Chillex Services Limited v Best Air Conditioning Limited
[2025] NZHC 2233
•8 August 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2110
[2025] NZHC 2233
BETWEEN CHILLEX SERVICES LIMITED
Applicant
AND
BEST AIR CONDITIONING LIMITED
Respondent
Hearing: On the papers Counsel:
G K Holm-Hansen and T C Fu for Applicant G Jindal for Respondent
Judgment:
8 August 2025
JUDGMENT OF ASSOCIATE JUDGE PAULSEN (COSTS)
This judgment was delivered by me on 8 August 2025 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
CHILLEX SERVICES LIMITED v BEST AIR CONDITIONING LIMITED [2025] NZHC 2233 [8 August 2025]
[1] Chillex Services Ltd (Chillex) engaged Best Air Conditioning Ltd (in liquidation) (Best Air) as its subcontractor to supply and install ducting for air- conditioning on a building project. Best Air served Chillex with a statutory demand for an amount said to be due and owing for construction works “as set out in the attached payment claims, payment schedules, statements and invoices” as well as legal costs and interest due for late payment of retentions.
[2] In a judgment of 27 June 2025 I granted Chillex’s application to set aside the statutory demand.1 I also determined that Chillex was entitled to costs. I imposed a timetable for memoranda to be filed if quantum could not be agreed and directed that I would determine costs on the papers.2 On the application of counsel I granted an extension of time for the memoranda to be filed, but no agreement was reached between them on costs.
[3] Chillex has asked that indemnity costs be awarded to it. Alternatively it seeks 2B scale costs with a 100 per cent uplift. It also seeks leave to file an application for costs against Best Air’s lawyer personally and/or against the liquidators of the company in the event payment of any costs award is not made.
[4] Best Air has asked that the issue of costs be deferred pending the hearing of its appeal from my decision to the Court of Appeal. In the event I am not minded to do so, it asks for further time to file submissions.
[5]The issues I need to determine are:
(a)whether I should defer a decision on costs;
(b)whether Chillex is entitled to indemnity costs, and if so the quantum of such costs; and
(c)whether I should reserve leave to Chillex to apply for costs against Best Air’s lawyer and/or its liquidators.
1 Chillex Services Ltd v Best Air Conditioning Ltd [2025] NZHC 1729
2 At [107].
The application to defer a determination on costs
[6] Best Air’s application that a decision on costs be deferred is based upon the submission that determining costs will be time consuming because Chillex’s claims are exceptional and include a claim for costs against non-parties. It says the Court of Appeal should decide its appeal without being influenced by these costs issues, and the parties should focus on the appeal.
[7] However, Best Air’s counsel acknowledges “if it were simply a cost issue without Chillex seeking leave to seek costs from non-parties, no case of deferment would be made”. Chillex is not presently seeking costs against non-parties. It only asks that the Court reserve leave to make such an application in the future. The basis advanced to defer a decision on costs does not exist and I do not grant the request to do so.
[8] Best Air then submits that, if I am not minded to defer a decision on costs, it should be granted further time to file evidence and submissions. I do not grant it further time, and some more factual context is required to understand why.
[9] As I have noted above, my judgment provided a timetable for the filing of submissions on costs.3 Chillex’s lawyers wrote a comprehensive letter to Best Air’s lawyer on 8 July 2025 putting a proposal in relation to costs, including an offer to compromise its claim for indemnity costs. Mr Jindal responded immediately, rejecting the offer of compromise, stating that he would be unavailable until 21 July 2025 and “[w]e will need to ask the Court for time until, say, the end of July 2025”.
[10] On 9 July 2025, Chillex’s lawyers wrote to Mr Jindal, noting that as Chillex’s compromise offer had been rejected it was unclear what purpose would be served by allowing further time for the filing of submissions on costs. Notwithstanding that, Chillex agreed to further time strictly on the basis that if costs were not resolved by 21 July 2025 it would proceed with preparing and filing an application for indemnity costs.
3 Chillex Services Ltd v Best Air Conditioning Ltd, above n 1.
[11] Counsel then filed a joint memorandum with the Court dated 10 July 2025 seeking directions that Chillex’s application for costs be made by memorandum by 23 July 2025 and Best Air would file a response by 30 July 2025. I made directions accordingly.
[12] Subsequently, there being no agreement on costs, Chillex filed its submissions on 23 July 2025 as timetabled. However, Best Air then asked the Court to defer its decision and Mr Jindal advised that Best Air wished to file affidavits of its director, Mr Syed, and the liquidators in response to Chillex’s memorandum but “[b]oth Mr Syed and the liquidators have a busy work schedule; Mr Syed has indicated that he will be able to attend to this within the next 3 or 4 working days”.
[13] Mr Jindal provided no explanation for his actions in agreeing to an amended timetable to file submissions on costs and then not complying with it, and despite the passage of time no affidavit of Mr Syed has been filed and no timeframe suggested for when the liquidators would file evidence. Furthermore, it is difficult to see what evidence Mr Syed or the liquidators could offer in respect to the issue of costs.
[14] Best Air has already had sufficient time to file submissions on costs. Its failure to comply with the Court’s directions followed by the application to defer any decision on costs is reflective of the unsatisfactory way it has conducted itself in this litigation. Chillex is entitled to a decision on costs without further delay.
Costs principles
[15] All issues of costs are discretionary, but the discretion must be exercised judicially having regard to the principles set out in the High Court Rules 2016 (the Rules). Rule 14.2 sets out general principles applying to the determination of costs. Particularly relevant in this context are:
(a)the party who fails with respect to a proceeding should pay costs to the party who succeeds;4
4 High Court Rules 2016, r 14.2(1)(a).
(b)an award of costs should reflect the complexity and significance of a proceeding;5 and
(c)so far as possible the determination of costs should be predictable and expeditious.6
[16] A party seeking increased costs bears the onus of demonstrating that such costs are justified.7 In asking the Court to award indemnity costs Chillex relies on r 14.6(4), which relevantly provides:
14.6 Increased costs and indemnity costs
...
(4)The court may order a party to pay indemnity costs if—
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
…
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[17] Indemnity costs orders are exceptional. The Court of Appeal in Bradbury v Westpac Banking Corporation said:8
Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant” ...
[18]Recently, in Zheng v Mai, O’Gorman J summarised the position as:9
[30] The definition of indemnity costs in r 14.6(1)(b) requires that they be “reasonably incurred”.
[31] Acting vexatiously, frivolously, improperly, or unnecessarily requires that the unsuccessful party has pursued a “hopeless case”, being a position
5 Rule 14.2(1)(b).
6 Rule 14.2(1)(g).
7 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].
8 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [28], citing
Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SCNZ) at [6].
9 Zheng v Mai [2025] NZHC 2117 (footnotes omitted).
“totally without merit” and “bound to fail”, or one commenced or continued for an ulterior motive or where there has been wilful disregard of the known facts or the clearly established law.
[19] There have been many cases where the courts have held that a party who has issued a statutory demand without proper cause must pay at least increased costs, including with an uplift of up to 100 per cent or indemnity costs.10
[20] Also relevant in the present context is r 2.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008:
2.3A lawyer must use legal processes only for proper purposes. A lawyer must not use, or knowingly assist in using, the law or legal processes for the purpose of causing unnecessary embarrassment, distress, or inconvenience to another person’s reputation, interests, or occupation.
[21]The footnote to that rule provides:
Examples of the breaches of the rule might include: issuing a statutory demand under the Companies Act 1993, knowing that (or failing to make inquiries whether) the debt is bona fide disputed …
Is Chillex is entitled to indemnity costs, and if so what quantum?
[22] The reasons I set aside Best Air’s statutory demand are detailed in my judgment and I do no more than summarise them as:
(a)Best Air’s assertion that invoices supporting Payment Claims 1 and 2 upon which the statutory demand was primarily based were themselves payment claims was not pursued at the hearing.11
(b)The statutory demand claimed sums in respect to costs and interest on retentions which Best Air made no attempt to justify and could not be sustained.12
10 Teak Construction Group Ltd v KMJB Harris Ltd [2025] NZHC 1248; Veronica West Ltd v Master Design Furniture Ltd [2025] NZHC 1753; New India Assurance Co Ltd v Ziwi Ltd [2024] NZHC 3817; Four Avenues Property Group Ltd v Higgs Construction Ltd [2016] NZHC 1202; and AAI Ltd v 92 Lichfield Street [2016] NZHC 90.
11 Chillex Services Ltd v Best Air Conditioning Ltd, above n 1, at [5].
12 At [6].
(c)The statutory demand was issued prematurely as Payment Claims 1 and 2 were not due for payment.13
(d)Best Air had not, as it contended, terminated the contract between it and Chillex and the amount of the statutory demand was not due and owing on that basis.14
(e)To the extent Best Air argued that upon termination of the contract the amount claimed in the statutory demand was due and owing, the debt was materially misdescribed and:15
[Chillex’s counsel] understandably expressed frustration at the hearing that it was, even at the late stage of making reply submissions, still unclear whether Best Air was advancing its case under the [Construction Contracts] Act at all.
(f)Best Air’s Payment Claims 1 and 2 were not valid payment claims under the Construction Contracts Act.16
(g)Chillex’s payment schedules were valid payment schedules under the Construction Contracts Act and while Best Air contended otherwise “it was not at all clear to me why it took that position”.17
(h)Best Air’s contention that, notwithstanding that Chillex had issued valid payment schedules, the Court should look behind the reasons provided for withholding payments was wrong in principle.18
(i)Contrary to Best Air’s contention, certified payments in payment schedules could be revised in later payment schedules.19
13 At [52].
14 At [57].
15 At [55].
16 At [68].
17 At [69].
18 At [71].
19 At [78].
(j)Contrary to Best Air’s contention, Chillex was entitled to raise counterclaims/setoffs in response to Payment Claims 1 and 2.20
(k)Best Air was not correct that Chillex had relied upon an unlawful “pay when paid” clause in the contract to withhold payments.21
(l)There were genuine disputes as to Chillex’s liability for amounts that Best Air contended Chillex had failed to respond to in Payment Claims 1 and 2 and additional issues that Best Air raised after the hearing:22
…did no more than add to the confusion of this case, demonstrate that there is a genuine and substantial dispute as to any amount owing, and that the use of the statutory demand procedure was inappropriate.
[23] Although awarding indemnity costs is exceptional, I agree with Chillex that it has surpassed by some margin the threshold justifying the making of such an award.
[24] The first reason is that, in my view, Best Air’s case was hopeless and always bound to fail. In this respect, Best Air has never addressed the fundamental difficulty it faced that, leaving all other matters aside, the statutory demand had been issued prematurely. Best Air’s approach of issuing what purported to be payment claims, followed very quickly afterwards with a notice of termination of the contract and a statutory demand was improper and an abuse of process in circumstances where it was clear the debt claimed was disputed. Its misconduct in issuing the statutory demand was, to my mind, flagrant.
[25] I also agree with Chillex that Best Air adopted a scattergun approach in responding to Chillex’s application, upon which it had no success on any issue. It raised arguments and abandoned them at the hearing, raised plainly incorrect arguments, made arguments but presented no submissions to justify them, and then raised new arguments to which Chillex had to respond after the hearing.
20 At [81].
21 At [85].
22 At [89].
[26] Next, as I noted in my judgment, there was no reason for Best Air to have approached the matter in the way it did.23 It sought to use the statutory demand procedure to litigate disputed matters of substantive liability, notwithstanding there were other avenues for obtaining a speedy resolution of those matters by using the dispute resolution procedures in the contract between the parties or under the Construction Contracts Act.
[27] Best Air was also put on notice in correspondence between the parties’ lawyers, before it issued the statutory demand, that the issue of a statutory demand would be inappropriate and amount to a breach of the professional obligations of Best Air’s lawyer. Notwithstanding that, it went ahead and issued the demand.
[28] The risk that Best Air would to be liable for indemnity costs on an application to set aside the statutory demand was also raised in correspondence between lawyers and also by the Court. On 20 September 2024, Associate Judge Gardiner issued a Minute which notably raised two issues, namely:
[6] The liquidators will be aware that if an application to set aside a statutory demand is successful, the party that issued the statutory demand will be liable for the applicant’s costs. If the Court finds that the statutory demand was an abuse of process because the debt is plainly disputed, the party that issued the statutory demand may be ordered to pay indemnity costs.
...
[9] Finally, I record my concern that the respondent’s counsel, Mr Jindal, appears to have, through his wife, Dr Deepika Jindal, a personal interest in the respondent. 51 per cent of Best Air Conditioning Limited is owned by Ingenious 1 Limited. Dr Jindal is the sole director of that company. Ingenious 1 Limited is wholly owned by Ingenious Limited. That company is wholly owned by Dr Jindal, and she is the sole director.
[29]Chillex has sought the following costs in the proceeding:
(a) $56,397.37 in costs;
(b)$2,307.39 in disbursements; and
23 At [104].
(c)$7,890 in respect to work in progress for preparing submissions on costs.
[30] Chillex has filed an affidavit in support of its costs claim and exhibited copies of its invoices and described the work undertaken. The evidence before me is that the amounts claimed are GST exclusive and the costs incurred have been reviewed to ensure the legal fees and disbursements claimed only relate to this proceeding and exclude attendances:
(a)prior to the issue of the statutory demand; and
(b)incurred for other matters relating to the wider construction contract that were recorded against the same matter number within Chillex’s lawyers’ records.
[31] The rates charged by Chillex’s lawyers are provided and it has been demonstrated that the work was undertaken by staff with a range of experience and seniority, consistent with the delegation of tasks to staff at appropriate levels. I accept that the rates are in line with what is commonly charged for the performance of litigation work of this kind and are reasonable in all the circumstances.
[32] The amounts sought are significant. However, I again agree with Chillex’s submissions that the costs incurred are also reasonable when one takes into consideration:
(a)the way that Best Air pursued its case;
(b)the number of issues raised by Best Air which it was necessary for Chillex to respond to;
(c)the evidence and memoranda filed by Best Air, including a voluminous affidavit of its director, Mr Syed; and
(d)that Best Air sought to file further material following the hearing which Chillex was required to respond to and, as I have noted, simply added to the general confusion in relation to its position.
[33] Chillex’s counsel has addressed the issue of whether it is appropriate to claim costs for preparing costs submissions. I was referred to Fechney v New Zealand Law Society, where the Court noted:24
[16] As the applicant in this case had the opportunity to agree on costs before the Society was put to the need to prepare and file its memorandum, a reluctant approach for ordering of costs in that regard could not be justified in any event.
[34] I see no reason in principle why costs should not be awarded for the preparation of costs submissions, particularly in circumstances where Chillex made a reasonable offer to resolve all issues of costs between the parties at a figure considerably smaller than it will now be awarded. Best Air has had the opportunity to agree costs and has provided no further explanation for its bald assertion in correspondence that there is no cause for a claim of indemnity or increased costs.
[35] I am satisfied the amounts claimed by Chillex are fair and reasonable and should be awarded.
Leave to further apply
[36] I am not prepared at this stage to grant Chillex leave to make a further application for costs against Best Air’s lawyer personally and/or the liquidators of the company. It is not appropriate in my view to make such an order prospectively. I leave the matter on the basis that if Chillex intends to make such an application it will seek leave to do so at that time.
24 Fechney v New Zealand Law Society [2024] NZHC 775.
Result
[37]Chillex is awarded indemnity costs of this proceeding as follows:
(a)legal costs of $64,287.37 (including in respect to preparation of costs submissions); and
(b)disbursements of $2,307.39.
O G Paulsen Associate Judge
Solicitors:
Hesketh Henry, Auckland Ormiston Legal, Auckland
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