Glots Limited v Tsang

[2018] NZHC 2811

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-1799 [2018] NZHC 2811

UNDER	the Companies Act 1993
IN THE MATTER	of an application to set aside a statutory demand dated 8 August 2018
BETWEEN	GLOTS LIMITED Applicant
AND	KENNETH KO FUNG TSANG Respondent

Hearing:	On the papers
Appearances:	D J G Cox for the Applicant B Martelli for the Respondent
Judgment:	31 October 2018

JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on 31 October 2018 at 11.00am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel: Rennie Cox, Auckland Heaney & Partners, Auckland

GLOTS LTD v TSANG [2018] NZHC 2811 [31 October 2018]

[1]      The applicant (Glots) applied to set aside a statutory demand served on it by the respondent (Mr Tsang) on 9 August 2018. The application was listed for first call on 14 September 2018.

[2]      Mr Tsang did not file a notice of opposition, and elected to withdraw the statutory demand. On 13 September 2018 I gave leave to Glots to withdraw the setting aside application.

[3]      The parties agreed that the issue of costs should be determined by the Court, and both have filed memoranda.  Glots submits that costs should be awarded on a 2B basis, in the total sum of $5,892 including disbursements. Mr Tsang submits that costs should be assessed on a 2A basis, in the sum of $2,230.

[4]      I now give judgment on Glots' application for costs.

Background

[5]      The amount claimed in the statutory demand was $29,340.50.  That sum was said to be due and owing on a loan made on 7 September 2015, together with a service fee and costs of issuing the demand.  Glots disputed that the sum paid by Mr Tsang was a loan; it contended that the payment was for the purchase of a 15% shareholding in a company called Hobbyworld.co.nz Ltd (Hobbyworld). Some correspondence was produced with Glots' main affidavit supporting that proposition.   Glots' managing director, Ms Chan, said that, after he purchased his shareholding, Mr Tsang was actively involved in all of the business arrangements of Hobbyworld, until he decided of his own volition to withdraw from the company on 16 February 2016. At that time he sought to sell his shareholding in Hobbyworld. Ms Chan said that Mr Tsang walked away from Hobbyworld before the shareholders' register was updated to reflect his shareholding.

[6]      Ms Chan acknowledged that, while there may have been initial discussions between Mr Tsang and her ex-husband Mr Ko regarding the making of a loan to Hobbyworld, the transaction which took place was in fact a share purchase.   She produced a copy of an email from Mr Ko to various Hobbyworld shareholders dated

27 November 2015, stating that, as at that date, Hobbyworld shares were held by various parties.  Mr Tsang's shareholding was said to be 15 per cent.

[7]      On  16 February  2016  Mr Tsang  wrote  to  the  managing  director  and  all shareholders of Hobbyworld, advising that he would be "withdrawing all my shares and shareholder's duties in Hobbyworld, effective from 16 February 20126 …".  He said that he would not be able to "fully commit my shareholder's duties to the business in the near future, and I have to withdraw all my shares in Hobbyworld".

The parties' submissions

Glots

[8]      Glots' total claim for costs and disbursements of $5,892 was made up as follows:

Rate per day = $2,230.00

Schedule Item	Category	Allocated Days	Amount ($2,230 x days)
37	Preparing and filing originating application and supporting affidavits	2.0	4,460.00
Preparing memorandum as to costs	0.2	446.00
29	Sealing order for costs	0.2	446.00
TOTAL	$5,352.00

Plus filing fee on originating application        $540.00

TOTAL       $5 ,892 .00

[9]      Mr Cox submits that Glots' solicitors wrote promptly to the debt collection company that issued the statutory demand, setting out in detail why the claim was disputed and the demand should be withdrawn.   The solicitors required that the demand be withdrawn by 5.00pm on 20 August 2018.  The debt collection company requested an extension to 22 August to respond, but Glots' solicitors did not receive a response by that date. On 23 August 2018 they received a letter which simply repeated Mr Tsang's demand for payment.

[10]     The last date for filing the application to set aside was 23 August, so Glots had no option but to file and serve the application that day.  The debt collector's request

for an extension of time simply increased the pressure on Glots, and that was compounded by the debt collector's threat made earlier that if Glots applied to set aside the statutory demand before 22 August 2018 Mr Tsang would seek an order for costs.

[11]     The result was that Glots had just over 24 hours to prepare its application and supporting affidavits.

[12]     The originating application and an affidavit in support were prepared urgently, and they were filed and served on 23 August. A further affidavit by Mr Ko in support of the application was filed in early-September 2018.  Mr Cox submits that the main affidavit filed in support could not be categorised as straightforward, or basic.  The factual scenario took some explanation, and there were 15 exhibits. Overall, far more than one day was spent preparing, filing, and serving the application.

[13]     Mr Cox notes that band B applies to awards of scale costs for a particular step identified in the Third Schedule to the High Court Rules 2016 (the Rules), if a "normal amount  of  time  is  considered  reasonable"  for  that  step.1      Band A applies  if  "a comparatively small amount of time is considered reasonable" for that step.2   Mr Cox submits that in this case a normal amount of time  was required to prepare the application and supporting affidavits.

[14]     Mr Cox also refers to the obligation on a party issuing a statutory demand to withdraw it promptly once a substantial dispute is notified.  In this case, the statutory demand was wrongly issued, was not withdrawn after a request for withdrawal was made, and Glots had no option but to go to the time and trouble of filing the application.

Mr Tsang

[15]     Mr Martelli acknowledged that Glots is entitled to scale costs under item 37 in Schedule 3  to  the  Rules  —  "Filing  [an  originating]  application  and  supporting affidavits". He acknowledges that the proceeding is a "Category 2" proceeding under

1      High Court Rules 2016, r 14.5(2)(b).

2      High Court Rules 2016, r 14.5(2)(a).

the Rules,3 but submits that band A is appropriate in this case.  On a "2A" basis, one day would be allocated under Schedule 3, and at the category 2 rate of $2,230 per day the costs award would be $2,230.

[16]     Mr Martelli referred to two cases where the Courts have awarded costs on a

2A basis because the work involved did not justify a greater award — International Airline Training (NZ) Ltd v Rohlig New Zealand Ltd,4 and Wealand International (NZ) Ltd v Save Kids in Daily Supervision Ltd.5

[17]     On the facts, Mr Martelli submits that taking instructions and preparing the originating application and affidavit could not reasonably have taken more than one day, having regard to the fact that the application to set aside was a straightforward, one page, document, and the affidavit in support comprised only four pages of substantive writing and simply outlined a basic set of facts.

Discussion and conclusions

[18]     Rule 14.2(c) of the Rules provides that, as a general principle, costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the relevant proceeding or interlocutory application.

[19]     For the purposes of that subrule, a reasonable time for a step is the time specified for that step in Schedule 3 to the Rules.  Different allocations of time are provided in Schedule 3 depending on whether the case is considered to be in band A, B, or C.

[20]     There is no dispute between the parties that Glots is entitled to costs for the step identified at item 37 in Schedule 3, namely filing and serving an originating application with supporting affidavits.  If the case were a relatively straightforward,

3      Category 2 proceedings are defined in r 14.3 as "proceedings of average complexity requiring counsel of skill and experience considered average in the High Court".

4      International   Airline   Training   (NZ)   Ltd   v   Rohlig   New Zealand   Ltd   HC   Auckland,

CIV-2003-404-3464, 23 February 2004.

5      Wealand International (NZ) Ltd v Save Kids  in Daily Supervision Ltd HC Auckland, CIV-

2008-404-4658, 24 February 2009.

simple one, the band A time allocation in Schedule 3 for this step would be one day. The band B allocation in Schedule 3 for this step is two days.

[21]     I accept that Glots might conceivably have asked for an award of increased costs under r 14.3 (reflecting a submission that the claim was always disputed and should not have been the subject of a statutory demand), but Glots has not asked for an award of increased costs.  I am only required to consider the distinction between band A costs and band B costs, and which is appropriate to this particular case.

[22]     I accept Mr Martelli's submissions on the band A versus band B issue.  The amount  in  issue  was  not  particularly  substantial,  and  the dispute  was  relatively uncomplicated (loan or share investment), with a relatively limited number of documents to be collated and considered.  The case appears to be similar in those respects to the Wealand case referred to by Mr Martelli, where Asher J noted that "the amount involved was small" (in that case of $15,000) and "the essential proceeding straightforward".  His Honour noted that band B was the correct time band given the simple issues.6   One day is in my view a reasonable time allocation for preparing and filing the originating application and supporting affidavits in this case.

[23]     I accordingly make an order for costs in favour of Glots in the sum of $2,230, together with the further sum of $446.00 for sealing the order for costs.  In addition, Glots is entitled to an award in respect of the filing fee on the originating application.

[24]     Mr Tsang has prevailed on the one matter that was the subject of argument on costs (band A or band B), but the justice of the case does not require that Mr Tsang be awarded costs on the costs argument.  I decline to make an award for preparing the costs memorandum.

[25]     The result is that Glots is entitled to the total sum of $2,776 for its costs, plus disbursements.  The one disbursement sought is the filing fee of $540.00, and it may

6      Wealand International (NZ) Ltd v Save Kids in Daily Supervision Ltd above n 5, at [4].

be that Glots is not entitled to claim the GST component of that sum.  I leave the disbursements (including the GST issue) to be fixed by the Registrar.

Associate Judge Smith