BF7 Trading Limited v Extrastaff Limited

[2020] NZHC 896

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-642

[2020] NZHC 896

BETWEEN

BF7 TRADING LIMITED

Applicant

AND

EXTRASTAFF LIMITED

Respondent

Hearing:

5 May 2020

(On the papers)

Counsel:

K T Dalziel for Applicant

D S Maclaurin for Respondent

Judgment:

5 May 2020

JUDGMENT OF ASSOCIATE JUDGE LESTER

(Costs)

This judgment was delivered by me on 5 May 2020 at 12.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 5 May 2020

BF7 TRADING LIMITED v EXTRASTAFF LIMITED [2020] NZHC 896 [5 May 2020]

[1]                 Extrastaff Limited (Extrastaff) has applied for costs in relation to an application to set aside a statutory demand it issued against BF7 Trading Limited (BF7).

[2]                 The  statutory  demand  was  issued  for  $27,338.09.   In  my  judgment  of 18 March 2020, I recorded that as the hearing of the application to set aside the demand developed, it became clear the central issue was an acknowledgement by BF7 that it owed an amount to Extrastaff stated as $10,511.61 including GST, subsequently reduced to $9,900.08.1

[3]                 That focus had its origins in the notice of opposition filed by Extrastaff to the application to set aside. While the notice of opposition recorded that Extrastaff opposed the application to set aside the statutory demand in its entirety, it said it:

Would consent to the statutory demand being set aside to the extent of the amount over $9,900.08 (which the respondent has admitted is wrong), on  the basis that:

(a)The sum of $9,900.08 is paid to the respondent; and

(b)The balance of the sum set out in the statutory demand is determined by the Disputes Tribunal.

[4]The notice of opposition sought costs on an indemnity basis.

[5]                 In my judgment, I identified that the relationship between the parties was determined by a document called “REQUEST TO OPEN A CREDIT ACCOUNT” (Terms of Trade) and set out the process by which that document was signed by BF7’s director.2 BF7’s counsel accepted that the Terms of Trade governed the relationship between the parties from the time it was signed.

[6]                 Indemnity costs are sought because the Terms of Trade include a paragraph which includes the following:

The Client will pay all of Extrastaff’s expenses (including collection and solicitors costs) incurred in recovery from the Client of any sums due.

1      BF7 Trading Ltd v Extrastaff Ltd [2020] NZHC 544.

2 At [5].

[7]                 The fact BF7 accepted that it owed an amount to Extrastaff was recognised by BF7 early on. In a letter that crossed with the statutory demand, Extrastaff said it looked like it owed $10,511.61 including GST but went on to say that once it had calculated its loss due to alleged wrongdoing by Extrastaff, it would set-off damages claimed to arise from that alleged wrongdoing and pay the balance.

[8]                 I determined BF7’s approach was in breach of a no set-off clause contained in the Terms of Trade. In addition, by the time of the hearing, the alleged set-off remained unquantified.

[9]                 When counsel became involved, Ms Dalziel as counsel for BF7, wrote to Extrastaff’s solicitors saying:

My client believes there is potentially $10,511.61 (including GST) due to your client, however, this will be subject to your client signing off on the timesheets. Those moneys will then be paid.

[10]              In response to Ms Dalziel’s detailed letter, Extrastaff’s solicitor considered there was no point in responding to all of the matters raised by Ms Dalziel when there was an admission of at least $10,511.61 owing.

[11]The email from Extrastaff’s solicitor concluded:

If your client transfers $10,511.61 to us then we will consider withdrawing the statutory demand.

[12]              As I have said, by the time the application to set aside the statutory demand was filed, the undisputed amount had reduced but Extrastaff’s position was unequivocally that it would agree to the balance of the demand, being set aside if the undisputed amount was paid.

[13]              The undisputed amount was not paid prior to the hearing on 11 March 2020 and indeed, BF7 maintained its application to set aside the entire demand albeit that Ms Dalziel realistically identified the difficulties presented by the lack of quantification of the alleged set-off.

[14]              The application was dealt with on the basis that if the undisputed amount was paid by 2 April 2020, then the statutory demand would be set aside in respect of the balance of the statutory demand. The amount due was paid after the date for payment was extended at BF7’s request due to COVID-19 pandemic lockdown related issues.

[15]              Against that background, BF7 seeks costs relying on its indemnity clause.  Ms Dalziel submits costs should lie where they fall.

[16]              Under r 14.6(4)(e) of the High Court Rules 2016, 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.

[17] Ms Dalziel’s submissions did not suggest that the clause, set out at [6] above, was not an entitlement to solicitor-client costs.

[18]              While Ms Dalziel submits her client was successful in having the statutory demand set aside, the reality is Extrastaff was the successful party in obtaining an amount accepted as being due from the outset (albeit with a slight reduction from the original letter). Extrastaff’s notice of opposition was clear; the matters raised in opposition to the undisputed sum were held by me to be unsustainable with the claimed set-off being contrary to the no set-off clause and the amount being unquantified.

[19]              I consider Extrastaff was the successful party in the application and costs should follow the event.

[20]              I note a general right to be indemnified for “costs” associated with a breach of contract does not extend to solicitor-client costs.3 However, here, the clause expressly refers to “collection and solicitors costs”. McGechan on Procedure discusses the entitlement to indemnity costs under a contract.4 The starting point is to determine as, a matter of contractual interpretation, whether there is an entitlement to indemnity costs. I consider the clause extract at [6] above does create that entitlement. The

3      Newfoundland Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261 at [84].

4      Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR14.6.03(e)(ii)].

starting position therefore is that BF7 contractually bound itself to pay Extrastaff’s full solicitor-client costs.

[21]As noted in McGechan:5

As the Court of Appeal noted in Breecer v Mills [1993] MCLR 19(CA) “anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible. In the absence of a contrary indication it is not to be assumed that the parties intended such a result”.

[22]              The issue then is whether the quantum claimed is reasonable. Ms Dalziel correctly points out that timesheets and the like have not been disclosed.

[23]              Extrastaff’s timesheets record $11,106 plus GST of time spent. Extrastaff’s counsel was Auckland based and instructed a local agent to present submissions. Counsel’s fee of $1,500 is also claimed together with disbursements, none of which appear to be controversial. The total of those sums is not significantly greater than scale costs.

[24]              McGechan notes that indemnity costs will include GST if the party receiving the award is not GST registered, but will exclude GST if the party can recover GST.6 The invoices issued by Extrastaff show that it is GST registered and thus any amount claimed for indemnity costs will exclude the GST component.

Conclusion

[25]              Extrastaff has the benefit of an indemnity costs clause. No reason is put forward as to why that clause should not apply. Ms Dalziel was critical of Extrastaff’s approach to issuing the statutory demand, characterising it as “precipitous and aggressive”. She also relied on the statutory demand being overstated and including  a little less than $3,000 in respect of amounts that were not overdue by the time the demand was issued. However, as McGechan confirms, an entitlement to costs under r 14.6(4)(e) is not related to behaviour.7

5      McGechan on Procedure, above n 4 at [HR14.6.03(3)(e)(ii)].

6      At [HR14.6.03(2)(b)].

7      At [HR14.6.03(1)(a)].

[26]              The fact is a High Court application in respect of a relatively small amount at issue in the demand, presents significant cost risks for the parties, particularly where there was an undisputed amount accepted as owing.

[27]              I find Extrastaff is entitled to the benefit of its indemnity costs clause and is entitled to indemnity costs and I order accordingly. If costs cannot be agreed against that finding then Extrastaff is to provide details of its bills of costs to its client, such to  be  filed  within  five  working  days   of  this  judgment  (that  is  by  Tuesday   12 May 2020) if agreement cannot be reached between counsel.

Associate Judge Lester

Solicitors:

Mortlock McCormack Law, Christchurch Neilsons Lawyers, Auckland

Copy to counsel:
Kathryn Dalziel, Barrister, Christchurch