Belle Mer Properties Limited v Eco-Smart Group Limited

[2022] NZHC 1207

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-000803

[2022] NZHC 1207

BETWEEN

BELLE MER PROPERTIES LIMITED

Applicant

AND

ECO-SMART GROUP LIMITED

Respondent

Hearing:	On the papers
Appearances:	J Delaney for the Applicant S Moore for the Respondent
Judgment:	27 May 2022

COSTS JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 27 May 2022 at 2.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Harris Tate, Tauranga
The Legal Team, Silverdale

J Delaney, Tauranga S Moore, Auckland

BELLE MER PROPERTIES LTD v ECO-SMART GROUP LTD [2022] NZHC 1207 [27 May 2022]

Introduction

[1]  In a judgment delivered on 3 February 2022, I ordered that the statutory demand served on Belle Mer by ESG be set aside because there was a genuine and substantial dispute over whether the alleged debt was due and owing.1 I invited submissions on costs.

[2]                   Belle Mer has sought an order that ESG pay it increased costs because, it says, the statutory demand was issued inappropriately. Specifically, it submits:

(a)ESG knew, or ought to have known, that the alleged debt was disputed.

(b)The demand was intended to cause embarrassment and disruption to Belle Mer. ESG made no attempt to discuss the debt with Belle Mer before issuing the statutory demand. Although the alleged debt pertained to  events  in  2019,  ESG  did  not  issue  an  invoice  until  6 April 2021, followed quickly by a statutory demand on 16 April 2021.

(c)ESG failed to act with appropriate caution and consideration, seemingly issuing the statutory demand without taking legal advice.

(d)ESG unreasonably failed to reply to a request to consent orders to set aside the statutory demand. On 28 June 2021, counsel for Belle Mer wrote to counsel for ESG and identified several payments that were double-counted or being claimed without proof of payment.

[3]                   Belle Mer has calculated its 2B costs and disbursements at $19,933. Its actual legal costs are $24,819.04. Belle Mer seeks an uplift of approximately 25 per cent to cover payment of its actual legal costs.

[4]                   ESG submits that costs should be reserved because the alleged debt is wholly related to existing substantive proceedings between the parties.2 It says that those

1      Belle Mer Properties Ltd v Eco-Smart Group Ltd [2022] NZHC 84 at [37]–[38] [Statutory demand judgment].

2      ECTCH Ltd & Eco-Smart Group Ltd v Belle Mer Properties Ltd CIV-2021-404-2012.

proceedings are the appropriate forum to determine the debt and costs ought to follow the substantive event.

[5]                   I reject that submission. The fact that the alleged debt forms part of the substantive proceedings between the parties confirms that the statutory demand was improperly issued. If the alleged debt is the subject of a genuine dispute, it should not be the subject of a statutory demand. I will return to this point.

[6]                   If the Court is not minded to reserve costs, ESG asks that costs lie where they fall. ESG acknowledges that the unsuccessful party to an application to set aside a statutory demand ordinarily pays the other’s costs. However, it submits that the Court should exercise its discretion not to award Belle Mer costs because the demand was not an abuse of process, and was not served  for  the  purpose  of  embarrassing  Belle Mer. Contrary to what Belle Mer says, the parties had discussed the alleged debt as part of a global settlement of the disputes between them up until April 2021 and Belle Mer did not raise a substantial dispute about the debt. ESG claims that it was not until it received the affidavit of Alasdair Austin on 21 June 2021 and the further supplementary affidavit of Mr Austin on 28 July 2021 that ESG understood the dispute. Even then, the evidence required a degree of interpretation by ESG’s counsel and the Court at the hearing. In short, Belle Mer’s position was not clear to ESG until shortly before the hearing. Further, ESG maintains that it raised the debt in correspondence with Belle Mer in or about January 2020 and issued an invoice in or about February 2020.

[7]                   These submissions properly go to the question of whether ESG’s demand was an improper use of the statutory demand procedure. They are relevant to the question of whether Belle Mer should be granted increased costs. I do not however consider that any of these considerations displace the ordinary presumption that the party that is successful on an application to set aside a statutory demand will be paid their costs.

[8]                   In that event, ESG opposes an order for increased costs and proposes that it pay Belle Mer’s costs on a 2B scale basis at $10,612. ESG submits that only conduct after the proceedings have been issued may be considered, and that the short period of time between the 2021 invoice and the demand is therefore irrelevant. It also submits

that given the complexity of Mr Austin’s evidence it would be unfair to conclude that ESG pursued an unnecessary step or argument that lacked merit, or unreasonably refused to accept a legal argument or offer of resolution.  ESG also argues that   Belle Mer contributed to increased costs for both parties through the filing and withdrawal of evidence by Leo Brady.

[9]                   It is well settled that where statutory demands are issued inappropriately, increased costs are routinely awarded.3 In Norwich Properties Ltd v Mark Gray Architect, the Court held that an uplift on 2B scale costs of up to 50 per cent was not uncommon where an “ill-advised” statutory demand was improperly issued and set aside by the Court.4

[10]               In the recent judgments of Haines v Memelink5 and Haines v Memelink,6 the Court ordered a 50 per cent uplift in costs against the issuer of a statutory demand where the issuer knew, or ought to have known, the debt claimed was disputed; no legal advice was taken prior to the issue of the statutory demand; and the issuer had the opportunity to withdraw but did not do so.

[11]               In AAI Ltd v 92 Lichfield St (in rec and in liq), it was held incumbent on the issuer of a statutory demand to ensure that the demand was issued on a proper basis, and that the statutory demand was not the subject of a genuine dispute.7

[12]                 I find an order for increased costs appropriate in this case because ESG should not have invoked the statutory demand procedure for the alleged debt. First, I consider that ESG knew, or ought to have known, that at least some of the alleged debt was disputed before it issued the statutory demand. The dispute was reasonably obvious. For example, there is contemporaneous correspondence in September 2019 indicating that ESG knew that at least some of the payments claimed by ESG had been paid by Belle Mer to Brady Construction.8

3      Andrew Beck and others McGechan on Procedure at [HR14.6.02(2),(e)(a)(i)], cited in Herbert Construction Co Ltd v Viking Group Ltd HC NAP CIV-2011-441-206, 19 September 2011 at [17].

4      Norwich Properties Ltd v Mark Gray Architect [2015] NZHC 994 at [31].

5      Haines v Memelink [2019] NZHC 2169 at [39]–[50].

6      Haines v Memelink [2021] NZHC 1063 at [19]–[27].

7      AAI Ltd v 92 Lichfield St (in req and in liq) [2016] NZHC 90 at [20], citing Rembrandt Custodians Ltd v Pro-Drill (Auckland) Ltd HC Auckland M337/IN03, 13 June 2003 at [38].

8 Statutory demand judgment at [26].

[13]               Second, the alleged debt is, on ESG’s own submission, inextricable from the substantive dispute between the parties, now the subject of proceedings filed by ESG. The appropriate way to pursue the alleged debt was through ordinary proceedings and resolution of the substantive issues between the parties, rather than the statutory demand procedure which is reserved for undisputed debts. ESG now concedes as much.

[14]               Third, there is no record of ESG sending Belle Mer an invoice for the alleged debt or making any kind of informal demand before the invoice was issued on         6 April 2021, followed by the statutory demand on 16 April 2021. At the  hearing, Mr Moore confirmed that there was no evidence of the alleged February 2020 invoice other than Mr Mani’s deposition. To issue a statutory demand so quickly after the invoice did not provide a reasonable opportunity to determine whether any of the debt claimed was in fact disputed.

[15]               Finally, counsel for Belle Mer wrote to counsel for ESG on 28 June 2021 to raise concerns about the basis for ESG’s claim. Belle Mer asserted that 46 per cent of ESG’s statutory demand lacked any evidential basis. Although I did not decide all of the issues identified by Belle Mer, ESG succeeded on the first issue (double-counting of building consent costs of $21,075) and the final issue (that ESG had not provided evidence to support all $25,000 of marketing costs it claimed in its statutory demand). Therefore, two of the four issues Belle Mer identified with the statutory demand shortly after Belle Mer served its reply evidence were upheld.

[16]               I find therefore that, in principle, an order for increased costs of 50 per cent is appropriate.

[17]               ESG raises several issues with the items claimed by Belle Mer. Dealing with each of these in turn:

(a)I agree that Belle Mer cannot claim for Item 32.

(b)I agree that Belle Mer should not be awarded costs for memoranda filed relating to the withdrawal of Leo Brady’s evidence in support of its

application, and the consequent timetable amendment (joint memoranda of 27 and 28 July and 16 August 2021). Belle Mer should receive its costs for one memorandum under Item 11 only.

[18]Consequently, scale 2B costs are $13,384.

Result

[19]               I order ESG to pay Belle Mer costs of $20,076 based on a 50 per cent uplift to scale 2B costs and disbursements of $1,530.

Associate Judge Gardiner