Letoh Limited v Brentwood Hotel Limited
[2025] NZHC 2165
•4 August 2025
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2025-485-138
[2025] NZHC 2165
BETWEEN LETOH LIMITED
Applicant
AND
BRENTWOOD HOTEL LIMITED
Respondent
Hearing: On the papers Appearances:
M W Swan for Applicant F Collins for Respondent
Judgment:
4 August 2025
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[Costs]
[1] On 7 February 2025, the respondent served a statutory demand dated 5 February 2025 in respect of an alleged debt of $23,249.37 (including GST). On 21 February 2025, the applicant applied to set aside the statutory demand which was opposed by the respondent on 17 March 2025.
[2] On 21 March 2025, the respondent advised that it intended to file a claim in the Auckland District Court in respect of the alleged debt unless payment was received by 26 March 2025. The applicant then filed and served an affidavit in reply on 28 March 2025. On the same day, the respondent commenced ordinary proceedings in the Auckland District Court.
[3] On 2 April 2025, the applicant proposed a settlement, on a Calderbank basis, that the statutory demand be withdrawn by consent with costs for the applicant on a 2B basis. The respondent did not respond to the proposal.
LETOH LIMITED v BRENTWOOD HOTEL LIMITED [2025] NZHC 2165 [4 August 2025]
[4] On 30 April 2025, the matter was scheduled for hearing on 1 July 2025. On 11 June 2025, counsel for the director of the respondent proposed vacation of the hearing. That was proposed on a without prejudice basis to the parties’ respective positions, rights and remedies in the substantive proceedings in the Auckland District Court, with costs reserved pending the outcome of those proceedings.
[5] As recorded in my minute dated 16 June 2025, the parties could not agree on the terms on which the hearing would be vacated.1 On 17 June 2025, the applicant filed submissions and bundles of documents and authorities. After a telephone conference on 23 June 2025, the hearing was formally vacated on 26 June 2025 by consent orders:2
…
(a)The respondent will withdraw the statutory demand and the applicant will withdraw the application to set aside the statutory demand and discontinue the proceeding. This is without prejudice in all respects to the parties’ respective positions, rights and remedies in the substantive proceedings in the Auckland District Court (CIV-2005- 004-660).
(b)The hearing on 1 July 2025 at 10am is vacated.
(c)The issue of costs on the application to set aside the statutory demand remains outstanding and both parties expressly reserve all their rights. A key area of disagreement is whether costs should be determined now or after the final determination of the Auckland District Court proceeding. Counsel for the parties are to confer and endeavour to agree all outstanding issues regarding costs. If agreement cannot be reached then memoranda may be filed (not exceeding five pages, excluding costs schedules). The applicant is to file and serve its memorandum first, and the respondent may file and serve a memorandum in response within ten working days.
[6] Despite encouragement from the Court and the relatively small amount of costs involved, counsel for the parties have been unable to agree on costs. The applicant seeks increased costs on a 2B basis, with a 50 per cent uplift. The respondent submits that costs should be reserved until the final determination of the District Court proceedings.
1 Letoh Ltd v Brentwood Ltd CIV-2025-485-138, 16 June 2025.
2 Letoh Ltd v Brentwood Ltd CIV-2025-485-138, 26 June 2025.
Legal principles – costs
[7] Costs are ultimately a matter of the Court’s discretion, with the overall objective of achieving an outcome that best meets the interests of justice.3 However, that discretion is qualified by the applicable rules relating to costs contained in pt 14 of the High Court Rules 2016 (Rules).
[8] The primary principle applying to the determination of costs is that costs follow the event; a party who is unsuccessful pays costs to the successful party.4 Costs are usually to be assessed on the basis of the schedules in the Rules. The Court will apply the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application.5
[9] The Court may order a party to pay increased costs or indemnity costs.6 However, applications to depart from a standard award of costs based on the schedular approach are discouraged unless there is a clear basis for such departure in accordance with the Rules.7
Successful party
[10] The respondent submits that where a statutory demand is withdrawn before hearing of an application to set aside, the withdrawal is treated as analogous to a discontinuance. Therefore, the respondent submits that the presumption under r 15.23 of the Rules applies.8 However, this approach has been questioned.9
[11] The Court in Greys Avenue Investments Ltd v New Zealand Mint Ltd found that the withdrawal of a statutory demand may be equivocal, and not of itself determinative of where costs should fall.10 Rather, consideration should be given to the
3 High Court Rules 2016, r 14.1; Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7] and [16]; Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [21]–[24] and [28]; and Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662 (CA) at [27].
4 High Court Rules, r 14.2(1)(a).
5 Rule 14.2(1)(c).
6 Rule 14.6.
7 Lepionka & Company Investments Ltd v Gibson Sheat [2023] NZHC 2745 at [3] and [7].
8 York Trustees Ltd v Body Coprporate 166208 [2014] NZHC 2748 at [7].
9 Greys Avenue Investments Ltd v New Zealand Mint Ltd [2015] NZHC 2633 at [25]–[32].
10 At [32]–[40].
circumstances surrounding the withdrawal and what happens afterwards. For example, “the creditor may have to take other steps instead, such as starting an ordinary proceeding in the case of disputed debt” and “outcomes where a creditor has to take other steps to establish its position as creditor go to show that the company has succeeded”.11
[12] Mr Sullivan, for the respondent, submits that costs should be reserved because “the debt is wholly related to an existing substantive proceeding between the parties and guarantor of the lease”. He says the proceedings commenced by the respondent are “the appropriate forum to determine the debt and costs ought to follow the substantive event”.
[13] Mr Sullivan submits that the statutory demand was withdrawn to avoid a “duplication of hearings”. He says the withdrawal is “very different from the situation where there is a presumption that if a statutory demand has been withdrawn then that is an implicit recognition that it would not be successful”. Mr Sullivan submits that the successful party in the District Court “will enjoy the net result of costs awards in the District Court and High Court”.
[14] The difficulty with the respondent’s approach is that it equates success on the substantive issues in the District Court with success in respect of the application to set aside the statutory demand. I do not consider that approach is correct. The two proceedings determine different matters. The application to set aside the statutory demand would have determined whether there is arguably a genuine and substantial dispute as to the existence of the debt and/or a reasonably arguable counterclaim, cross-demand or set-off.12 The District Court proceeding will determine the substantive issues between the parties.13
[15] Even if the respondent is ultimately successful on its claims in the District Court proceeding, that does not necessarily mean it would have been the successful
11 At [35]–[37].
12 See Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
13 I understand the respondent has not applied for summary judgment in the District Court proceeding. That is the usual approach if a party is seeking to recover a debt, with the issue being whether there is a reasonably arguable defence.
party in respect of the application to set aside the statutory demand. The respondent could ultimately succeed on the merits even if there is a genuine dispute as to the existence of the debt. Accordingly, I consider it is appropriate to determine costs on the application to set aside the statutory demand now.14
[16] The respondent says it withdrew the statutory demand to avoid duplication of proceedings. However, after the applicant filed the application to set aside the statutory demand, the respondent opposed the application, but has now chosen to commence substantive proceedings in the District Court against the applicant and the guarantor of the lease to have its claims determined. The respondent clearly considers that is the appropriate forum to determine the issues between the parties. The respondent has, at a very late stage, sought to deal with the statutory demand and application to set aside the statutory demand by proposing that the fixture be vacated, and the proceeding dismissed without prejudice to the parties’ respective positions in the District Court proceeding, and with costs reserved pending the outcome of that proceeding. In short, the respondent has decided to take another approach to establish its position as creditor, being the District Court proceedings. Further, it has not applied for summary judgment which would be expected if it was seeking to recover a debt.
[17] In those circumstances, I find that the applicant is the successful party in respect of the withdrawn application to set aside the statutory demand. The applicant is, therefore, entitled to costs.
[18] I note that this finding does not involve speculation as to the merits of a case I have not heard.15 Rather, in accordance with the approach in Greys Avenue Investments Ltd, 16 I have considered the circumstances surrounding the withdrawal of the statutory demand and the application to set aside and what happens afterwards.
14 See International Airline Trading (NZ) Ltd v Rohlig New Zealand Ltd HC Auckland CIV-2003- 404-3464, 23 February 2004 at [14]–[15]. The Court held that an application to set aside a statutory demand “is a discrete, stand-alone, application” and “[g]enerally it will not be appropriate to reserve costs pending some other event”.
15 Greys Avenue Investments Ltd v New Zealand Mint Ltd, above n 9, at [22]-[23].
16 At [32]-[40].
Increased costs
[19] The applicant contends that increased costs should be awarded as the statutory demand was issued inappropriately. The applicant says:
(a)the statutory demand should not have been issued as a result of the factual dispute that was evident and which was known to the respondent at the time of issuing the statutory demand;
(b)the respondent should have withdrawn the statutory demand at a much earlier time;
(c)the respondent’s failure to engage with the Calderbank letter of 2 April 2025 prior to allocation of the fixture; and
(d)the inferences drawn from the failure to issue the District Court proceedings at an earlier time and to seek summary judgment in those proceedings.
[20] The respondent does not accept that its conduct in any way justifies any increase to scale costs. The respondent submits that it has acted properly in limiting hearing time. The respondent says that it has not contributed unnecessarily to the time and expense of the proceeding. Rather, it has done the opposite by requesting the hearing be vacated and all rights of the parties be reserved.
[21] The Court in Savage Garage NZ Ltd v Peramune, found that where statutory demands are issued inappropriately, increased costs are routinely awarded.17 It is incumbent on the issuer of a statutory demand to ensure that the demand was issued on a proper basis and was not the subject of a genuine dispute.
17 Savage Garage NZ Ltd v Peramune [2023] NZHC 3864 at [7] and [9].
[22] In many recent cases where increased costs have been awarded for inappropriate issue of a statutory demand,18 the application to set aside the statutory demand had been determined by the Court.
[23] In this case, the merits of the application to set aside the statutory demand have not been determined. In particular, the key issue of whether there is a substantial dispute as to the existence of the debt. At this stage, it is not appropriate for me to review the affidavit evidence and the applicant’s submissions, noting that the respondent had not filed and served submissions prior to the vacation, and make a finding on whether the respondent was aware of a dispute prior to issuing the statutory demand.
[24] However, it is appropriate to review the correspondence, memoranda and steps taken after the filing of the application to set aside the statutory demand. In my view, once the respondent had decided to issue ordinary proceedings in the District Court for the claimed amount in late March 2025, counsel for the respondent should have conferred with counsel for the applicant as to withdrawal of the statutory demand and the application to set aside the demand and discontinuance of this proceeding. However, no such steps were taken by the respondent.
[25] The applicant attempted to resolve the situation on 2 April 2025 by proposing settlement on a Calderbank basis. The proposal was for the respondent to pay 2B costs to the applicant in respect of preparing and filing the originating application ($4,780). The aim of the proposal was to resolve the proceeding and avoid further costs being incurred in preparing submissions and attending a hearing. The respondent did not respond.19 The proceeding remained on foot and timetabling directions for the hearing were made by consent on 30 April 2025. The proposal for vacation of the hearing was not raised until 11 June 2025, by which time the applicant had commenced preparation of its submissions due on 17 June 2025.
18 Haines v Memelink [2019] NZHC 2169 at [39]–[51]; Haines v Memelink [2021] NZHC 1063 at [19]–[27]; AAI Ltd v 92 Lichfield Street (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [61]–[63]; and AAI Ltd v 92 Lichfield Street (in rec and in liq) [2016] NZHC 90 at [44]–[48].
19 See High Court Rules 2016, r 14.6(3)(b)(v).
[26] Further, I consider that it is reasonable to infer from the fact that the respondent has not sought summary judgment in the District Court proceedings that the respondent considers the applicant has a reasonably arguable defence to its claim. This raises an issue as to whether the statutory demand should properly have been issued.
[27] Taking all these factors into account, I consider there is justification to award the applicant increased costs. However, I consider that an uplift of 25 per cent is appropriate, rather than 50 per cent as sought by the applicant.
[28] The respondent takes issue with three items in the applicant’s schedule calculating 2B costs. The first issue relates to the claim for costs for two memoranda filed by counsel for the applicant dated 11 June 2025 (in response to the memorandum filed by counsel for the director of the respondent) and 19 June 2025 (for the case management conference scheduled for 23 June 2025). The respondents submits that these costs were incurred while the respondent was properly making arrangements to have the statutory demand withdrawn.
[29] I consider the applicant is entitled to these costs. The applicant filed the memoranda in relation to the very late proposal for vacation of the hearing, and as part of the ongoing case management of the proceeding prior to the hearing being vacated.
[30] Second, the respondent takes issue with the costs claimed for preparation of the applicant’s written submissions for the hearing scheduled for 1 July 2025. As noted above, by the time the proposal for vacation of the hearing was raised on 11 June 2025, the applicant had properly commenced preparation of its submissions and therefore, must be entitled to some costs. However, I consider the applicant could reasonably have avoided further costs being incurred by conferring with counsel for the respondent. The parties had the opportunity to then seek a suspension of the timetable pending the issues around the vacation of the hearing being finalised. Accordingly, I consider the applicant is entitled to a time allocation of 0.75 of a day for this item (rather than the 1.5 days claimed).
[31] Third, the respondent takes issue with the applicant’s claim for the costs of preparing and filing its memorandum on costs. The applicant has been largely
successful on costs, both as to costs being determined now rather than later, and as to increased costs and the items claimed. I allow the costs claimed by the applicant for preparing and filing the costs memorandum.
[32] The applicant is entitled to 2B scale costs in the sum of $10,396.50 with a 25 per cent uplift.
Result
[33] I order the respondent, Brentwood Hotel Ltd, to pay the applicant, Letoh Limited, costs in the sum of $12,995.63 and disbursements in the sum of
$920.43.
Associate Judge Skelton
Solicitors:
Foley Hughes, Auckland for Applicant ARL Lawyers, Lower Hutt for Respondent
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