D&Z Brothers Limited v Super Power Earthmoving Limited

[2023] NZHC 3488

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2258

[2023] NZHC 3488

BETWEEN

D&Z BROTHERS LIMITED

Applicant

AND

SUPER POWER EARTHMOVING LIMITED

Respondent

CIV-2022-404-2324

BETWEEN

ZAWS LIMITED
Applicant

AND

SUPER POWER EARTHMOVING LIMITED

Respondent

Hearing:	On the papers
Appearances:	Doug A Cowan / Jose San Diego for the Applicants Cherie Holland for the Respondent
Judgment:	1 December 2023

COSTS JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

This judgment was delivered by me on    1 December 2023    at    3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Doug Cowan Barristers & Solicitors, Auckland, for the Applicants Righteous Law (Cherie L Holland), Auckland, for the Respondent

D&Z BROTHERS LIMITED v SUPER POWER EARTHMOVING LIMITED [2023] NZHC 3488 [1 December 2023]

Introduction

[1]    On 20 September 2022 the respondent, Super Power Earthmoving Limited (Super Power), served its payment claim on D&Z Brothers Limited (D&Z), and on 28 September 2022, Super Power served a payment claim on ZAWS Limited (Zaws).

[2]    On 8 November 2022, Super Power served the statutory demand on Zaws and on 15 November 2022 served a statutory demand on D&Z.

[3]    The originating application to set aside the statutory demands were filed by Zaws on 18 November 2022, and by D&Z on 29 November 2022. The case was set down for a half day fixture, to be heard on 8 May 2023.

[4]    Super Power opposed the originating applications on the basis that neither applicant had a substantial dispute or neither of the applicants served a payment schedule on Super Power. A joint memorandum was filed consenting to consolidation of the applicants’ originating applications, and the two matters were consolidated.

[5]    On 23 April 2023, the applicants withdrew their applications to set aside the statutory demands, and the half-day fixture was vacated by Moore J. Moore J’s minute also directed the parties were to file memoranda as to costs.

[6]    Counsel for Super Power filed a memorandum dated 23 May 2023, and counsel for D&Z and Zaws filed a memorandum in response dated 6 June 2023.

[7]    The Court apologises for the delay in dealing with this matter, but it has only just been referred to me.

Super Power’s submissions

[8]    Ms Holland, for Super Power, submits that Super Power should be entitled to indemnity costs against each of D&Z and Zaws.

[9]    After referring to the leading authority of Bradbury v Westpac Banking Corp,1 she submits that the filing of the originating applications by D&Z and Zaws to set aside the statutory demand were done in wilful disregard of known facts and clearly established law, or were pursuing a hopeless case.

[10]   Ms Holland submits that under ss 22 and 23 of the Construction Contracts Act 2002 (the Act), failing to provide a payment schedule renders a person liable to pay the amount claimed as a debt owing to the party issuing the payment schedule. She submits that neither D&Z nor Zaws provided a payment schedule and did not pay the amount claimed, and are therefore liable to pay the amount claimed as a debt due. She refers to the Court of Appeal’s decision in Demasol Ltd v South Pacific Industrial Ltd,2 where the Court approved the following comments of Asher J in Marsden Villas Ltd v Wooding Construction Ltd:3

…. As far as the principal is concerned, the régime set up is ‘sudden death’. Should the principal not follow the correct procedure, it can be obliged to pay in the interim what is claimed, whatever the merits.

[11]   Ms Holland submits that D&Z and Zaws continued to pursue their applications after Super Power filed its opposition, and did not withdraw their applications until  9 working days prior to the hearing. She submits the originating applications to set aside the statutory demand on the grounds that there was a substantial dispute were hopeless from the inception as a result of the strict principles of the Act and the “sudden death” regime and by pursuing them, D&Z’s and Zaws’ misconduct was flagrant.

[12]Indemnity costs sought by Ms Holland are $11,206.00 plus disbursements of

$110.00 against each of D&Z and Zaws.

[13]   In the alternative, Super Power seeks costs on a 2B basis, with a 50 per cent uplift under rr 14.6(3)(b)(ii) and (iii) as a result of D&Z and Zaws’ failure to accept a legal argument without reasonable justification and of its taking or pursuing an argument that lacks merit.

1      Bradbury v Westpac Banking Corporation Ltd [2009] NZCA 234, [2009] 3 NZLR 400.

2      Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480 at [50].

3      Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807(HC).

D&Z and Zaws submissions

[14]   Mr Cowan, for D&Z and Zaws, submits that indemnity costs are not appropriate. He submits that D&Z’s position, if the hearing had gone ahead, would be that D&Z did in fact issue a payment schedule comprising:

(a)an email sent by Ms Cherie Ma on 21 September 2022 to Mr Thomas James, Super Power’s process-server; and

(b)a letter dated 19 May 2022 from Aspiring Law attached to that email, sent by Ms Ma to Mr James.

[15]   Mr Cowan submits the case for D&Z and Zaws was not hopeless, and their behaviour was not sufficiently bad to come within the criteria set out in the Bradbury case, as justifying indemnity costs.

[16]   Mr Cowan submits that D&Z and Zaws were entitled to apply to set aside the statutory demands as they included interest, in the case of D&Z of an amount of

$21,655.09, and in the case of Zaws an amount of $30,999.00. Mr Cowan submits a statutory demand can only be issued for an amount that is due and owing and at no time prior to the issue of the statutory demand did Super Power calculate or invoice and demand interest from D&Z and Zaws. He submits it was arguable that, at least to the extent of the interest claimed in the statutory demands, the interest ought to have been set aside on the basis that it was not due and owing at the date the statutory demands were issued. He cites Safari BBQ Products Ltd v Safari Vervaardiging CC4 in support of this submission.

[17]Mr Cowan makes the following further submissions:

(a)Indemnity costs should be determined by reference to actual costs incurred. Super Power has failed to include invoices to refer to for indemnity costs sought, and it is inappropriate to seek indemnity costs without reference to actual costs.

4      Safari BBQ Products Ltd v Safari Vervaardiging CC [2022] NZHC 2741 at [18] to [21].

(b)One set of costs payable by D&Z and Zaws jointly is appropriate instead of separate payments from each party because:

(i)affidavits on behalf of Super Power in relation to the two proceedings were near identical;

(ii)Super Power agreed the two applications could be consolidated;

(iii)withdrawal 9 working days before the hearing is of no consequence as Super Power did not take any further steps.

(c)It is inappropriate to claim costs on a recovery on a category 2B basis. The principles in respect of the Act and s 290 of the Companies Act 1993 are well settled, and hearings could be conducted by junior counsel. Accordingly, he submits category 1 and band A are appropriate.

[18]In conclusion, Mr Cowan submits that costs on 1A basis should be assessed at

$2,292.00 plus disbursements of $95.65 as set out in Schedule 1 to his submissions.

Legal principles

[19]   It is clear from the authorities that a high threshold must be passed before an order for indemnity costs is to be made. In Bradbury v Westpac Banking Corp the Court of Appeal summarised the distinction between the three broad approaches to costs as follows:5

(a)a standard scale applies by default where cause is not shown to depart from it;

(b)increased costs may be ordered where there is a failure by the paying party to act reasonably; and

5 Above, n 1, at [27].

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[20]   In Bradbury, the Court of Appeal endorsed Goddard J’s remarks as to some of the categories in which indemnity costs have been ordered:6

(a)The making of allegations of fraud, knowing them to be false and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)commencing or continuing proceedings with some ulterior motive;

(d)doing so in wilful disregard of known facts or clearly established law; or

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions summarised in French J’s “hopeless case” test.

Analysis

[21]   I am of the view that indemnity costs should not be awarded against D&Z and Zaws. The applicants, in my view, have not behave sufficiently unreasonably or badly to justify indemnity costs. They had potentially arguable positions in relation to a payment schedule and the interest component, at least, of the statutory demand was challengeable.

[22]   I am of the view that costs should be assessed on a 2B basis, not a 1A basis as submitted by Mr Cowan. In my view the proceedings were of average complexity, justifying the 2B band classification.

6      Bradbury, above n 1, at [29].

[23]   I am of the view that as the two matters were consolidated, and essentially the issues and factual circumstances were common, costs should be awarded against D&Z and Zaws jointly.

[24]   I am of the view that taking account of the consolidation of the proceedings, proposed arguments by the applicants under the originating applications to set aside the statutory demands on the one hand, and the fact that the applicants withdrew their applications to set aside the statutory demands prior to the hearing on the other hand, costs should be awarded jointly against D&Z and Zaws on a 2B basis, with a 50 per cent uplift.

Orders

[25]   I order that D&Z and Zaws are jointly to pay costs of $8604.00 plus disbursements of $110.00 totalling $8714.00

…………………………….. Associate Judge Taylor