J P S Roofing Ltd v Lanyon & Le Compte Construction Ltd

[2018] NZHC 2254

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-000070

[2018] NZHC 2254

UNDER

the Companies Act 1993

BETWEEN

J.P.S ROOFING LTD Plaintiff

AND

LANYON & LE COMPTE CONSTRUCTION LTD

Defendant

Hearing:	15 August 2018
Appearances:	D J C Russ for Plaintiff (respondents on costs) S C Cowan for Defendant (applicant for costs)
Judgment:	29 August 2018

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

[On Costs]

Introduction

[1]                  The plaintiff, J P S Roofing Ltd, filed liquidation proceedings in respect of a debt it alleged was owed by the defendant, Lanyon & Le Compte Construction Ltd. Subsequently, the plaintiff elected to not proceed with its claim. The parties are unable to resolve costs.

Background

[2]                  The plaintiff is a roofing company. The defendant is a construction company. The plaintiff alleged the defendant owed a debt pursuant to an invoice dated 30 July 2015 for roofing work. The plaintiff claimed that the defendant ignored its attempts

J.P.S ROOFING LTD v LANYON & LE COMPTE CONSTRUCTION LTD [2018] NZHC 2254 [29 August 2018]

at contact in respect of that invoice.1 Eventually, on 3 August 2017, the plaintiff’s solicitor made a formal demand for payment, which was not met.

[3]                  On 1 December 2017, the plaintiff served the defendant with a statutory demand. The defendant did not apply to set aside the plaintiff's statutory demand. The statutory presumption of insolvency arose. The plaintiff then filed liquidation proceedings on 12 February 2018 seeking payment of $17,036.96 for goods and services it says it provided to the defendant.

[4]                  On 16 February 2018, Mr Le Compte, the defendant’s director, emailed the plaintiff's solicitor. Mr Le Compte stated that the defendant disputed that it was indebted to the plaintiff as there was no contract between it and the plaintiff in respect of work for which the plaintiff was claiming payment. Mr Le Compte referred to documentation which showed the defendant was not a party to the contract for which the plaintiff was claiming payment and that the company that was involved had been put into liquidation.

[5]                  On 23 February 2018, the defendant’s solicitors wrote to the plaintiff’s solicitors reiterating the defendant's position that there was no debt owing and invited the plaintiff to provide further documentation which supported the existence of the claimed contract between these two parties. This information was requested by 26 February 2018 as the defendant's statement of defence was due to be filed by 28 February 2018. As no further information was provided by 28 February 2018, the defendant filed and served a statement of defence.

[6]                  On 9 March 2018, the plaintiff’s solicitors provided a number of documents to the defendant’s solicitors. These included a full accounting breakdown of all invoices issued by the plaintiff across projects. The plaintiff says that it was not until a meeting on 21 May 2018 that documents were provided to support Mr Le Compte’s claims that the defendant was not a party to the relevant contract. At that point the proceedings were discontinued by the plaintiff (with leave).

1      The defendant disputes this and has provided an email from November 2016 in which the debt was disputed.

[7]                  The defendant seeks costs on a 2B scale basis in the sum of $9,182.00 and disbursements of $160.00.

Legal principles – costs on a discontinuance

[8]                  The defendant invokes the presumption under r 15.23 High Court Rules which states:

Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[9]                  The defendant has not agreed to dispense with the application of r 15.23. Accordingly, the Court must award to the defendant its costs of the proceeding up to discontinuance, unless the Court finds that it is proper to order otherwise.

[10]              The principles concerning the award of costs on a discontinuance were stated by the Court of Appeal in Kroma Colour Prints Ltd v Tridonicatco NZ Ltd (Kroma):2

…[the] presumption in favour of awarding costs to a defendant against whom a proceeding had been discontinued may be displaced if there were just and equitable circumstances not to apply it. A court would not speculate on respective strengths and weaknesses of the parties’ cases. The reasonableness of the stance of both parties, however, had to be considered.

[11]              I adopt the following principles as described in FM Custodians Ltd v Pati, where Associate Judge Abbott stated the principles governing the exercise of the discretion under that rule as follows:3

[11]The Court is not limited in the factors that can be taken into account when considering whether the presumption is displaced, but the following are matters which are taken into consideration:

(a)As the general rule, the Court will not consider the merits of the respective cases (unless they are so obvious that they should influence the costs issue).

2      Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [Kroma] [2008] NZCA 150, (2008) 18 PRNZ 973.

3      FM Custodians Ltd v Pati [2012] NZHC 1902 (footnotes omitted).

(b)The Court will consider the reasonableness of the stance of both parties in the proceeding (whether it was reasonable for the plaintiff to bring and continue the proceeding, and for the defendant to oppose and continue to oppose it, up to the point of discontinuance).

Submissions

(c)Conduct prior to the commencement of the proceeding may be relevant (for example, if any conduct by a defendant has precipitated the litigation), as may be the reason for discontinuing (for example, where a change of circumstances has made the proceedings unnecessary).

[12]             The plaintiff submits the presumption in r 15.23 ought to be displaced. It argues that the defendant failed to respond to a payment claim under the Construction Contracts Act and failed to apply to set aside the statutory demand. The plaintiff says it properly bought the proceedings seeking liquidation. It was only when the liquidation proceeding was filed that a response was forthcoming. The plaintiff argues that when the defendant did respond, it filed only a bare statement of defence. It submits that the only defence available was that the defendant was not the contracting party. Much of the costs incurred, it submits, was the result of the defendant’s failure to disclose the relevant documents until 21 May 2018. Given that the defendant’s failure to engage delayed a timely resolution of the dispute, it would be unjust for the defendant to receive an award of costs and the presumption in r 15.23 ought to be displaced.

[13]             The defendant observes that, while that there is a rebuttable presumption of insolvency where a statutory demand is not complied with, there is no obligation on a defendant to apply to set aside a statutory demand. A failure to do so does not preclude the right to defend a liquidation application on the merits.4 The defendant further argues that a presumption of insolvency does not displace the presumption in r 15.23 and that there are no circumstances which make it just and equitable to displace the presumption. The defendant submits that the plaintiff's statement of claim dated 8 February and amended statement of claim filed on 26 April both lacked adequate particulars. When directed to provide better particulars by way of a memorandum the plaintiff elected to discontinue this proceeding. The defendant invites the Court to

4      By reference to Ning v Johnson Group NZ Ltd [2012] NZHC 1902 at [10]-[12].

infer from this that the plaintiff was unable to establish that it had in fact entered into a contract with the defendant as alleged.

Analysis

[14]             The Court of Appeal in Kroma, stated that, as a general rule, this Court should not consider the merits of the respective case unless they are so obvious as to influence the costs issue.

[15]             The issue here is whether the conduct of the defendant had such characteristics that it warrants departure from the presumption in r 15.23. On a necessarily limited survey of the facts, I see nothing to suggest that the defendant materially contributed to the mistaken decision by the plaintiff to institute winding-up proceedings. The defendant was entitled to defend the liquidation application on the merits.

[16]             Here, as is often the case, information was obtained in the course of proceedings that made it clear that the basis for bringing those proceedings needed to be re-evaluated. As Associate Judge Doogue noted in Opus International Consultants Limited v Colac Bay Vision Limited & Anor:5

It would be possible to imagine a circumstance where the Court was able to conclude that it was only because of misleading conduct on the part of the defendant that the plaintiff formed the view that it had a viable proceeding against the defendant, when in fact it did not. In order to avoid the presumption in r 15.23 it would not seem to be sufficient for the plaintiff to show that, at one point, it had reasonable grounds, for believing that it would be the successful party in the proceedings that it intended to bring. If such an exception were recognised in the circumstances in which the presumption would apply, the presumption would be left with virtually no effect.

[17]             I adopt that passage. Costs in this proceeding have been incurred because of the plaintiff’s error in issuing the statutory demand and this proceeding. The defendant’s behaviour does not justify a departure from the presumption in r 15.23. The defendant is entitled to costs. A 2B6 award is appropriate.

5      Opus International Consultants Limited v Colac Bay Vision Limited & Anor [2015] NZHC 1782 at [24]

6      High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).

Order

[18]             I order that the plaintiff pay the defendant’s costs and disbursements which I fix in the total sum of $9,342.00.

Associate Judge Osborne

Solicitors:

Fletcher Vautier Moore, Richmond Cavell Leitch, Christchurch