Cannon Point Development Limited v Wellington Developments Limited

[2024] NZHC 1939

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2024-485-63

[2024] NZHC 1939

IN THE MATTER

of an application to set aside a statutory demand under the Companies Act 1993

BETWEEN

CANNON POINT DEVELOPMENT

LIMITED, a duly incorporated company having its registered office at 101 Endeavour Drive, Whitby, Porirua
Applicant

AND

WELLINGTON DEVELOPMENTS

LIMITED, a duly incorporated company having its registered office at

68 Woburn Road, Woburn, Lower Hutt Respondent

On the papers
Counsel:	D Abricossow and H Dempsey for Applicant F Collins for Respondent
Judgment:	15 July 2024

JUDGMENT OF ASSOCIATE JUDGE SKELTON [COSTS]

[1]        The applicant applied to set aside a statutory demand issued by the respondent for $475,345.36 (incl GST). Prior to the first call of the setting aside application, the respondent withdrew the statutory demand.

CANNON POINT DEVELOPMENT LTD v WELLINGTON DEVELOPMENTS LTD [2024] NZHC 1939 [15 July 2024]

[2]        Regrettably, the parties have been unable to agree on costs. The applicant seeks indemnity costs or increased costs or scale costs. The respondent accepts that scale costs are appropriate but opposes indemnity costs or increased costs.

Legal principles - costs

[3]        Costs are ultimately a matter of the court’s discretion, the overall objective being to achieve an outcome that best meets the interests of justice.1 However, that discretion is qualified by the applicable costs rules,  contained  in  pt  14  of  the  High Court Rules 2016. 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.2 Costs are usually to be assessed on the basis of the schedule by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application.3

[4]        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.4 Increased costs may be awarded where there is a failure by the paying party to act reasonably.5 An example is 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.6

[5]        The Court may also award the actual costs reasonably incurred by a party (indemnity costs).7 Indemnity costs may be awarded where a party has behaved either badly or very unreasonably.8 For example, indemnity costs may be ordered if the party

1      High Court Rules 2016, 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].

2      Rule 14.2(1)(a).

3      Rule 14.2(1).

4      Rule 14.6(3)(b).

5      See Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

6      High Court Rules, r 14.6(3)(b)(v).

7      Rule 14.6(1)(b).

8      Bradbury v Westpac Banking Corp, above n 5, at [27]–[28]; and Prebble v Awatere Huata (No. 2)

[2005] NZSC 18, [2005] 2 NZLR 467 at [6].

has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or step in a proceeding.9

[6]        However, applications to depart from a standard award of costs based on the schedular approach are discouraged unless there is a clear basis for such departure in accordance with the High Court Rules.10

Successful party

[7]        The respondent submits that where a statutory demand is withdrawn before hearing of an application to set aside, the withdrawal is treated as analogous to a discontinuance.11 In my view, it is also useful to recognise that the withdrawal of a statutory demand may be equivocal, and not of itself indicating where costs should fall. Rather, consideration is given to the outcome.12

[8]        In this case, the respondent appears to accept that it is the unsuccessful party and liable for costs in that it says it has no issue with an award of 2B costs and disbursements.

[9]The issue then is whether indemnity or increased costs should be awarded.

Indemnity or increased costs

[10]      The applicant claims indemnity costs under r 14.6(4)(a)  and  (f)  of  the  High Court Rules on the basis that the respondent knowingly issued a statutory demand in respect of a disputed sum that was neither due nor owing, meaning they acted improperly and unnecessarily. The applicant contends that the issue of the statutory demand was an abuse of process.13

9      High Court Rules, r 14.6(4)(a).

10     Lepionka & Company Investments Ltd v Gibson Sheat [2023] NZHC 2745 at [3] and [7].

11     Relying on York Trustees Ltd v Body Coprporate 166208 [2014] NZHC 2748 at [7].

12     Greys Avenue Investments Ltd v New Zealand Mint Ltd [2015] NZHC 2633, [2015] 22 PRNZ 801 at [29]–[38].

13     AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [61]–[63].

[11]      The applicant says that the respondent was aware of payment disputes prior to the issue of the statutory demand. It says that the sum demanded was not due and owing and that the respondent was well aware of this as it did not issue an invoice for the demanded sum until after issuing the statutory demand. The applicant says that the demand should have been immediately withdrawn when the application to set aside was filed.

[12]      In the event indemnity costs are not awarded, the applicant seeks increased costs by way of a 100% uplift of costs assessed on a 2B basis. This is on the basis that the respondent knowingly issued an improper statutory demand in respect of a disputed sum and pursued a claim without merit.14 As found in Savage Garage NZ Ltd v Peramune,15 it is well settled that where statutory demands are issued inappropriately, increased costs are routinely awarded; and it is incumbent on the issuer of a statutory demand to ensure that the demand was issued on a proper basis, and was not the subject of a genuine dispute.

[13]      The respondent submits that the demand was issued on the basis of certified amounts and amounts that had not been disputed for civil works. The respondent submits that this was set out in a letter of demand from its solicitors prior to the statutory demand being issued. There was no response to the letter of demand until the application to set aside was filed. The respondent submits that the demand was withdrawn due to “the factual complexity of a contractual building dispute” which is now being addressed in adjudication under the Construction Contracts Act 2002.

[14]      In the letter dated 22 March 2024 formally withdrawing the statutory demand, the solicitors for the respondent contended that they and the respondent were confident there was a genuine dispute regarding at least the sum of $228,164.50 (plus GST). In a subsequent letter dated 10 April 2024 with regard to costs, the solicitors for the respondent aligned this case with cases where a statutory demand is withdrawn “due

14 High Court Rules, r 14.6(3)(b)(ii) and (d). See also AAI Ltd v 92 Lichfield Street Ltd  (in receivership and liquidation) [2015] NZCA 559 at [61]-[63]; AAI Ltd v 92 Lichfield Street Ltd [2016] NZHC 90 at [20] and[44]–[48].

15 Savage Garage NZ Ltd v Peramune [2023] NZHC 3864 at [7] and [9].

to their being acceptance that there is genuine factual dispute”. They contended that these types of cases almost always result in an award of 2B costs.16

Assessment

[15]      In this case the statutory demand was withdrawn by the respondent before the first call of the application to set aside and before the respondent had filed any evidence in opposition.17 The merits of the application to set aside the statutory demand have not been determined, in particular the issue of whether there is a substantial dispute with regard to the amount which was the subject of the statutory demand. It is not appropriate for me to make substantive findings on the merits at this stage.

[16]      In the circumstances, I do not consider I can properly find that the respondent’s conduct meets the high threshold for an award of indemnity costs. This is not a case akin to Nags Head Horse Hotel Ltd v Epsom Woods Ltd (Nags Head), 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.18

[17]      However, it seems to me from a review of the correspondence submitted with the costs memoranda that, after the application to set aside and affidavits in support were filed and served on or around 5 February 2024, the respondent recognised that there was a substantial factual dispute at least with regard to a significant proportion of the amount claimed. In my view, this raises an issue as to whether the statutory demand should properly have been issued, at least for the full amount claimed. I also consider that the respondent should have withdrawn the statutory demand earlier. Therefore, I consider there is justification to award the applicant increased costs, but I consider that an uplift of 50% is appropriate.

16 As an example, the respondent’s solicitors referred to Du Val Capital Partners Ltd v Invsta Limited [2023] NZHC 958. However, in that case it is not apparent that the applicant sought indemnity or increased costs, so this was not considered by the Court.

17 In the cases relied on by the applicant to support its claim for indemnity or increased costs, AAI  Ltd, above n 13, and McWilliam Consulting Group Ltd v Keith Ussher Architecture Services Ltd [2012] NZHC 33, the applications to set aside the statutory demands had been determined.

18 Nags Head Horse Hotel Ltd v Epsom Woods Ltd [2020] NZHC 2973 at [38]–[43].

Result

[18]      Accordingly, I order the respondent, Wellington Developments Ltd, to pay the applicant, Cannon Point Development Ltd, costs in the sum of $8,604 and disbursements in the sum of $540.

Associate Judge Skelton

Solicitors:

JB Morrison, Wellington for Applicant Ford Sumner, Wellington for Respondent

NOTICE REQUIREMENT

The solicitors on the record for the parties are to promptly provide a copy of this minute to their clients (r 5.43).