Fairbairn Manukau Holdings Limited v Jenhash Contracting and Consultants Limited
[2023] NZHC 1890
•20 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-616
[2023] NZHC 1890
BETWEEN FAIRBAIRN MANUKAU HOLDINGS LIMITED
PlaintiffAND
JENHASH CONTRACTING AND CONSULTANTS LIMITED
Defendant
Hearing: On the papers Appearances:
T J G Allan and K M Wakelin for the Plaintiff
Judgment:
20 July 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Costs]
This judgment was delivered by me on 20 July 2023 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Grove Darlow & Partners Solicitors, Auckland
FAIRBAIRN MANUKAU HOLDINGS LTD v JENHASH CONTRACTING AND CONSULTANTS LTD [2023] NZHC 1890 [20 July 2023]
Introduction
[1] I appointed liquidators to the defendant, Jenhash Contracting and Consultants Limited (Jenhash), on 17 May 2023.1 The plaintiff, Fairbairn Manukau Holdings Limited (trading as Mitre 10 Mega Manukau) (Fairbairn), now seeks indemnity costs of $11,650 together with disbursements of $1,682.36 (excluding GST).
[2] The plaintiff submits there is a contractual right to indemnity costs in clauses 7.1(c) and (d) of its terms of trade which the defendant agreed to when it opened a trading account with the plaintiff. A copy of these signed terms is annexed as an exhibit to the affidavit of Almay van Biljon filed together with the plaintiff’s costs memorandum.
[3] I set out the relevant legal principles below before considering the appropriate award.
Relevant legal principles
[4] The starting point in any costs decision is r 14.1 of the High Court Rules 2016 which confirms that all matters relating to costs are at the Court’s discretion. The discretion vested by r 14.1 is wide but must be exercised subject to the general principles in r 14.2 and the remaining costs provisions.
[5] Rule 14.6 provides for when increased or indemnity costs may be ordered and relevantly includes:
14.6 Increased costs and indemnity costs
(1) Despite rules 14.2 to 14.5, the court may make an order—
…
(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
…
(4) The court may order a party to pay indemnity costs if—
1 Fairbairn Manukau Holdings Ltd v Jenhash Contracting and Consultants Ltd HC Auckland CIV- 2023-404-616, 17 May 2023 (Orders of Associate Judge Sussock).
…
(e)the party claiming costs is entitled to indemnity costs under a contract ordered;
(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.
[6] The plaintiff refers to ANZ Banking Group (NZ) Ltd v Gibson in which the Court held a contractual obligation to pay costs on a full solicitor and client basis will be enforceable unless contrary to public policy.2
[7] In Arjang v NF Global Associate Judge Bell held that sch 7, cl 1(1)(c) of the Companies Act 1993 provided a basis for awarding indemnity costs for the plaintiff in a liquidation application:3
[5] Schedule 7 cl 1(1)(c) of the Companies Act 1993 provides in the order of priorities for payments by liquidators:
The reasonable costs of a person applying to the court for an order that the company be put into liquidation including the reasonable costs incurred between lawyer and client in procuring the order.
Given that reasonable costs can be part of the distribution, Parliament obviously intended the Court to have the power to order costs to that extent. That is an independent power. It is unnecessary to rely on the costs rules in the High Court Rules 2016. Fankhauser v Strongline Buildings Ltd is authority for awarding full solicitor/client costs to a successful plaintiff on a liquidation application.4
[8] I agree that sch 7, cl 1(1)(c) provides a basis for ordering indemnity costs but consider that awarding costs on this basis still falls within the costs rules in the High Court Rules 2016, as the award falls within r 14.6(1)(f) “some other reason” justifying an indemnity costs award.
[9] Any award of indemnity costs under r 14.6(4) is required by r 14.6(1)(b) to be an order that “the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party”. It is not therefore an order necessarily for the full indemnification of the party to whom costs are payable, but only an indemnity
2 ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556.
3 Arjang v NF Global Limited [2021] NZHC 903.
4 Fankhauser v Strongline Buildings Ltd [2014] NZHC 2629.
in respect of that party’s reasonably incurred costs. Clause 1(1)(c) of Schedule 7 refers to “reasonable costs” as well.
Is there a basis for indemnity costs?
[10] The plaintiff’s terms of trade attached to the affidavit filed in support have been signed on behalf of the defendant company, by Mr Mubashir Hussain Shah, and record that the defendant company agrees to be bound by the standard terms, that the terms had been read and understood and with the date of acceptance recorded as 19 July 2022.
[11]Clauses 7.1(c) and (d) of the terms of trade provide for recovery of:
(a)“all amounts for any damage, losses, costs, or expenses (including actual legal costs and expenses) arising from the default or non-performance by the [defendant]”: (cl 7.1(c)); and
(b)“all actual legal costs and other costs and expenses incurred by or on behalf of Mitre 10 in enforcing or defending all or any of its rights”: (cl 7.1(d)).
[12]The statutory demand served on the defendant company demanded payment of
$289,715.53 and attached copies of the invoices for which payment was demanded.
[13] It is clear that the debt owed to the plaintiff has arisen from the trade account to which the terms of trade apply as the dates of the invoices attached to the statutory demand postdate the acceptance of the terms of trade on 19 July 2022.
[14] In my view, the plaintiff has established that there is a right to indemnity costs pursuant to its terms of trade. In addition, even if there was not a contractual right, indemnity costs could have been awarded pursuant to r 14.6(f) and sch 7, cl 1(1)(c) of the Companies Act.
[15] Finally in terms of the right to indemnity costs, I note that the latest invoice includes work preparing the costs memorandum. Costs on costs are not always
awarded5 but in my view such costs fall within both the contractual indemnity and costs claimable pursuant to sch 7, cl 1(1)(c) of the Companies Act.
[16] In all cases however, only indemnity costs “reasonably incurred” can be awarded. So I now consider whether the costs claimed have been reasonably incurred.
Have the costs been reasonably incurred?
[17] Assessing whether indemnity costs claimed under a contract have been reasonably incurred involves the court assessing (among other things) whether the tasks undertaken were reasonably necessary and were covered by the contract, whether the charge-out rates were reasonable and whether any other general contract law principles deny the claimant’s prima facie right to judgment.6 This approach was endorsed by the Court of Appeal in Black v ASB Bank Ltd.7
[18] Copies of the relevant invoices are annexed to Ms van Biljon’s affidavit together with a schedule setting out the details of the billing reports, including detailed narrations and time spent.
[19] Most of the work on the file appears to have been completed at an hourly charge out rate of $400 but the hourly charge-out rates ranges between $300 per hour and $550.
[20] A summary of the work completed for each of the invoices is also set out in the plaintiff’s memorandum.
[21] The plaintiff’s memorandum records that following service of the statutory demand, a part payment of the debt was received. At that point, the plaintiff sought (and received) legal advice as to whether to proceed with liquidation or allow more time for the defendant to pay.
5 See for example DKMK Ltd v Skibo Ltd [2020] NZHC 3293 at [12].
6 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].
7 Black v ASB Bank Ltd [2012] NZCA 384 at [80].
[22] When the liquidation proceeding was filed, the plaintiff says it discovered that the defendant had numerous other creditors, that legal proceedings were already on foot, that two other creditors had obtained freezing orders over the defendant’s assets (bank accounts), and that the defendant’s director had fled the jurisdiction.8 The plaintiff sought (and received) advice as to whether to seek the appointment of interim liquidators to the defendant.
[23] The plaintiff submits that these circumstances have contributed to the level of fees charged but nevertheless says that the fees are reasonable.
[24] Finally the plaintiff’s memorandum records that the following items have been excluded from the indemnity costs figure set out above:
(a)GST;
(b)bureau fees (an administrative charge intended to cover the cost of tolls and other office expenses); and
(c)a small amount of work done has not yet been invoiced and has been redacted from the billing report schedule.
[25] In my view the fees charged in this case appear to have been reasonably incurred, having regard to the work carried out. Consideration of the appropriate steps following part payment and whether an application for interim liquidators ought to be made are steps that would fall within both the contractual indemnity and sch 7, cl 1(1)(c) and so are appropriately claimed.
[26] In addition to the legal fees set out above, the plaintiff seeks recovery of disbursements totalling $1,682.36 (excluding GST), comprising:
(a)High Court filing fee of $469.57 excl GST;
8 MZ Ventures Ltd v Shah [2023] NZHC 864; Eco-Smart Homes Northwest Ltd v Jenhash Contracting and Consultants Ltd HC Auckland CIV 2022-404-2287, 15 December 2022; and Eco-Smart Homes Northwest Ltd v Jenhash Contracting and Consultants Ltd [2023] NZHC 1183.
(b)Process server fee for service of the statutory demand of $320 excl GST;
(c)Process server fee for service of the liquidation application of $280 excl GST;
(d)Advertising fee for the NZ Gazette of $123.20 excl GST;
(e)Advertising fee for the NZ Herald of $468.89 excl GST;
(f)Photocopying charges of $16.70 excl GST; and
(g)PPSR search fees of $4.00 excl GST.8
[27]The disbursements are all appropriate and so I make the orders as sought.
Result
[28]The defendant is to pay indemnity costs to the plaintiff in the amount of
$11,650 in costs plus disbursements of $1,682.36 (excluding GST).
Associate Judge Sussock
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