Hobson Construction Limited v Riteline Roofing Limited (in receivership and in liquidation)

[2024] NZHC 1625

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1937

[2024] NZHC 1625

UNDER

AND

section 290 of the Companies Act 1993

IN THE MATTER

of an application for an order to set aside a statutory demand

BETWEEN

HOBSON CONSTRUCTION LIMITED

Applicant

AND

RITELINE ROOFING LIMITED (in

receivership and in liquidation) Respondent

Hearing:	On the papers
Appearances:	JRF Cochrane and JA Frampton for the Plaintiff NS Tabb for Liquidators of Respondent
Judgment:	20 June 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 20 June 2024 at 3 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Lane Neave, Christchurch N Tabb, Auckland

HOBSON CONSTRUCTION LTD v RITELINE ROOFING LTD [2024] NZHC 1625 [20 June 2024]

Introduction

[1]                  The applicant, Hobson Construction Ltd, seeks costs following the granting of its application to set aside a statutory demand served by the respondent, Riteline Roofing Ltd (in rec and in liq) (Riteline).

[2]                  Riteline did not file a notice of opposition in response to the application to set aside and there was no appearance for Riteline when the matter was called for hearing. An order was therefore made setting aside the statutory demand on 29 September 2023.1

[3]                  Riteline was placed into both receivership and liquidation on 5 October 2023, a week after Hobson Construction’s application was granted.

[4]                  Hobson Construction is seeking 2B costs of $8,365 with a 50 per cent uplift plus disbursements of $590, for a total of $13,137.50.

[5]                  The liquidators of Riteline instructed counsel to file a memorandum opposing the costs sought by the applicant. Riteline submits first that costs ought to lie where they fall or, if not, be reduced to costs on a 1A, 1B or 2A basis and not on an increased basis.

[6]                  A memorandum has been filed on behalf of Hobson Construction in response to the liquidators’ memorandum.

[7]                  I now determine costs by first summarising the relevant costs principles before applying them to the circumstances of this case.

Relevant costs principles

[8]  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 2016 sets out the general principles and includes:

1      Hobson Construction Ltd v Riteline Roofing Ltd HC Auckland CIV-2023-404-1937, 29 September 2023.

2      High Court Rules 2016, r 14.1.

(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.

…

[9]                  Rules 14.3 to 14.5 provide for the categorisation of proceedings, appropriate daily recovery rate and the determination of a reasonable time for each step.

[10]               Increased costs are provided for in r 14.6 and may be ordered including where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it.3 This is expressed as including failing, without reasonable justification, to accept an offer for settlement, including an offer to dispose of the proceeding.4

[11]               Rule 14.7 expressly provides that despite rr 14.2 to 14.5, the Court may refuse to make an order for costs or to reduce the costs otherwise payable, including where the party claiming costs has contributed unnecessarily to the time or expense of the proceeding,5 or some other reason exists which justifies the Court refusing or reducing costs despite the principle that the determination of costs should be predictable and expeditious.6

Riteline’s opposition

[12]The grounds for Riteline’s opposition include:

(a)the amount demanded in the statutory demand was for roofing work undertaken by Riteline for Hobson Construction and Riteline had issued payment claims under the Construction Contracts Act 2002 for its work;

3      Rule 14.6(3)(b).

4      Rule 14.6(3)(b)(v).

5      Rule 14.7(f).

6      Rule 14.7(g).

(b)the liquidators have reviewed the position and are satisfied that the debt claimed in the statutory demand is owing by Hobson Construction; and

(c)the costs sought by the applicant are very close to actual costs so that the applicant is effectively seeking indemnity costs.

[13]               Counsel for Riteline, Ms Tabb, further submits that the application by Hobson Construction did not progress to a hearing because of the intervening receivership and liquidation of Riteline. At the time of the first call on 22 September 2023, Ms Tabb says Riteline’s directors were not in a position to instruct counsel as it was immediately prior to the date of receivership and liquidation.

[14]               Ms Tabb submits that because there was no hearing, the Court has not considered or decided on the merits of each party’s position. If the matter had proceeded to a hearing, Ms Tabb says the statutory demand would have been upheld in its entirety or at least in part. Counsel therefore submits Hobson Construction should not be said to be the successful party and costs ought to lie where they fall.

[15]               Furthermore, Ms Tabb submits that the statutory demand should not have been set aside because Hobson Construction accepted that the sum of $1,648.19 was due and owing which is greater than the $1,000 statutory threshold for upholding a statutory demand.

[16]               Counsel does responsibly submit however that the Court may consider that because Riteline did not actively take steps to oppose the application, Hobson Construction is entitled to a contribution to its costs. Ms Tabb says in that case 2B costs may not appropriately be claimed but that one of the lower bands, 1A, 1B or 2A, would be appropriate.

[17]               In its memorandum in response, Hobson Construction says that the liquidators’ submission that the liquidation and receivership of Riteline was the reason the application to set aside did not progress to a hearing cannot be correct. The application was filed and served on 25 July 2023 and the last day for filing any notice of opposition

was 8 August 2023. Counsel points out that this was almost two months before the receivership and liquidation of Riteline commenced on 5 October 2023.

[18]               In addition, counsel for Hobson Construction says that although Riteline submits that the liquidators are satisfied that the sum claimed in the statutory demand is owing and that the statutory demand would have been upheld, Riteline does not point to any evidence in support of this position and it is at odds with the evidence contained in the affidavit of Ravikash Singh in support of the application. Accordingly, counsel for Hobson Construction says Riteline cannot claim to be the successful party and cannot be treated as such for costs purposes.

[19]               Furthermore, Hobson Construction submits that although it accepts $1,648.19 is owing, prior to applying to set aside the statutory demand counsel advised this amount was being held in its solicitors’ trust account and that payment would be made once Riteline presented an invoice for this amount.

[20]               In any event, Hobson Construction says that it was appropriate to set aside the whole of the statutory demand even if this amount was acknowledged to be owing because this is less than 10 per cent of the total demanded in the statutory demand. Hobson Construction relies on Pioneer Insurance Co Ltd v White Heron Motor Lodge Ltd to submit that this would have been such a material misstatement of the amount due that the entire demand ought to be set aside. In Pioneer, the Court of Appeal set aside a demand where the company was liable for 75 per cent of the amount in the statutory demand, on the basis that the demand was a material misstatement of the amount due.7

[21]               Finally, and importantly, Hobson Construction relies on the fact that prior to filing the application to set aside, it offered to deposit the remaining disputed sum of

$16,349.13 into its solicitors’ trust account pending resolution of the dispute. Counsel says this could have occurred in the Disputes Tribunal given the modest sum involved. Correspondence confirming this is attached to the affidavit of Mr Singh filed together with the application to set aside.

7      Pioneer Insurance Co Ltd v White Heron Motor Lodge Ltd [2008] NZCA 450, (2008) 19 PRNZ 286.

Discussion

[22]               Hobson Construction succeeded in its application to set aside the statutory demand and so in the usual course is entitled to costs.8

[23]               Although r 14.7 allows the Court to depart from the usual course, the circumstances in this case do not justify such departure. Hobson Construction offered to deposit the whole of the amount demanded into its solicitors’ trust account prior to applying to set aside the demand: $1,648.19 awaiting the issue of an invoice by Riteline and the remaining disputed amount of $16,349.13 pending resolution of the dispute. Riteline did not respond to this offer. Nor did it file any notice of opposition or appear at either callover. In those circumstances it cannot now rely on the liquidators’ view that the amounts are properly claimed in resisting a costs award, especially without evidence putting that in issue.

Quantum of costs claimed

[24]               Riteline’s memorandum takes issue with the quantum of costs claimed. In particular:

(a)Costs being calculated on a 2B basis. Riteline suggests that even 1A is adequate:

Counsel for Hobson Construction submits that the application involved the urgent preparation of evidence sufficient to show that there is a genuine dispute and/or set-off and consideration of issues arising under the Construction Contracts Act and the subcontract between the parties. Counsel submits that a 1A basis would not adequately cover the work necessary in this situation and refers to the actual costs incurred attached to the earlier memorandum of 3 October 2023.

I consider that it is appropriate for costs to be calculated on a 2B basis. This is the usual category and band for applications to set aside. I do

8      High Court Rules, r 14.2(1)(a).

not accept that there is any proper basis for costs to be claimed on a reduced basis on this application.

(b)The claim for filing of two memoranda:

Counsel for Hobson Construction submits that both memoranda were necessary because the first informed the Court of the background and status of the application and outlined the initial costs claimed. The second memorandum was then filed in response to my order of 29 September 2023 directing that an updating memorandum be filed if increased costs were sought.

I agree that both memoranda were appropriately filed and that costs can properly be claimed in respect of them. Counsel for the applicant was only advised on the morning of the first call that counsel for the respondent had no instructions in relation to the proceeding. Associate Judge Taylor therefore stood the matter down until the following week in case the respondent was engaging new counsel.9 At the next call again there was no appearance for Riteline and I directed a further memorandum was to be filed.

(c)The sums claimed for the two Court appearances:

Counsel for Riteline suggests that the Court appearances would have taken no more than 10 to 15 minutes.

Although the matter itself may only have taken a short time, appearances at lists often take significantly longer because counsel have to wait for their matter to be called. I do not consider that the claims for $717 or $478 for the two list calls ought therefore to be reduced.

9      Hobson Construction Ltd v Riteline Roofing Ltd HC Auckland CIV-2023-404-1937, 22 September 2023 (Minute of Associate Judge Taylor).

(d)The claim for sealing an order:

Counsel for Hobson Construction explains in their memorandum in response that they have delayed sealing an order until the costs claim is determined but expect to seal an order in due course.

It is usual for costs to be claimed in anticipation of sealing an order. Again, I therefore consider this step is appropriately claimed.

Should increased costs be ordered?

[25]               I accept that increased costs are appropriate in the circumstances of this case. This is because of the offer by Hobson Construction to deposit the whole of the disputed sum into its solicitors’ trust account pending resolution of the dispute prior to filing its application to set aside and Riteline’s failure to respond, oppose or appear. Rule 14.6 provides for increased costs where a respondent has failed without reasonable justification to accept an offer to settle or dispose of the proceeding.10 It would have been a simple matter for the respondent to respond prior to the application to set aside being filed given the whole of the disputed sum was proposed to be held in Lane Neave’s trust account. If Riteline wished instead to oppose, then a notice of opposition needed to be filed. But, Riteline failed to respond and then failed to oppose. Increased costs are appropriate.

[26]               Counsel for Hobson Construction seeks a 50 per cent uplift on 2B costs. I consider this is appropriate where there was no response from counsel to sensible suggestions in advance of the application to set aside being filed. If accepted, those suggestions would have disposed of this application without incurring the related costs for either party and in circumstances where no notice of opposition was filed or appearance made.

[27]               Counsel for Hobson Construction confirmed that the invoices issued at the time of the second costs memorandum were $13,775.58. This is not significantly more than the $13,137.50 claimed as a 50 per cent uplift on 2B costs. In their second

10     High Court Rules, r 14.6(3)(b)(v).

memorandum however counsel records that there would be further costs for the filing of that memorandum and sealing the order which had yet to be billed so Hobson Construction’s costs would be comfortably above any costs award, even allowing for a 50 per cent uplift.

[28]               As noted above, Hobson Construction subsequently filed a further memorandum in response to the memorandum filed on behalf of the liquidators of Riteline. That memorandum, which in my view was necessary, would have also caused Hobson Construction to incur further costs. I am satisfied therefore that costs would no longer be approaching indemnity costs if they are awarded on an increased basis with a 50 per cent uplift.

Result

[29]               Costs are awarded to Hobson Construction Ltd on a 2B basis with a 50 per cent uplift in the amount of $12,547.50 plus disbursements of $590 for a total of

$13,137.50.

Associate Judge Sussock