Creative Development Solutions v Chorus New Zealand Limited
[2020] NZHC 2180
•27 August 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-318
[2020] NZHC 2180
UNDER section 290 of the Companies Act 1993 BETWEEN
CREATIVE DEVELOPMENT SOLUTIONS
Applicant
AND
CHORUS NEW ZEALAND LIMITED
Respondent
Hearing: 19 August 2020 Appearances:
M Wigley for the applicant
V Heine and H Kerry for the respondent
Judgment:
27 August 2020
Reissued:
22 September 2020
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] The applicant, Creative Development Solutions Ltd (Creative), applies pursuant to s 290(4)(a) of the Companies Act 1993 for an order setting aside a statutory demand served by the respondent, Chorus New Zealand New Zealand Ltd (Chorus).
[2]The background is not complicated.
[3] In mid-2018 Creative commenced proceedings against Chorus, alleging that Chorus had unlawfully usurped its intellectual property.
[4] The proceeding came on for trial in late 2019. In a judgment dated 13 November 2019 Dobson J dismissed Creative’s claim.
CREATIVE DEVELOPMENT SOLUTIONS v CHORUS NEW ZEALAND LIMITED [2020] NZHC 2180
[27 August 2020]
[5] On behalf of both parties counsel made submissions by memoranda in relation to costs.
[6] In a judgment dated 18 February 2020, Dobson J dealt with costs. For the reasons there stated, his Honour awarded Chorus costs on a 3B basis from 28 June 2019 together with disbursements properly incurred by it in the litigation from that date, but reduced both the costs and the disbursements by half.
[7] Subsequently, the Registrar sealed judgment including as to costs and disbursements totalling $86,704.14.
[8] Chorus served its statutory demand dated 2 June 2020 on 22 June 2020. This demanded payment of an earlier costs award made by Mallon J for $5,575 in connection with an interlocutory step in the proceeding, and the $86,704.14 award.
[9]Creative filed and served this proceeding on 22 June 2020.
[10] I pause at this point to mention that Creative has appealed from Dobson J’s substantive judgment of 13 November 2019. Apparently, the appeal is set down to be heard in the very near future. That, however, is irrelevant to the disposal of the application before me, because Creative is not seeking a stay of Dobson J’s costs judgment pending the disposal of its appeal.
[11]Mr Wigley put Creative’s application on one basis.
[12] His submission was that the sealed order was a nullity ab initio, on which basis he argued that there was no debt owed to Chorus by Creative behind the former’s statutory demand. He argued that if that contention is arguable, then, in terms of s 290(4)(a) of the Companies Act, Creative is entitled to an order setting aside the statutory demand.
[13] On what basis, then, is it contended that the sealed judgment was a nullity from the outset?
[14]Mr Wigley relied on three authorities.
[15] In Bank of Nakhodka v The Fishing Vessel “Abruka”,1 the plaintiff succeeded in its substantive action against the defendant and secured a costs award of $7,000 plus such disbursements as might be allowed by the Registrar. Although the report is not especially clear as to how matters proceeded from this point, it would seem that the Registrar ultimately invited the parties to make submissions on a proposed schedule of costs and disbursements, but that neither party elected to do so, and, after a time, the Registrar went ahead and sealed the judgment.
[16] The defendant sought a review of the Registrar’s decision raising issues in relation to certain disbursements.
[17] Patterson J declined to review the Registrar’s decision because, his Honour concluded, the Registrar had provided both parties with an opportunity to make submissions and in those circumstances neither party — and most particularly the defendant — had not been denied natural justice, even although it had not availed itself of the opportunity it had been offered.
[18] As Ms Heine submitted, in those circumstances, anything that the Court said about the consequences where a party is deprived of the opportunity to have its say in relation to costs or disbursements is by definition obiter. Nevertheless, Patterson J’s observations in relation to this are persuasive. These are accurately and neatly captured in the headnote as follows:
(1)the basic principle is that once a judgment has been sealed which accurately expresses the court’s intention, it is to be regarded as final. This assumes that both parties have been given the opportunity to be heard. If not, the judgment may be a nullity.
[19] In Gairloch Holdings Ltd v Tullimore Investments Ltd,2 Associate Judge Gendall (as he then was) began his judgment by describing the background as follows:
[1] On 4 August 2010, this Court made an order awarding category 2B scale costs in favour of the plaintiff on a discontinued summary judgment application. On 19 August 2010, quantified costs in accordance with a
1 Bank of Nakhodka v The Fishing Vessel “Abruka” (1997) 10 PRNZ 659.
2 Gairloch Holdings Ltd v Tullamore Investments Ltd Wellington CIV-2010-485-295, 16 September 2010.
schedule provided by the plaintiff at $10,340.00 fixed disbursements at
$1,275.00 and sealed the order. The defendant apparently did not receive an opportunity to make submissions or to comment on the plaintiff’s scheduled before the order was sealed.
[2] The defendant now seeks review of the Registrar’s assessment of costs. In particular, the defendant objects to the inclusion of three items in the plaintiff’s schedule that it says do not properly reflect the proceeding.
[20] The Judge relied on Bank of Nakhodka for the principle that “Where a judgment has been perfected by sealing and accurately expresses the true intention of the court, it cannot be set aside or varied on the grounds that it is erroneous”. The Judge went on to say that in that case the court had concluded that “the finality rule does not apply where the Registrar overlooks the requirement of giving the party adversely affected the right to be heard, as the Registrar’s decision would then constitute a nullity”. 3 The Judge concluded that, even after sealing, if a judgment can be demonstrated to incorporate an assessment by the Registrar of costs or disbursements in relation to which an applicant party did not have an opportunity to have its say then any errors could be fixed by way of review or under the slip rule. Ultimately, the Judge concluded that there were errors in the Registrar’s assessment and corrected these under the slip rule.4
[21] Cameron v Coleman is another judgment of Associate Judge Gendall in which his Honour referred to his earlier decision in Gairloch and summarised his conclusion there as follows:5
[18] A sealed costs order generally can be rectified on two alternative grounds: Gairloch Holdings Ltd v Tullamore Investments Ltd.6 The first is in a situation where an applicant does not receive an opportunity to be heard and therefore the costs order is a nullity. The second is where the costs order contains an error, which could be rectified pursuant to the slip rule in r 11.10.
[22]The Judge continued:
[7] In the present case, Ms Harley, for the respondents, maintains that the respondents were not provided with a draft order prior to its sealing. I am satisfied that there is a reasonable argument here that this fact alone is sufficient to render the Registrar’s order a nullity. An adversely affected party
3 At [12].
4 At [19]-[20].
5 Cameron v Coleman HC Wellington CIV-2010-48-2151, 5 October 2011.
6 Above n 2, at [18].
must be given an opportunity to be heard: Steel v Bruce County Council;7 Crew v Crew.8 I now turn to consider, in light of the parties’ arguments the costs order was nevertheless correct.
[23] The Judge went on to conclude that the sealed judgment was a substantive outcome in the proceeding, set aside the Registrar’s order and substituted an alternative order for costs and disbursements correcting certain errors.9
[24] In my view, Bank of Nakhodka, Gairloch Holdings and Cameron all fit comfortably within a broader line of cases dealing with sealed judgments, substantive or otherwise.
[25]It appears to me that the principles at play are these:
(a)Once a judgment is perfected by sealing, in the interests of finality, it is not generally open to a party to challenge it except by way of the exercise of an available right of appeal. This is what is referred to in the cases as the principle of finality. It is grounded on public policy favouring finality and certainty of outcome in litigation;
(b)However, that starting point must yield to principles of natural justice or fairness in the conduct of litigation. So, materially for present purposes, if the Court makes an order granting costs and disbursements to one party without determining definitively the quantum of any aspect of the same, leaving that for determination by the Registrar, then, as a matter of natural justice, the Registrar is bound to ensure that the parties have a fair opportunity to have their say before determining whatever he or she must determine;
(c)If the Registrar does not do that, then a party adversely affected is entitled to have the situation remedied, which may be done by review or under the slip rule depending on the circumstances of the case;
7 Steel v Bruce County Council HC Dunedin M237/83, 26 February 1986.
8 Crew v Crew [1921] NZLR 769 (SC).
9 At [25].
(d)In seeking such a remedy, the applicant will have to establish:
(i)First, that the Registrar failed to ensure that it had a fair opportunity to have its say in relation to the issue determined; and
(ii)Second, that the judgment as sealed contains a non-trivial error requiring correction.
[26] To the extent that the above summary may appear to be inconsistent with the more absolute terminology used in the cases referred to — and other cases — such as “nullity”, I do not think that the cases are authority for the proposition that in the circumstances under consideration the sealed judgment is a nullity and of no force from the outset. It seems to me that what they establish is that in such circumstances the courts are able to intervene to correct an unfairness, as Associate Judge Gendall did in Gairlock and Cameron, where this is warranted by a miscarriage of justice resulting from the applicant having been deprived of a right to have a say.
[27] There is an obvious and helpful analogy with applications for orders setting aside judgments obtained by default.
[28] Where a party against which a judgment obtained by default is seeking to have the judgment set aside, for example on the basis that for some legitimate reason it was unable to enter a defence on time, there is no point in applying to set the judgment aside unless it can also say that it has an arguable defence.
[29]That brings me to an assessment of Creative’s application here.
[30]In my judgment, Creative faces three difficulties.
[31] The first difficulty is that Chorus’ statutory demand relates to two costs judgments, the first being the judgment of Mallon J dated 30 April 2019 in which her Honour made a costs award of $5,575 in respect of an interlocutory step in the proceeding which became payable straight away, and the second being the judgment of Dobson J including as to the costs and disbursements of the trial. The former is not
challenged. It is only the second that is under attack. Putting all other aspects of the case to one side, it seems to me that Chorus is entitled to say that, at least in respect of the former, its statutory demand is unchallenged.
[32] It is well settled that a party’s statutory demand will not be set aside where a component of it that exceeds the statutory minimum of $1,000 is unchallenged or unsuccessfully challenged.
[33] It follows that even if Creative’s challenge to the latter judgment were to succeed it would not undermine the statutory demand in its entirety.
[34] The second difficulty for Creative is that even a superficial analysis of the exchanges between the parties relating to costs and disbursements indicates that Chorus’ solicitors identified precisely what Chorus was seeking in terms of both.
[35]Without going into detail:
(a)In the course of the parties’ exchange of submissions on costs, Chorus’ solicitors provided their assessment of costs calculated on a 3B basis, and Creative’s solicitors responded saying:
No issue is taken to Chorus calculation of scale costs save for what is expected to be an uncontroversial error, reducing scale costs from $142,524.25 to $134,617.05.
(b)On 12 March 2020, and then again on 5 May 2020, Chorus’ solicitors wrote to Creative’s solicitors demanding payment of the outstanding costs and disbursements. In this correspondence, Chorus’ solicitors identified the precise sum being sought for disbursements. Creative’s solicitors did not reply.
(c)Then in mid-May 2020 Chorus’ solicitors were attempting to have the Court’s substantive judgment — inclusive of costs and disbursements
— sealed. They prepared a draft which in terms of costs was based on Creative’s solicitor’s lower figure, and in terms of disbursements used the figure that had been provided to Creative’s solicitors back in March
and again in early May. In an email dated 13 May 2020 Chorus’ solicitors asked Creative’s solicitors to confirm agreement to the terms of this draft, and in a rely email dated 14 May 2020 Creative’s solicitors replied:
Good to go …
[36] The quantum of costs and disbursements did not change thereafter and are reflected in the judgment as ultimately sealed.
[37] Thus, Chorus gave Creative an opportunity to comment on both costs and disbursements. It is true that that does not mean that the Registrar gave Chorus an opportunity to have its say. However, in my view, that is an immaterial distinction. Any experienced solicitor will confirm that in the overwhelming majority of cases costs and disbursements are settled by the parties’ solicitors or counsel, and not determined by the Registrar.
[38] The essential point is that Creative was given an opportunity to have its say in relation to both costs and disbursements, and availed itself of those opportunities. In the case of costs its view prevailed. In the case of disbursements it expressly agreed to the quantum sought for the very purpose of having the judgment sealed.
[39] It seems to me that in those circumstances, whether they did so or not, Chorus’ solicitors could have correctly undertaken to the Registrar that Creative had agreed to the costs and disbursements in the amounts involved.
[40] The third difficulty for Creative is that although Mr Wigley did in the course of his submissions identify one objection which he says is now taken to the schedule of costs as sealed, I am by no means satisfied that that objection would take Creative very far. The objection is to the allowance for second counsel for the trial. This was plainly a complex matter, as evidenced by Dobson J’s determination that costs should be calculated on a 3B basis. It appears to me to be almost inconceivable that in such circumstances a party would not be successful in contending for an allowance for two counsel. In this regard, I note that, in fact, Dobson J’s substantive judgment of
November 2019 records Chorus as having been represented by four counsel, whereas the allowance sought was for only two.
[41] Thus, the third difficulty that I perceive Creative as having is that even if it were successful in contending that there was a flaw in the process leading to the sealing of the judgment, it is by no means obvious to me that it was prejudiced, or, to put it in another way, that the outcome would be any different if the matter were now reconsidered.
[42] Against that background, my judgment is that Creative is unable to establish, even to the point of an arguable case, that there is a substantial dispute as to any component of Chorus’ statutory demand.
[43]For those reasons, I dismiss the application.
[44] Pursuant to s 290(3) of the Companies Act I extend the period for compliance with Chorus New Zealand’s statutory demand to 4.00 pm on Tuesday 6 October 2020.
[45] As to costs, my preliminary view is that Chorus as the successful party is entitled to its costs on a 2B basis. However, as I have not heard from counsel in relation to costs I reserve these. I would expect counsel to be able to sort costs out. If they are unable to do so, however, they may come back by memorandum in the usual way.
Associate Judge Johnston
Solicitors:
Wigley and Company, Wellington for applicant Chapman Tripp, Wellington for respondent
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