Diya & Dakshl Limited v Big Sky Food Limited
[2024] NZHC 823
•17 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-330
[2024] NZHC 823
UNDER Section 290 of the Companies Act 1993 AND
An application to set aside a statutory demand
BETWEEN
DIYA & DAKSHL LIMITED
Applicant
AND
BIG SKY FOOD LIMITED
Respondent
Hearing: On the papers Counsel:
S R G Judd for the Applicant
C T Patterson for the Respondent
Judgment:
17 April 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
[costs]
This judgment was delivered by me on 17 April 2024 at 12 midday.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
Sandra Balan & Associates, Auckland Whitcombe Law, Dunedin
Counsel:
Kitchener Chambers, AucklandChris Patterson Barrister Ltd, Auckland
DIYA & DAKSHL LIMITED v BIG SKY FOOD LIMITED [2024] NZHC 823 [17 April 2024]
Introduction
[1] The applicant, Diya & Dakshl Ltd (Diya), was a franchisee of a “Phat Phillip” ice-cream shop in premises in WestCity mall in Henderson, Auckland. The franchisor was the respondent, Big Sky Food Ltd (Big Sky). Diya and Big Sky fell into dispute in respect of the franchise.
[2] On 1 February 2024, Big Sky terminated the franchise agreement by taking possession of the premises. On 8 February 2024, Big Sky served a statutory demand on Diya, demanding payment of various amounts allegedly due under the franchise agreement.
[3] Diya filed an originating application for an order setting the statutory demand aside. Big Sky did not file a notice of opposition. On 26 February 2024, Big Sky withdrew the statutory demand. Diya now seeks costs on the originating application.
Legal principles
[4] In New Zealand Mint Ltd v Greys Avenue Investments Ltd,1 Associate Judge Bell observed that in “cases where proceedings are withdrawn, the court is wary of speculating on the possible outcome”.2 Rather, in such circumstances, “another approach is followed. There is a presumption that costs should go against the party starting the proceeding”.3
[5] This principle accords with the general approach set out in the High Court Rules 2016 (HCR). Rule 15.23 provides:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[6] The withdrawal of a statutory demand is not a discontinuation of a proceeding.4 Often, as in this case, the proceeding is commenced by the party that was served with
1 Greys Avenue Investments Ltd v New Zealand Mint Ltd [2015] NZHC 2633.
2 At [22].
3 At [22].
4 At [30].
the demand rather than the party that withdraws the demand. Therefore, the surrounding circumstances must be considered.
[7] As the High Court noted in Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd, it is generally sufficient to consider the withdrawal of a statutory demand as equating to a discontinuation of the proceeding.5
Analysis
[8] The starting point is that Diya is to be treated as the successful party, entitled to 2B costs unless either:
(a)Big Sky can establish grounds for a refusal of, or reduction in, costs under r 14.7 of the HCR; or
(b)Diya can establish grounds for increased costs or indemnity costs under r 14.6 of the HCR.
[9] Counsel for Big Sky submits that Big Sky did not receive any substantive response from Diya following issue of the invoices that are the subject of the statutory demand, and that Diya did not raise its dispute until after service of the statutory demand.
[10] I reject that submission. Diya set out the grounds on which Diya disputed any liability to Big Sky in a series of emails from 20 December 2023 to 1 February 2024, from the director of Diya to a representative of Big Sky. The matters raised included:
(a)a denial that Diya had failed to disclose its sales to Big Sky as required by the franchise agreement;
(b)an allegation by Diya that Big Sky had provided a false sales report to induce Diya to enter into the franchise agreement;
5 Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd [2013] NZHC 3077 at [19].
(c)a complaint by Diya that Big Sky was not assisting with marketing;
(d)a complaint by Diya that Big Sky had not remedied issues with the premises and equipment sold to Diya by Big Sky;
(e)an allegation that Big Sky had wrongfully retained proceeds of sale of products due to Diya but received by Big Sky resulting from the late changeover of the EFTPOS machine; and
(f)an assertion that Big Sky’s re-entry into the premises was unlawful and Big Sky was unlawfully retaining Diya’s stock and cash on hand in the premises.
[11] Big Sky was aware of the substance of Diya’s dispute of the invoices rendered by Big Sky before Big Sky elected to issue the statutory demand.
[12] Big Sky did not issue a letter of demand to Diya before issuing the statutory demand or provide any warning that a statutory demand would be issued. Given the tight time limit prescribed in the Companies Act 1993 for filing and serving an application to set aside a statutory demand, I do not accept counsel for Big Sky’s submission that Diya should be penalised for not challenging the statutory demand by correspondence before filing the originating application.
[13] There is no basis for a reduction in costs on the grounds that Diya failed to raise its dispute before the statutory demand was issued.
[14] For the same reasons, I accept the submission of counsel for Diya that the issue of the statutory demand by Big Sky was an abuse of process, justifying an increase in costs. I do not consider that Big Sky’s conduct warrants an award of indemnity costs. An award of 2B costs would be $5,736. An uplift on 2B costs of 25 per cent is appropriate.
Result
[15] The respondent shall pay the applicants costs of $7,170, together with disbursements of $988.50.
Associate Judge Brittain
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