Burns 20 Limited v Body Corporate 90898

[2024] NZHC 154

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2023-485-348

[2024] NZHC 154

BETWEEN

BURNS 20 LIMITED

Applicant

AND

BODY CORPORATE 90898

Respondent

Hearing:

On the papers

Appearances:

K Kommu for Applicant

M R C Wolff for Respondent

Judgment:

13 February 2024

JUDGMENT OF ASSOCIATE JUDGE SKELTON

[Costs]

[1]                 In my judgment dated 9 November 2023, I granted the applicant’s originating application to set aside a statutory demand served on it by the respondent.1

[2]                 My preliminary view was that costs should follow the event and the applicant was entitled to 2B costs and disbursements as fixed by the Registrar. The parties have been unable to agree on costs and have filed memoranda.

[3]The applicant seeks indemnity costs and disbursements in the total sum of

$40,952.13 (including GST), or alternatively increased costs, being a 50 per cent uplift of 2B costs, and disbursements in the total sum of $23,329.81. The respondent accepts that 2B costs and reasonable disbursements are appropriate in the total sum of

$16,518.31 but opposes indemnity or increased costs.

1      Burns 20 Ltd v Body Corporate 90898 [2023] NZHC 3160.

BURNS 20 LIMITED v BODY CORPORATE 90898 [2024] NZHC 154 [13 February 2024]

[4]                 The issue to be determined is whether the applicant is entitled to indemnity or increased costs.

Legal principles

[5]                 Costs are ultimately a matter of the Court’s discretion, the overall objective being to achieve an outcome that best meets the interest of justice.2 That discretion is qualified by the applicable costs rules, contained in pt 14 of the High Court Rules 2016 (HCR). The primary principle applying to the determination of costs is that costs follow the event — meaning that a party who is unsuccessful pays costs to a party who is successful.3

[6]                 The Court may award the actual costs reasonably incurred by a party (indemnity costs) where a party has behaved either badly or very unreasonably.4 For example, indemnity costs may be ordered if the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or step in a proceeding.5 Misconduct, to justify indemnity costs, must be flagrant.6

[7]                 The Court may order a party to pay increased costs where that party has contributed unnecessarily to the time or expense of the proceeding or a step in it.7 Increased costs may be awarded where there is a failure by the paying party to act reasonably.8 An example is failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument.9

2      High Court Rules 2016 [HCR], r 14.1; Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7] and [16]; Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [21]–[24] and [28]; and Mansfield  Drycleaners  Ltd  v  Quinny’s  Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662 (CA) at [27].

3      HCR, r 14.2(1)(a).

4      Rule 14.6(1)(b); Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27]–[28]; and Prebble v Awatere Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467 at [6].

5      HCR, r 14.6(4)(a).

6      Bradbury v Westpac Banking Corp, above n 4,at [6].

7      Rule 14.6(3)(b).

8      See Bradbury v Westpac Banking Corp, above n 4, at [28].

9      HCR, r 14.6(3)(b)(iii).

Indemnity or increased costs

[8]                 The applicant claims indemnity costs under r 14.6(4)(a) HCR on the basis that the respondent acted “vexatiously, frivolously, and improperly or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding”.

[9]                 The applicant submits that its solicitors wrote to the respondent’s solicitors several times in June 2023 before issuing the application to set aside the statutory demand. These communications noted that there was a substantial dispute in relation to the claimed debt and gave the respondent the opportunity to withdraw the statutory demand. The applicant submits that the respondent elected to proceed with opposing the application to set aside even after being served with the applicant’s supporting affidavit evidence which set out the evidential basis for the substantial dispute.

[10]             The applicant relies on the decision in Nags Head Horse Hotel Ltd v Epsom Woods Ltd (Nags Head), a case where indemnity costs were awarded after the respondent opposed the application to set aside the statutory demand and then agreed to withdraw it during the hearing.10 In that case, Fitzgerald J identified four factors which led her to the view that indemnity costs should be paid. These were:11

(a)that the application to set aside the demand was granted by consent in face of what the Judge considered were fairly obvious and significant issues arising on the underlying claim to support the statutory demand;

(b)that the respondent’s position changed more than once through the parties’ correspondence and at the hearing;

(c)that it appeared that aspects of the key transactional documents were missing from the materials filed in the opposition to the application; and

(d)“drawing the above threads together”, there was a residual concern the statutory demand was not issued for a proper purpose.

10     Nags Head Horse Hotel Ltd v Epsom Woods Ltd [2020] NZHC 2973.

11     At [38]–[43].

[11]             Alternatively, the applicant submits that it is entitled to a 50 per cent uplift on 2B costs under r 14.6(3)(b). The applicant refers to Savage Garage NZ Ltd v Peramune, which noted that increased costs are routinely awarded where statutory demands are issued inappropriately12 and that it is incumbent on the issuer of a statutory demand to ensure that the demand was not the subject of a genuine dispute.13

[12]             The respondent submits that Nags Head should be distinguished as it was decided on the particular grounds, referred to above at [10], which were not present in this case. The respondent submits that, even though it was ultimately unsuccessful, its conduct did not reach the high threshold required for indemnity costs, being that it has acted very unreasonably or that there has been flagrant misconduct. The respondent also submits that that the applicant has not put forward sufficient grounds for increased costs and says that the correspondence from the applicant’s solicitors did not contain settlement offers.

[13]             I agree that this case does not reach the threshold for the award of indemnity costs. Section 124 of the Unit Titles Act 2010 provides that the amount of any unpaid levy is recoverable as a debt due. It is common for statutory demands to be issued in respect of unpaid levies. The respondent was ultimately unsuccessful because I found that there was a substantial dispute with regard to the methodology for calculation of the levy and as to whether it was validly struck in accordance with the Unit Titles Act.14 However, there was no concern that the statutory demand was not issued for a proper purpose as in Nags Head.

[14]               However, I think that the correspondence from the applicant’s solicitors (albeit not settlement offers) and the affidavit evidence subsequently put forward by the applicant to support its application to set aside the statutory demand raised opportunities for the respondent to reflect on whether there was a genuine and substantial dispute and to withdraw the statutory demand. This is particularly so in relation to the respondent’s contention, which I did not accept, that a clear distinction

12     Savage Garage NZ Ltd v Peramune [2023] NZHC 3864 at [7].

13 At [9].

14     Burns 20 Ltd v Body Corporate 90898, above n 1.

could be made between the acknowledged disputes over historical levies and the 2022 levy which was the subject of the statutory demand.

[15]             Therefore, I consider there is justification to award the applicant increased costs on the basis that the respondent failed, without reasonable justification, to accept the applicant’s evidence of a substantial dispute. However, I consider that an uplift of 30 per cent is sufficient in this case.

Result

[16]             Accordingly, I order Body Corporate 90898 to pay Burns 20 Ltd increased costs and disbursements in the total sum of $20,605.21.

Associate Judge Skelton

Solicitors:

Pidgeon Judd Law Ltd, Auckland for Applicant Morrison Kent, Wellington for Respondent