Jenhash Contracting and Consultants Limited v Eco-Smart Homes Northwest Limited
[2023] NZHC 1580
•23 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2264
[2023] NZHC 1580
BETWEEN JENHASH CONTRACTING AND CONSULTANTS LIMITED
Plaintiff/ApplicantAND
ECO-SMART HOMES NORTHWEST LIMITED
Defendant/Respondent
Hearing: On the papers Appearances:
No appearance for the Plaintiff/Applicant TJP Bowler for the Respondent/Defendant
Judgment:
23 June 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 23 June 2023 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Crimson Legal, Auckland Neilson Lawyers, Auckland
Case Officer:
Vimbai Kudakwashe
JENHASH CONTRACTING & CONSULTANTS LTD v ECO-SMART HOMES NORTHWEST LTD [2023] NZHC 1580 [23 June 2023]
Introduction
[1] In my minute dated 8 May 2023, I struck out the application by Jenhash Contracting and Consultants Limited (Jenhash) to set aside the statutory demand issued by Eco-Smart Homes Northwest Limited (Eco-Smart) following the failure by Jenhash to file submissions in support of its case as directed or to appear at the hearing or to seek an adjournment through the Registry. In addition, there was no evidence establishing that the application to set aside had been served on the respondent as required by s 290(2) of the Companies Act 1993.
[2]I reserved costs to allow for the filing of a memorandum.
[3] A memorandum has now been filed seeking indemnity costs of $21,702.50. Eco-Smart relies on settlement correspondence sent on a without prejudice save as to costs basis prior to the hearing and r 14.6(4) of the High Court Rules 2016 on the basis that Jenhash has acted vexatiously, frivolously, improperly or unnecessarily in commencing and continuing with its application to set aside the statutory demand (r 14.6(4)(a)) and has ignored or disobeyed the directions of the Court by breaching timetable orders relating to this proceeding and failing to appear at the scheduled hearing date (r 14.6(4)(b)).
[4] I set out the relevant costs principles below before applying them to the circumstances in this case.
Relevant cost principles
[5] The starting point is that costs are at the discretion of the Court as set out in r 14.1 of the High Court Rules 2016.1 Although the discretion is a wide one, it is not unfettered, with costs to be determined in accordance with the general principles set out in r 14.2 and the remaining provisions in part 14.
[6] Rule 14.6 provides for when increased or indemnity costs may be ordered and relevantly provides as follows:
1 High Court Rules 2016, r 14.1.
14.6 Increased costs and indemnity costs
(1)Despite rules 14.2 to 14.5, the court may make an order—
(a)increasing costs otherwise payable under those rules (increased costs); or
(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
(2) …
(3)The court may order a party to pay increased costs if—
(a)…
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i)failing to comply with these rules or with a direction of the court; or
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
(iv)…
(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
…
(4)The court may order a party to pay indemnity costs if—
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b)the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
…
(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.
[7] In Bradbury v Westpac Banking Corp, the Court of Appeal summarised the principles applying to the award of indemnity costs as follows:2
We therefore endorse Goddard J’s adoption in Hedley v Kiwi Co-Operative Dairies Ltd at [11] of Shepherd J’s summary in Colgate v Cussons at [24]. While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:
(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b)particular misconduct that causes loss of time to the court and to other parties;
(c)commencing or continuing proceedings for some ulterior motive;
(d)doing so in wilful disregard of known facts or clearly established law;
(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
[8] Rules 14.10 and 14.11 apply in respect of offers made on a without prejudice except as to costs basis (or a Calderbank offer). Rule 14.11(1) expressly provides that costs in those circumstances remain at the discretion of the Court and r 14.11(2) that rr 14.11(3) and (4) do not limit the application including of r 14.6. However, r 14.11(3)(b) provides that a party is entitled to costs on the steps taken in the proceeding after a without prejudice except as to costs offer is made if that offer would have been more beneficial to the other party than the judgment obtained.
[9] Finally I note r 15.23 as although Jenhash did not formally discontinue (or advise the Court or the respondent that it would not be proceeding with the application), Jenhash’s failure to proceed had a similar effect to a discontinuance. Rule 15.23 provides that unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding must pay costs to the defendant. The r 15.23 presumption may be displaced where it is just and equitable in the circumstances that the presumption ought not to apply.3
2 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29] (citations omitted).
3 McGechan on Procedure (online ed, Thomson Reuters) at [HR15.23.01].
What is the appropriate 2B costs calculation?
[10] Counsel for Eco-Smart has not set out what the 2B costs calculation would have been. It is useful to start with this as it is necessary if increased costs, rather than indemnity costs, are awarded and also for determining whether indemnity costs are reasonable. On my calculation, 2B costs would be $12,069.50 calculated as follows:
Step
Description
Band
Time
allowance (days)
Amount (x
$2390)
38
Filing notice of opposition and supporting affidavits
2B
2.0
$4780
11
Filing memorandum dated 8 February 2023 for first mentions hearing
2A (joint memorandum prepared by
applicant)
0.2
$478
11
Filing memorandum dated 21 March
2B
0.4
$956
11
Filing memorandum dated 12 April 2023
2B
0.4
$956
13
Call in the duty judge list on 24 April 2023
2B
0.3
$717
40
Preparation of written submissions
2B
1.5
$3585
42
Hearing
2B
0.25
$597.50
Total
5.05 Days $12,069.50
Can the without prejudice (save as to costs) settlement proposals be relied on?
[11] In circumstances where the application to set aside was struck out for failure to appear, it is difficult to apply r 14.11. This is because the position resulting from the striking out of the application to set aside is hard to compare with the settlement proposals made. Eco-Smart’s proposals required Jenhash to pay amounts into either an independent solicitor’s trust account or reduced amounts on a full and final settlement basis. No payment has been made by Jenhash. The strike out of Jenhash’s application just means the statutory demand remains current so it is difficult to work out whether Jenhash would have been better off if it had agreed to those proposals or not. I therefore consider the costs application pursuant to r 14.6 of the High Court Rules and the provisions relating to increased or indemnity costs, rather than rr 14.10 and 14.11.
Should indemnity costs be awarded?
[12] The application proceeded initially in the usual way with the filing of the application to set aside, the notice of opposition in response and a joint memorandum proposing timetable directions. Directions leading up to a half-day hearing were made on 9 February 2023 with the first call vacated and appearances excused.
[13] A memorandum was then filed by Eco-Smart on 21 March 2023 recording that the applicant had not complied with the direction to file any evidence in reply by 23 February 2023. Counsel for the applicant filed a memorandum in response, dated 27 March 2023, recording that the applicant’s sole director had to travel to Pakistan to attend to his mother who was in ill health and proposing that the applicant file and serve a reply affidavit by 7 April 2023.
[14] A further memorandum was filed on 12 April 2023 on behalf of Eco-Smart recording that reply evidence still had not been filed and that no extension had been sought to the amended timetable orders.
[15] A notice of application to withdraw as counsel was then filed by counsel for Jenhash on 20 April 2023 supported by an affidavit confirming a failure to pay fees.
[16] No further communication was received by the Court on behalf of Jenhash. Furthermore, Jenhash had earlier failed to respond to calls and emails from its own counsel seeking instructions in relation to this proceeding. Essentially it appears that from shortly after the issue of my minute on 9 February 2023, the respondent was put to unnecessary steps in responding to the application which the applicant ultimately did not proceed with.
[17] However, in Bradbury the Court of Appeal described the threshold for indemnity costs as requiring bad or very unreasonable behaviour, saying:4
Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be ‘flagrant’.
[18] I have not been referred to and am not aware of any judgments where indemnity costs have been awarded as a result of the abandonment of an application without more. I record that although r 15.23 provides a presumption that costs are payable where a party discontinues, there is not a presumption that indemnity costs are payable. Here there are the added factors of failing to advise the Court or the opposing party that they did not intend to proceed but Jenhash’s conduct at least at the time the notice of opposition was filed and the later joint memorandum was not problematic. Awarding indemnity costs for the whole of the proceeding may not therefore be appropriate.
[19] The invoice for legal fees provided by Eco-Smart does not break down the hours spent on each of the steps involved and so it is not a situation where costs could be awarded on different bases for different stages.
[20] In the circumstances I consider it is instead appropriate to award increased costs with a 50 per cent uplift. Jenhash’s behaviour clearly falls within the categories for when increased costs are appropriate including that Jenhash “has contributed unnecessarily to the time or expense of the proceeding or step in it by … failing to comply with these rules or with a direction of the court”.5 I consider that a 50 percent
4 Bradbury v Westpac Banking Corp, above n 2, at [28] (citation omitted).
5 High Court Rules, r 14.6(3)(b)(i).
uplift is justified as if instead Jenhash had filed a notice of discontinuance at the time it essentially disengaged from the proceeding then Eco-Smart would not have been required to take any of the steps that it did from that time.
[21] As set out above, 2B costs are $12,069.50. Adding a 50 percent uplift results in a figure of $18,104.25.
Result
[22] Jenhash Contracting and Consultants Limited is to pay costs to Eco-Smart Homes Northwest Limited on a 2B basis with a 50 percent uplift in the amount of
$18,104.25 plus disbursements to be fixed by the Registrar.
Associate Judge Sussock
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