim for airfares that had been booked for counsel to travel to Greymouth on 28 June 2021 in the event it was found these were non-refundable. That matter was left on the basis that if there was any disagreement in relation to the airfares it could be referred back to the Court.

1      It was not a course open to me to make an order in any event as the matter was not in open Court as is required by r 31.2 of the High Court Rules 2016.

[12]   I recorded this discussion in a minute I issued after the telephone conference noting my view that the costs claimed by the plaintiff were appropriate. I adjourned the case for a further telephone conference at 12.00 pm on 5 July 2021 in the expectation the plaintiff would by then have been paid both the debt and the costs.

[13]   Following the conference, the plaintiff had a significant change of position. Later, on 2 July 2021, Mr Zhang filed a memorandum that the plaintiff now sought costs on a solicitor-client basis of $17,474.84 (including disbursements) and provided a draft tax invoice between Norling Law Ltd and the plaintiff for that sum. He stated these costs were “reasonable in the circumstances”. He also advised that a credit had been obtained for the airfares but other disbursements were now being sought including non-refundable costs of accommodation.

[14]    I understand the plaintiff’s lawyers advised the defendant company’s lawyers of the change of position at 4.19 pm on 2 July 2020 but shortly thereafter, at 4.53 pm, the defendant company’s lawyers provided confirmation of payment of $11,848.84 to the plaintiff. That is the sum Mr Zhang had advised at the teleconference was payable subject only to the question of the airfares.

[15]   The matter came back before me on 5 July 2021. It was confirmed the defendant company had paid the debt and the scale costs. As the plaintiff maintained it was entitled to solicitor-client costs I directed the parties to file submissions in relation to the disputed question of costs which they have now done.

Submissions

The plaintiff

[16]   The plaintiff claims an entitlement to solicitor-client costs in reliance upon a document on the letterhead of a company called Affleck Dodd O’Meara Ltd addressed to The Trout Trading Trust. Although the document is headed “Business Financial Statements Questionnaire” it contains terms of engagement for the preparation of business financial statements for the year ending 31 March 2017. I will refer to the document as the Questionnaire. There is a signature at the bottom of the Questionnaire. The identity of the signatory is unclear.

[17]The Questionnaire contains the following term:

We agree and accept that:

…

4. We will pay all invoices when due or as otherwise agreed with Affleck Dodd O’Meara Ltd. Affleck Dodd O’Meara Ltd will deduct any overdue accountancy fees from any GST or Income Tax refunds due to us. We understand we will be liable for any collection/legal costs on un-paid accounts.

[18]   The plaintiff says services were provided to the defendant company under these terms and that the cost of those services made up $2,392.50 of the debt of $7,756.10 which was assigned to the plaintiff. Although this represents under one-third of the debt the plaintiff contends it is entitled to recover all its solicitor-client costs because it would have had to take the same steps to recover what was owed from the defendant company regardless of the amount.

[19]   The plaintiff seeks to justify the quantum of its solicitor-client costs by reference to the steps required to effect service and explain those steps to the Court, and because there were “extended discussions” between counsel regarding settlement.

[20]   Whilst acknowledging the events at the telephone conference on 2 July 2021, the plaintiff submits no order as to costs was made. It argues the parties were to confer on additional disbursements and the defendant company knew before making the payment that the plaintiff’s position as to costs had changed. In those circumstances, the plaintiff submits the defendant company could not have relied upon the statements made at the telephone conference when making the payment.

[21]   In the alternative, the plaintiff argues that if costs are not awarded on a solicitor- client basis then it wishes to claim further scale costs and disbursements. The costs relate to counsel’s appearance at the 2 July 2021 telephone conference. The additional disbursements are the filing fee on the proceeding amounting to $540 and $152.25 for non-refundable accommodation costs.

The defendant

[22]   The defendant acknowledges the Court may order a party to pay indemnity costs if, “the party claiming costs is entitled to indemnity costs under a contract or deed”.2 It argues a traditional solicitor-client relationship does not exist between the plaintiff and the firm of solicitors Norling Law Ltd that is representing it. I understand the defendant company considers the plaintiff is simply a vehicle by which Norling Law Ltd acquires and collects debts for itself.

[23]   The defendant company argues the Questionnaire is not a contract and does not entitle the plaintiff to solicitor-client costs in any event as it refers only to legal costs not solicitor-client costs. Furthermore, it says the costs claimed are not reasonable. Several factors are relied upon including that the costs claimed are over double the debt upon which the proceeding was based, no time records have been provided nor is there any indication of the hourly rates charged, and the plaintiff adopted an unreasonable attitude towards settlement.

[24]   Finally, the defendant company says the statements made by Mr Zhang to the Court at the 2 July 2021 teleconference as to the amount payable by the defendant company were relied upon by it and that amount was paid with no delay.

Discussion

[25]   The relevant principles are well-established. In this case they include that all matters of costs are discretionary.3 The discretion must be exercised on a principled basis. The determination of costs, so far as possible, should be both predictable and expeditious.4 The party who has lost should pay the costs of the party that has won unless there are exceptional reasons to the contrary.5 Generally costs awards should reflect the complexity and significance of the proceeding and be assessed by applying

2      High Court Rules 2016, r 14.6(4)(e).

3      Rule 14.1(1).

4      Rule 14.2(1)(g).

5      Rule 14.2(1)(a) and Shirley v Wairarapa District Health Board [2006] NZSC 63; [2006] 2 NZLR 523 at [19] .

the appropriate daily rate to the time considered reasonable for each step reasonably required in relation to the proceeding.6

[26]   I do not consider the plaintiff is entitled to solicitor-client costs for several reasons. First, there is no claim for solicitor-client costs in the statement of claim as I would expect if they were to be claimed.

[27]   Second, the notice of assignment of 22 September 2020 records that what was being assigned to the plaintiff by Affleck O’Meara Ltd were debts then owing to it by The Trout Trading Trust. The legal costs that are claimed were not then and have never been owing to Affleck O’Meara Ltd.

[28]   Furthermore, a debt arising under a contract is a chose in action distinct from the benefit of the performance of the contract. Affleck O’Meara Ltd did not assign, in addition to the debt, the benefit of a contractual right to recover legal costs.7 It assigned no more than the right to payment of an existing debt.

[29]   Third, the Questionnaire records terms of engagement between Affleck Dodd O’Meara Ltd and The Trout Trading Trust. Affleck Dodd O’Meara Ltd is not the assignor under the notice of assignment. That is Affleck O’Meara Ltd. The relationship between these two companies is not explained. Of the invoices issued to The Trout Trading Trust said to make up the debt of $7,756.10 there is only one, in respect of which a balance of $610 unpaid, that was issued by Affleck Dodd O’Meara Ltd.

[30]   Fourth, I consider there is merit in Ms Rusher’s submission that the Questionnaire does not state that legal costs are to be met on a solicitor-client basis. Where a party claims they have a right to solicitor-client costs under a contract or deed that must be clearly expressed, and it is not clearly expressed in this case.8 I do not

6      High Court Rules, r 14.2(b) and (c).

7      For a discussion of this point see Greg Tolhurst The Assignment of Contractual Rights (2ed, Hart Publishing Ltd, Oxford, 2016) at [6.54].

8      Andrew Beck and others (eds) McGechan on Procedure (looseleaf ed, Brookers) at [HR14.6.03](3)(e)].

consider that the use of the determiner “any” makes it clear that solicitor-client costs would be payable.

[31]   Further, under r 14.6(1)(b) of the High Court Rules the Court may award actual costs and expenses “reasonably incurred”. As the Court of Appeal noted in Black v ASB Bank Ltd:9

It follows from the wording of r 14.6(1)(b) that indemnity costs are determined with reference to actual costs, but may be less than the actual costs if the Court considers the actual costs were not reasonably incurred.

[32]The Court of Appeal also held:10

[80]    Assessing whether the indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of these matters:

(a)what tasks attract a costs indemnity on a proper construction of the contract;

(b)whether the tasks undertaken were those contemplated  in the contract;

(c)        whether the steps undertaken were reasonably necessary in pursuance of those tasks;

(d)whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and

(e)whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.

[33]   Because of the view I have come to that the plaintiff has no entitlement to solicitor-client costs it was not necessary for me to undertake such an exercise. Had I been required to do so it is notable the plaintiff did not attempt to justify the costs claimed by reference to these principles or to principles by which solicitors usually charge fees, nor did it produce any time records or details of its hourly charge out rates.

[34]   That leaves the plaintiff’s claim for additional scale costs and disbursements. I am not prepared to award them. While I accept the plaintiff’s submission that on

9      Black v ASB Bank Ltd [2012] NZCA 384 at [77].

10     (footnote omitted).

2 July 2021 I made no order as to the payment of costs, I consider that what occurred at the teleconference is significant in this context. Ms Rusher sought confirmation of the amount the plaintiff required the defendant to pay that day to bring an end of the matter in the face of an aggressive approach by Mr Zhang that the plaintiff wanted an immediate order for liquidation. Consistent with Mr Zhang’s memorandum of 24 June 2021, the plaintiff’s position was that the amount claimed as scale costs were reasonable. This was accepted by Ms Rusher on behalf of the defendant and, as I recorded in my minute, that was my view also. Nothing has been put before me that alters my view.

[35]   Importantly, given the circumstances of the 2 July 2021 conference Mr Zhang must have been aware that his advice as to the amount the plaintiff would accept for costs would be relied upon by the defendant company. I would expect that Ms Rusher would have advised the defendant company immediately after the conference what amount had to be paid as that information was needed so that provision could be made for its payment from the sale of the property. There is no explanation provided for the plaintiff’s sudden change of position. As solicitor-client costs had never previously been claimed (or even mentioned) it appears to have been an after-thought. In the absence of an explanation, I consider the defendant company is entitled to rely on the plaintiff’s counsel’s advice as to the terms upon which the proceeding would be resolved.

[36]   I accept that errors can occur and I have not overlooked that it appears the plaintiff’s counsel overlooked claiming a filing fee and for some accommodation costs. In the usual case I might have been minded to allow the plaintiff these disbursements. However, I note the amount paid by the defendant company included scale costs of $478 for sealing an order which the plaintiff should not now have to incur. Also, the defendant company has been put to the expense of defending the plaintiff’s claim for solicitor-client costs. I have found that claim was unjustified. It would have been open to the defendant company to seek costs in having to do so. In the exercise of my discretion, I find the just result is that matters lie where they fall.

[37]   For completeness, I have not found it necessary to consider the defendant company’s submission concerning the relationship between the plaintiff and Norling Law Ltd.

Result

[38]   The result is that the plaintiff is entitled to costs of the proceeding of $3,346 and disbursements of $746.74, which the defendant company has paid. I decline to make any further order as to costs.

O G Paulsen Associate Judge

Solicitors:

Norling Law Limited, Auckland AWS Legal, Invercargill

O G Paulsen Associate Judge

Solicitors:

Norling Law Limited, Auckland AWS Legal, Invercargill