GEOTECH LIMITED AND PRIME EXPLOSIVES LIMITED
[2024] NZHC 2844
•1 October 2024
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2024-470-15
[2024] NZHC 2844
BETWEEN GEOTECH LIMITED
Plaintiff
AND
PRIME EXPLOSIVES LIMITED
Defendant
Hearing: On the papers Appearances:
RJ Brown for the Applicant AG Stuart for the Respondent
Judgment:
1 October 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
(Costs)
This judgment was delivered by me on 1 October 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Tompkins Wake, Hamilton Harris Tate Limited, Tauranga
GEOTECH LTD v PRIME EXPLOSIVES LTD [2024] NZHC 2844 [1 October 2024]
Introduction
[1] In a judgment delivered on 1 August 2024, I granted the application by Geotech Ltd to set aside the statutory demand served by Prime Explosives Ltd and recorded that Geotech was entitled to costs.1 I directed the parties to confer indicating my preliminary view that increased costs may be payable. The parties have not reached agreement and memoranda have now been filed.
[2] Geotech seeks increased costs both on the basis that Prime Explosives has contributed unnecessarily to the time or expense of the proceeding by taking or pursuing an unnecessary step or an argument that lacks merit and because Prime Explosives failed without reasonable justification to accept an offer to settle or to dispose of the proceedings.
[3] Prime Explosives accepts 2B costs are payable and the calculation of those by Geotech. It however opposes increased costs being awarded submitting that although the statutory demand was set aside, its use of the procedure was not unreasonable.
[4] A more detailed background is set out in my judgment dated 1 August 2024. To briefly summarise, Geotech was undertaking work for the Government of Niue and made enquiries of Prime Explosives about explosives held in storage there. A third party then advised that the Government of Niue owned the explosives so Geotech carried out the work, not charging the Government its usual rate for the explosives. In the meantime, Prime Explosives issued an invoice for the explosives in Niue which Geotech says it paid by mistake because Prime Explosives was a trusted supplier. Geotech says before realising its mistake it ordered additional explosives from Prime Explosives for further work. By the time invoices were issued for those explosives, Geotech realised it had paid the earlier invoice by mistake so deducted the amount of the mistaken payment from the amount paid for the additional explosives.
[5] I held that Geotech had a reasonably arguable set-off or counterclaim based on the mistaken payment. Although the Court has a discretion not to set aside a demand,
1 Geotech Ltd v Prime Explosives Ltd [2024] NZHC 2115.
in these circumstances I did not consider there was any basis for doing so in this case and therefore set it aside.
Relevant legal principles
[6] The starting point in any costs decision is that costs are at the discretion of the Court.2 Although the discretion is a wide one, it is not unfettered. Rule 14.2 of the High Court Rules sets out the general principles and includes:3
(a)the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:
(b)an award of costs should reflect the complexity and significance of the proceeding:
…
(g)so far as possible the determination of costs should be predictable and expeditious.
[7] Rules 14.3 to 14.5 provide for the categorisation of proceedings, appropriate daily recovery rate, and the determination of the reasonable time for each step.
[8] Increased and indemnity costs are provided for in r 14.6. As summarised by the Court of Appeal in Bradbury v Westpac Banking Corp:4
(a)standard scale applies by default where cause is not shown to depart from it;
(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[9] In this case, Geotech seeks costs on an increased basis on the following two grounds that the party opposing costs has contributed unnecessarily to the time or expense of the proceeding by:
(a)taking or pursuing an unnecessary step or an argument that lacks merit;5 or
2 High Court Rules 2016, r 14.1.
3 Rule 14.2(1).
4 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
5 High Court Rules 2016, r 14.6(3)(b)(ii).
(b)failing, without reasonable justification, to accept an offer of settlement.6
First ground for increased costs: taking or pursuing unnecessary step or argument that lacks merit
[10] Geotech submits that prior to serving the statutory demand, Prime Explosives was aware of Geotech’s set-off or counterclaim arising from Geotech’s payment of the disputed invoice by mistake. Geotech refers to correspondence between the parties from 26 September 2023 to 16 November 2023 regarding the disputed invoice annexed to the affidavits filed in support.
[11] Prime Explosives submits in response to both grounds that the issue for the Court is whether Prime Explosives’ issue of a statutory demand was unreasonable in terms of r 14.6(3). Prime Explosives submits that it did not act unreasonably on the basis that the Court has a discretion under s 290(4)(b) of the Companies Act 1993 whether to set aside a statutory demand. Counsel submits the exercise of that discretion depends in part on the connection between the payment claimed in the demand and the basis for the counterclaim.
[12]Prime Explosives refers to the Court of Appeal decision in
Manchester Securities Ltd v Body Corporate 172108, where the Court held:7
It is unnecessary to attempt to formulate any test for the exercise of the residual discretion. Clearly it will only be a rare case where the discretion is exercised against setting aside a statutory demand where a genuine and substantial dispute has been shown or the applicant has raised clear and persuasive grounds for a set-off or counterclaim.
(Prime Explosives’ emphasis)
[13] Prime Explosives submits that where Geotech’s counterclaim was based on a claim to recover payment made by mistake, itself a claim depending on the exercise of the Court’s discretion, it was not unreasonable for Prime Explosives to utilise the statutory demand procedure. Counsel submits that the Court generally frowns on self-
6 High Court Rules 2016, r 14.6(3)(b)(v).
7 Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [49].
help remedies such as Geotech’s decision to withhold payment in August 2023 for an undisputed account as a means of recovering payment for a mistake it claimed to have made in paying an invoice issued a year earlier. Prime Explosives submits that Geotech had not told them about the supposed mistake before deducting the payment and had not previously shown Prime Explosives the letter dated August 2022 from the Government of Niue.
[14] However, the Government letter had been provided to counsel for Prime Explosives prior to the issue of the statutory demand by letter from Geotech’s solicitors dated 27 October 2023. Geotech’s solicitor’s letter also confirmed that the amount of the demand, $70,752.69, had been paid into Geotech’s solicitor’s trust account. The solicitors’ letter further records that Mr Black from Geotech accepted he should not have unilaterally withheld the funds but had paid the funds into the trust account in the hope that the matter could be resolved, suggesting options for doing so.
[15] A response was sent by Prime Explosives’ solicitors saying that it did not accept that there was any basis for Geotech deducting from amounts payable that are not the subject of any dispute, amounts that Geotech claims it has overpaid to Prime Explosives for other goods. The email then records that Prime Explosives does not accept that the items held in storage in Niue belonged to the Government of Niue and that this claim has never been asserted by the Government to Prime Explosives and there is no basis for such a claim.
[16] The email continues that Prime Explosives also disputes that the payments made to Prime Explosives in respect of the Niue stock were paid inadvertently by Geotech as the letter from the Niuean Government was dated 17 August 2022, which is after Geotech paid for the Niue stock. Prime Explosives, therefore, demanded that the full amount paid into Geotech’s solicitors’ trust account be paid immediately to Geotech or otherwise a statutory demand would be served. The statutory demand was then served almost two months later on 18 January 2024.
[17] In Mr Black’s affidavit in reply he attaches correspondence showing that in November 2021, Mr Beardsmore from Prime Explosives had been forwarded an email recording that the Government of Niue considered they owned the explosives.
[18] Furthermore, the invoice issued by Geotech to the Government of Niue did not charge the usual rate for explosives, instead a reduced rate reflecting the fact that the Government of Niue already owned them.
[19] As the Court of Appeal held in Manchester Securities, “it will be a rare case” where the discretion is exercised not to set aside a demand where a reasonably arguable set-off or counterclaim has been found.8 The reason Prime Explosives submitted the Court should exercise its discretion not to set aside the demand was because Prime Explosives did not accept Geotech’s evidence that the payment was made by mistake or that orders for the additional explosives were made prior to discovery of the mistaken payments, if it was mistaken. These are not matters that are able to be determined on affidavit evidence in the context of an application to set aside a statutory demand. Prime Explosives ought to have been aware of this prior to issuing its statutory demand.
[20] In all these circumstances, I consider it was unreasonable for a statutory demand to be issued.
Second ground for increased costs: failing without reasonable justification to accept an offer of settlement
[21] Geotech’s counsel wrote to Prime Explosive’s counsel on 16 May 2024, offering to discontinue its application to set aside the statutory demand, with no issue as to costs, on the basis that Prime Explosives withdraw its statutory demand. The offer was made on a Calderbank basis with a copy of the letter attached to Geotech’s costs memorandum.9 Prime Explosives did not respond to the offer.
[22] Geotech submits that the offer was a reasonable one and had it been accepted, the cost of preparation for the hearing (including submissions and bundles) and attendance at the hearing would have been avoided. By failing to accept the offer, Geotech says Prime Explosives has contributed unnecessarily to the time or expense of the proceeding. Counsel for Geotech submits that as a result of this, a higher uplift would be appropriate for the steps in the proceeding following the Calderbank letter
8 Manchester Securities Ltd v Body Corporate 172108, above n 7, at [46].
9 Calderbank v Calderbank [1975] 3 WLR 586 (CA).
and suggests that the 50 per cent uplift sought by them is conversative in the circumstances.
[23] Prime Explosives again relies on the Court’s power to exercise its discretion not to set aside a statutory demand even where there is an arguable counterclaim but, as I held in the judgment, this is not one of those rare cases. As I said above, even if Prime Explosives did not accept Mr Black’s evidence that his order for additional explosives from Prime Explosives was made prior to the discovery of the mistaken payment, such a dispute on the evidence is not a matter that would be able to be determined in an application to set aside a statutory demand and, therefore, could not be the basis of the rare exercise of the Court’s residual discretion. As a result, I do not consider it was reasonable to continue to a hearing in light of the offer of settlement made.
[24] Prime Explosives further submits that the Calderbank letter was sent after all the affidavits had been filed, and before only the filing of submissions and attendance at the hearing on 19 June 2024. In addition, Prime Explosives says the letter claims that the applicant was entitled to set-off the amount of its payment against the respondent's invoice which is clearly wrong as Geotech’s application to set aside the demand depended on its counterclaim to recover payment said to have been made by mistake, but this basis for any claim is only referred to briefly in the letter.
[25] I do not accept that this fairly summarises the letter as it records there is a genuine and substantial dispute as to Geotech’s net indebtedness to Prime Explosives. Whether that was by way of set-off or counterclaim does not affect the position that there was a clearly a dispute between the parties as to whether the debt was owing at the time the demand was issued and following the filing of evidence between the parties. Withdrawing the demand at that stage would have saved both parties significant time and cost.
[26] I consider, therefore, that Prime Explosives failed without reasonable justification to accept the offer made.
What is the appropriate uplift?
[27] Geotech seeks an uplift of 50 per cent on all costs but submits that it ought to be entitled to a greater uplift after the issue of its Calderbank letter. McGechan on Procedure notes that any increase above 50 per cent is unlikely given that the daily recovery rate is intended to be two thirds of the daily rate considered reasonable for a particular proceeding.10 On that basis, a 50 per cent uplift technically amounts to full costs recovery.
[28] I note that the daily recovery rate has not been adjusted for some time and so it is unlikely that a 50 per cent uplift would represent full costs recovery. But in the circumstances of this case, I consider a 50 per cent uplift on 2B costs as proposed by Geotech is appropriate.
Disbursements
[29] Disbursements have been claimed on a GST inclusive basis. In the absence of confirmation otherwise, I proceed on the basis that Geotech is registered for GST and so award disbursements on a GST exclusive basis to prevent double recovery.
Result
[30] Prime Explosives is to pay Geotech costs on a 2B basis with a 50 per cent uplift on all steps for a total of $17,208 in costs plus disbursements of $1,082.61 (excluding GST).
Associate Judge Sussock
10 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR14.6.02(2)(a)].
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