Du Val Capital Partners Limited v Invsta Limited
[2023] NZHC 3164
•10 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-958
[2023] NZHC 3164
UNDER the Companies Act 1993 IN THE MATTER OF
an application under section 290 of the Companies Act 1993
BETWEEN
DU VAL CAPITAL PARTNERS LIMITED
Applicant
AND
INVSTA LIMITED
Respondent
Hearing: On the papers Appearances:
F B Collins/Aasha Foley for the Applicant George Bogiatto for the Respondent
Judgment:
10 November 2023
COSTS JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
This judgment was delivered by me on 10 November 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Culliney Foley (Aasha Foley), Hamilton, for the Plaintiff George Bogiatto, Parnell, Auckland, for the Defendant
Counsel:
F B Collins, Barrister, Lambton Chambers, Wellington, for the Plaintiff
DU VAL CAPITAL PARTNERS LIMITED v INVSTA LIMITED [2023] NZHC 3164 [10 November 2023]
Introduction
[1] The applicant, Du Val Capital Partners Limited (Du Val), applied on 13 September 2023 to set aside a statutory demand issued by the respondent company, a software solution provider, Invsta Limited (Invsta).
[2]The statutory demand was issued on 13 September 2023 for $100,730.69.
[3] On 22 September 2023 (six calendar days before the fixture set down for 28 September 2023), after Du Val had filed its submissions and the common bundle of documents, Invsta conceded that the demand should set aside.
[4]Du Val now claims 2B costs and disbursements, being 2B costs totalling
$10,277.00 and disbursements of $810.25, totalling $11,087.25.
Du Val’s submissions
[5] Counsel for Du Val begins with the primary presumption that the unsuccessful party should pay costs to the successful party, referring to r 14.2(1)(a) of the High Court Rules 2016. He submits that if the statutory demand is withdrawn before the hearing of an application to set it aside, the withdrawal is treated as analogous to a discontinuance.1 He submits that on a discontinuance the plaintiff bears the onus of displacing the presumption in r 15.23 of the High Court Rules that the plaintiff must pay the defendant’s costs.
[6]Counsel for Du Val poses two questions:
(a)Was it reasonable to issue the demand?
(b)Why was the demand withdrawn?
\
1 York Trustees Limited v Body Corporate 166208 [2014] NZHC 2748 at [7].
Was it reasonable to issue the statutory demand
[7] Counsel for Du Val submits that this was a factual dispute regarding whether Du Val was entitled to cancel its contractual arrangements with Invsta, who was to provide it with a software system to enable the efficient signing-on of new investors to its mortgage fund. On 8 February 2023, a letter from Du Val’s in-house counsel to Invsta noted a number of issues that had not been resolved, that the product was not fit for purpose and cancelled the contractual arrangements. Invsta disputed that, and claimed a cancellation fee equivalent to 12 months hosting fees.
[8] Counsel for Du Val submits that such a dispute was not appropriate for the statutory demand process. It related to cancellation of a contract where both parties had opposing factual views of the quality of the supplied product, and whether it had been approved. The agreed contractual dispute resolution procedure, which required negotiation and then arbitration, was not followed. Counsel for Du Val submits that Invsta’s solicitors’ first and only step was to issue a statutory demand without making any effort to first explore the merits of the dispute through correspondence, or utilise the agreed dispute resolution procedure.
Why was the demand withdrawn?
[9] Counsel for Du Val submits that the Du Val’s position has been consistent in stating that the software product was not fit for purposes and was never approved. He submits that subsequent to withdrawing the statutory demand, Invsta decided to resolve the dispute through the agreed dispute procedure. He suggests that this involves Invsta accepting that there was a genuine factual dispute that needed to be resolved by the dispute resolution process or by negotiation, not by the statutory demand procedure.
Invsta’s submissions
[10] Counsel for Invsta submits that at the time the statutory demand was issued it was entirely reasonable for Invsta to issue it. He submits as follows:
(a)that Invsta was seeking to recover monthly subscription fees, as well as a cancellation fee as set out in the statutory demand. These fees were contractually agreed to by the parties in each of the statement of work documents exhibited to the affidavit of Ms Khan dated 16 May 2023. Counsel refers to the relevant clauses on the statement of work documents;
(b)in relation to the categories of payments sought under the statutory demand, invoices had been rendered by Invsta during the period from November 2022 to 27 March 2023;
(c)Invsta replied to Ms Khan’s letter of 8 February 2023 on 27 March 2023, substantively pointing out the terms of the agreement which compelled Du Val to pay the outstanding invoices and the cancellation fee. He submits that the request for payment of the outstanding fees was made in writing on 27 March 2023, and there was no reply to that request and therefore at the time the statutory demand was served on 10 May 2023 all invoices were outstanding;
(d)the purported cancellation of the contract relied on by Du Val, if it was effective, was made on 8 February 2023 by Ms Khan and that cancellation did not affect the liability of the Du Val to pay past invoices;
(e)that as Du Val did not respond to the request for payment on 27 March 2023 the demand was served on 10 May 2023.
[11] As to why the demand was withdrawn, counsel submits that Invsta, having heard all of the evidence and the synopsis of submissions of Du Val, it elected not to proceed with the opposition to the application to set aside the statutory demand because of the defence raised that the contractual clauses amounted to a penalty which was unenforceable at law.
[12] Counsel submits therefore it was entirely reasonable at the relevant time that the demand was issued in May 2023 when there had been complete silence from Du Val after the last request was made for payment by Invsta on 27 March 2023.
[13] Counsel submit that in the circumstances outlined at [10] and [11], Invsta was entitled to have a degree of assurance that there was no reasonable argument against the debt, or part of the debt, demanded at the time the statutory demand was served.
Counsel refers to Independent Liquor (NZ) Limited v Hanssen.2
[14] Finally, counsel submits that the obligation to make payment of any costs award be stayed pending determination of the alleged dispute by arbitration between the parties.
Result
[15] I am of the view that Du Val is entitled to the costs and disbursements as sought. The reasons for this are as follows:
(a)On a discontinuance, the plaintiff bears the onus of displacing the presumption in r 15.23 of the High Court Rules 2016 that they must pay the defendant’s costs. In my view, Invsta has not displaced this presumption.
(b)It is clear from the correspondence between the parties from January to March 2023 (and in particular the letter from Ms Khan of Du Val to Invsta of 8 February 2023) that there was a substantial dispute between the parties regarding the purported termination of the contract, and the liability for payment of monthly hosting fees and cancellation penalties. Against this background it was inappropriate for a statutory demand to have been issued and the dispute should have been resolved by either using the contractual dispute resolution mechanism or by negotiation.
2 Independent Liquor (NZ) Limited v Hanssen [2013] NZHC 211 at [24].
(c)Du Val’s position was reinforced by the fact the demand was withdrawn by Invsta following the filing of submissions by Du Val.
Orders
[16]I order that Invsta pay Du Val costs calculated on a 2B basis, totalling
$10,277.00 together with disbursements of $810.25, totalling $11,087.25.
…………………………….. Associate Judge Taylor
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