Little Republic New Zealand Ltd v Kum Fu Stainless Kitchen Equipment Ltd
[2021] NZHC 1836
•20 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1517
[2021] NZHC 1836
UNDER s 290 of the Companies Act 1993 IN THE MATTER
of an application to set aside a Statutory Demand
BETWEEN
LITTLE REPUBLIC NEW ZEALAND LIMITED
Applicant
AND
KUM FU STAINLESS KITCHEN EQUIPMENT LIMITED
Respondent
Hearing: On the papers Counsel:
T Herbert for the Applicant AM Swan for the Respondent
Judgment:
20 July 2021
COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 20 July 2021 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Forest Harrison Lawyers, Auckland TJ Herbert, Barrister, Auckland
Auckland Property Legal Service, Auckland AM Swan, Barrister, Auckland
LITTLE REPUBLIC NEW ZEALAND LTD v KUM FU STAINLESS KITCHEN EQUIPMENT LTD [2021] NZHC 1836 [20 July 2021]
Introduction
[1] Little Republic NZ Ltd has applied for indemnity costs following judgment to set aside a statutory demand for $13,828.50 issued to Little Republic by Kum Fu Stainless Kitchen Equipment Ltd (“Kum Fu”).1 Kum Fu’s position on costs is that they ought to be awarded on a 2B basis plus usual disbursements.
[2] The statutory demand related to a contract Little Republic entered into with Kum Fu for the installation of kitchen equipment at restaurant premises leased and operated by Little Republic in Rosedale. Kum Fu claimed $13,828.50 was due and owing under an overdue invoice.
[3] As set out in my judgment, I granted the application to set aside because I found that there was a substantial dispute as to whether a debt was in fact owing. This was because of unresolved defects in the work performed by Kum Fu. Even if Kum Fu was correct to say – as it did over Little Republic’s denials – that at the time the demand was issued Kum Fu had no knowledge of outstanding defects, the demand ought to have been withdrawn promptly once that subsequently became clear.2 As it was, I was satisfied there was a substantial dispute between the parties even before the statutory demand was served, such that the statutory demand ought not to have been issued.3
[4] In arriving at this conclusion, I considered the possibility of allowing the demand to stand in reduced figures, so as to represent only the 30 per cent of the invoice payable “before delivery” by Kum Fu.4 In the circumstances of the contract, however, I did not consider the meaning of “before delivery” to be so clear as to allow me to be satisfied there was no dispute as to whether that amount was owing. In addition, Little Republic disputed whether all equipment described in the contract had in fact been delivered.
1 Little Republic NZ Ltd v Kum Fu Stainless Kitchen Equipment Ltd [2020] NZHC 3478.
2 At [40].
3 At [41].
4 At [43], referring to United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [46].
[5] Having arrived at these conclusions, it was unnecessary to go on to assess whether Little Republic had an arguable counterclaim for damages for breach of contract against Kum Fu which would provide them with an offset exceeding the amount demanded.
[6] At the conclusion of my judgment, I held that Little Republic is entitled to costs on its application.5 I recorded that Little Republic had submitted that it was an abuse of process for Kum Fu to have issued the statutory demand and to have not withdrawn it when, at numerous times prior to the hearing, it was clear that there was a dispute and that Little Republic was therefore seeking indemnity costs.
[7] I recorded my view that a statutory demand should not have been issued but declined to make an order as to indemnity or increased costs at that time, not having heard from counsel for Kum Fu on costs and because of the small size of the alleged debt.6 I directed the parties instead to confer, reserving leave to file memoranda if the parties were unable to agree.
[8] The parties have not agreed, and so it is necessary to determine whether indemnity costs should be awarded.
Application for Indemnity Costs
[9] Counsel for Little Republic, Mr Herbert, for the reasons set out above, maintains that Little Republic is entitled to indemnity costs and disbursements in the total amount of $21,995.50. This claim is supported by copies of invoices. Little Republic also claims costs on this costs application on a 2B basis in the further amount of $956.
[10] In response, counsel for Kum Fu, Mr Swan, submits that Little Republic ought to be awarded costs only on a 2B basis. This is because, in his submission:
[e]ssentially the judgment of the Court came down to the fact that the applicant had a counterclaim for its losses (unquantified). With respect, there was no material proof to support any counterclaim and the first time it was raised was at the hearing by Counsel for [Little Republic]. The only dispute related to
5 At [48].
6 At [52].
“speed controls”. In those circumstances and without the knowledge of any counterclaim and with only a minor dispute over speed controls it was reasonable for the respondent to pursue its opposition.
[11] For the above reasons, counsel for the respondent submits that the respondent has not acted in a manner as set out in Rule 14.6(4)(a) justifying an award of indemnity costs.
[12] The difficulty with this submission is that the judgment did not rely on there being a counterclaim. The conclusion I reached was:
[47] There is no question that there was a substantial dispute as to whether a debt was owing and so the statutory demand must be set aside. There is no need to go on to consider whether there is an arguable counterclaim, but the failure to provide speed controls and the number of other issues arising with the works supports a conclusion that Little Republic has an arguable counterclaim.
[13] The result would therefore have been the same, counterclaim or not. I clearly disposed of the matter on the basis that there was a substantial dispute as to whether a debt was due and owing and there had been from even before the demand was issued.7
[14] Pursuant to r 14.6(4)(a) of the High Court Rules 2016, indemnity costs can be ordered where:
the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding;
[15] The issuing of a statutory demand is not itself the bringing of a “proceeding” for the purposes of the Rules.8 An award of indemnity costs pursuant to r 14.6(4)(a) can only be made therefore if Kum Fu has acted improperly in opposing the application to set aside the statutory demand.
[16] Kum Fu was on notice of the fact that the debt was disputed from before the date on which Little Republic issued its application to have the demand set aside. Furthermore, after the statutory demand was issued but prior to the application to set aside, Little Republic engaged a third party to inspect the works, who concluded that
7 At [41].
8 High Court Rules 2016, r 1.3 definition of “proceeding”.
they were defective. Little Republic’s lawyers then wrote to Kum Fu’s lawyers advising them that there were still non-compliant works that needed rectifying, confirming that the full amount Kum Fu said was owing had been deposited into Little Republic’s lawyers’ trust account and again asking Kum Fu to withdraw the demand. Kum Fu did not withdraw the demand and so Little Republic filed its application to set aside the demand.
[17] The Minute issued by Associate Judge Bell on 24 September 2020 suggested a more efficient way of dealing with the dispute may be for the respondent to bring a claim in the Disputes Tribunal but still Kum Fu persisted in its opposition.
[18] Prior to the hearing, Kum Fu had its own expert inspect the works, who confirmed that two matters required rectifying: the distance between the fans did not comply with the Building Consent; and there were no speed controls. Despite this, and being aware that the money outstanding was being held on trust, Kum Fu still did not withdraw the demand.
[19] In an affidavit filed with Kum Fu’s submissions for the hearing it was asserted that Kum Fu had fixed the distance between the fans so that it now complied with the building consent and a $300 credit was offered for the lack of speed controls.
[20] The speed controls assist in controlling the noise of the fans. At the hearing, counsel for Little Republic advised that it was not yet known whether speed controls could be installed retrospectively or what the cost of remedying their omission would be.
[21] In my view Kum Fu acted improperly and unnecessarily in filing a notice of opposition in these circumstances and so I am prepared to consider awarding indemnity costs.
Quantum of Indemnity Costs
[22]The next question is as to the quantum of costs sought.
[23] An order for indemnity costs under r 14.6(4)(a) is defined, in r 14.6(1)(b), as an order that “the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party”. As follows, it is not an order necessarily for the full indemnification of the party to whom costs are payable, but only an indemnity in respect of that party’s reasonable costs. The Court must determine that the costs claimed were “reasonably incurred”; not by comparison to the sum at stake,9 but by an assessment of how long ought to have been taken, the significance and complexity of the work, and a reasonable median hourly rate for that work.10 Where an item of expenditure is found to have been unreasonable, it is excluded from the award of indemnity costs, or the award in respect of that item is reduced. Similar principles apply to the award of disbursements.11
[24] Mr Swan submits the amount claimed by Little Republic is unreasonable. In particular, he challenges the following claims:
(a)$9,372.75 in solicitor’s fees which he submits equates at a “usual” hourly rate of $300 to 27 hours’ work, a number he submits is “incredible”; and
(b)$4,588.50 in experts’ fees, which he observes appears to relate to 20 hours work for a site meeting and inspection and attendances, at a charge-out rate he considers questionable.
[25] Counsel submits the Court ought to order Little Republic to provide further information and evidence regarding the breakdown of these claims, reserving leave to counsel to file further memoranda addressing the reasonableness of these claims once Kum Fu has had an opportunity to assess the amounts claimed.
[26] As noted in Mr Herbert’s correspondence to Mr Swan in February 2021, and annexed to Mr Herbert’s cost submissions, scale costs in this matter would be likely to be in the region of $12,000 (closer to $13,000 in my calculation). This can be
9 Edel Metals Group Ltd v Geier Ltd [2018] NZCA 494 at [62]. See also at [64].
10 Bradbury v Westpac Banking Corp (2009) 18 PRNZ 859 (HC) at [204] and [209].
11 High Court Rules 2016, r 14.12(2).
compared with the actual costs claimed of $16,373.05 plus disbursements. That is only approximately one-third more than the likely scale award on a 2B basis.
[27] The Rules Committee fixes the daily recovery rates applicable where scale costs are awarded to achieve, in theory, two-thirds recovery. The fact that Little Republic’s overall claim is for less than 150 per cent or so of the likely applicable scale rate suggests the amounts claimed in respect of solicitor’s and counsel’s fees is reasonable.
[28] As to the claim for experts’ fees, it is true, as Mr Swan has stated, that the consultants have simply described the number of hours of consultancy and other services provided – some 20 in total, as Mr Swan notes – and the applicable hourly rates, as relating to a site meeting and inspection and attendances. However, just below that statement, it is noted that visits and attendances took place on 16 occasions across five months, adequately explaining the use of 20 hours. Prima facie, the fees charged appear reasonable when one considers that there were that many visits. I record that it is difficult for Kum Fu to complain about the number of visits when even its experts said that the works were not compliant and required rectification.
[29] Ordinarily it is expected that when indemnity costs are claimed, further detail will be provided, with hourly rates and amount of time taken for particular tasks set out. In this case that has not happened. In the circumstances of such a small amount being the subject of the statutory demand so further memorandum cannot be justified, I adopt a pragmatic approach and reduce the costs awarded to $15,470 so that the total including disbursements amounts to $20,000. Little Republic has recorded that it is GST registered so GST is not payable on costs for disbursements. The disbursements payable are therefore $540 for the filing fee plus $3,990 for experts’ fees, for a total of
$4,530.
Costs on costs memorandum
[30] Finally, with the amount of $956 sought for preparing the costs memorandum, I observe that the Courts are generally reluctant to award “costs on costs”, that is, an
award of costs for making submissions on the award of costs.12 Generally speaking, an award of costs on costs will be appropriate where some complexity or genuine dispute arises in relation to the availability of costs or their quantum, and the successful party has gone to considerable time and expense addressing that ambiguity over the unsuccessful party’s reasonable opposition. The position here is quite different. While Kum Fu ought not to have opposed the award of costs, Little Republic has been put to little effort and cost in successfully outlining its position.
[31] For all of the above reasons, I decline to award costs for the preparation of the costs memorandum.
Result
[32]I award Little Republic costs in the amount of $15,470 plus disbursements of
$4,530, all GST exclusive.
Associate Judge Sussock
12 See Nisha v LSG Sky Chefs New Zealand Ltd (No 2) [2018] NZEmpC 33, [2018] ERNZ 108 at
[11] - [18]. Strata Title Administration Ltd v Body Corporate Administration Ltd [2014] NZCA 96 at [10] - [14]. For a recent example, see Combined Property Maintenance v Singh [2021] NZHC 621 at [19] fn 12.
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