Master Design Furniture Limited v Veronica West Limited
[2024] NZHC 1103
•7 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-270
[2024] NZHC 1103
BETWEEN MASTER DESIGN FURNITURE LIMITED
Applicant
AND
VERONICA WEST LIMITED
Respondent
CIV-2023-404-318 BETWEEN
MASTER DESIGN FURNITURE LIMITED
Applicant
AND
GRANT DOONAN, SHERYL DOONAN
and THOMAS DOONAN as trustees of the Doonan Family Trust
Respondent
Hearing: On the papers Appearances:
BJ Norling and WM Alexander for the Applicant in both proceedings
BR Prewett for the Respondents
Judgment:
7 May 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
Costs
This judgment was delivered by me on 7 May 2024 at 12.30 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Norling Law Limited, Auckland Kemps Weir, Auckland
Bankside Chambers, Auckland
MASTER DESIGN FURNITURE LTD v VERONICA WEST LTD [2024] NZHC 1103 [7 May 2024]
Introduction
[1] The applicant, Master Design Furniture Limited (Applicant), applies for costs in respect of its successful applications to set aside the statutory demands issued by the respondents.1 Costs are sought on a 2B basis with an 80 per cent uplift for a total of $57,646.80 or, in the alternative, a 50 per cent uplift for a total of $48,039.00.
[2] The respondents, Veronica West Limited and the trustees of the Doonan Family Trust (Respondents), accept that the Applicant was the successful party and is therefore entitled to be paid 2B costs for certain steps. However, they say that the award of costs sought is unreasonable on its face and fails to take account of a settlement offer made by the Respondents. Furthermore, the Respondents say the Applicant improperly applies an uplift and claims costs that are not allowed or are excessive. As a result, the Respondents say the Applicants are only entitled to a costs and disbursements award of $6,327.65. Furthermore, because of a without prejudice except as to costs offer made by the Respondents, the Respondents are entitled to an award of $9,679.50 for steps following the offer, resulting in a net award to the Respondents of $3,351.85.
[3] I discuss a preliminary point in relation to the naming of one of respondents before setting out the relevant cost principles and applying these to the circumstances of these proceedings.
Naming of respondent — Doonan Family Trust
[4] The Applicant named the Respondent in the second proceeding, CIV-2023-404-0318, as the Doonan Family Trust. This was presumably because the statutory demand was issued in the name of the trust, rather than the trustees. A trust is not a separate legal entity so to ensure any orders made are enforceable, I correct the name of the respondent in CIV-2023-404-0318 to Grant, Sheryl and Thomas Doonan as trustees of the Doonan Family Trust.
1 Master Design Furniture Ltd v Veronica West Ltd [2023] NZHC 3831.
Relevant costs principles
[5] 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 sets out the general principles and includes:
(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.
[6] 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. These proceedings have previously been categorised as Category 2, but r 14.3(2) permits re- categorisation if there are special reasons.
[7] Increased costs are provided for in r 14.6 and may be ordered where the nature of the proceeding is such that the time required exceeds the time allocated under Band C, where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it (including failing, without reasonable justification, to accept an offer for settlement), where the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring or participate in the proceeding or where some other reason exists.
[8] Rule 14.7 expressly provides that 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.
[9] Rules 14.10 and 14.11 apply to written offers without prejudice except as to costs. Rule 14.10 allows a party to make a written offer to another party at any time that is expressly stated to be without prejudice except as to costs and that relates to an
2 High Court Rules 2016, r 14.1.
issue in the proceeding. The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.
[10] Rule 14.11 begins at r 14.11(1) by providing that the effect (if any) that the making of a r 14.10 offer has on the question of costs is at the discretion of the Court.
[11] Rule 14.11(2) reinforces this by providing that subclauses (3) and (4) are subject to subclause (1) and do not limit rr 14.6 and 14.7.
[12] Rule 14.11(3) relevantly provides that a party is entitled to costs on the steps taken in the proceedings after a r 14.10 offer is made if a party makes an offer that would have been more beneficial to the other party than the judgment obtained.3
[13] Rule 14.11(4) further provides that a r 14.10 offer may be taken into account if, despite not falling within r 14.11(3), a party makes an offer that is close to the value or benefit of the judgment obtained.
Was the Respondents’ offer more beneficial to the Applicant than the judgment obtained or was it close to the value or benefit obtained?
[14] The Respondents submit that the Applicant’s costs memorandum does not address the Respondents’ offer to withdraw the statutory demand and discontinue the proceeding with no issue as to costs on 25 May 2023. The Respondents say the offer was rejected by the Applicant that same day but satisfies the requirements of r 14.10.
[15] The Respondents say that if the Applicant had accepted the offer, it would have received the very relief it sought and ultimately obtained, the withdrawal of the statutory demands, without incurring further delay and costs. The Respondents say that this is true even if the Applicant’s costs entitlement as of 25 May 2023 is accounted for, referring to New Zealand Sports Merchandising Ltd v DSL Logistics Ltd.4 They say the Applicant’s costs entitlement was modest at that stage (no more
3 Rule 14.11(3)(b).
4 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010 at [35]–[36].
than $4,780 plus disbursements for an originating application and supporting affidavit) and far outweighed by the irrecoverable costs it subsequently incurred.
[16]The Respondents therefore submit that they are entitled to:
(a)costs on steps taken after the May offer pursuant to r 14.11(3)(b); and
(b)increased costs for that period, being an uplift of 50 per cent of scale costs, because the Applicant failed to accept the offer without reasonable justification, pursuant to r 14.6(3)(b)(v).
[17] The offer made by the Respondents was to withdraw the statutory demand with no issue as to costs. If the Applicants had accepted that offer, I consider they would have been in a worse position than they are following the judgment as the statutory demands have been set aside but on the basis that the Applicant ought to be awarded 2B costs for certain steps, which even the Respondents accept.
[18] The Respondents appear to be suggesting that because, in their submission, their offer entitles them to costs for all steps following the offer and on an increased basis, that when this is taken into account the Applicant is in a worse position now than if they had accepted the Respondents offer to withdraw on the basis that costs lie where they fall. But that cannot be how rr 14.10 and 14.11 are intended to work. The question of whether the offer is more beneficial than the judgment obtained must compare the offer made with the judgment obtained including any costs award made for that party but not any costs award as a result of the offer. It would be unreasonable for a party not to be awarded costs, when a statutory demand clearly ought to have been withdrawn, simply because the party did not accept an offer to withdraw the demands on the basis that costs lie where they fall.5
I do not therefore accept the offer satisfies the requirements of r 14.11(3)(b).
5 And see Hira Bhana & Co Ltd v PCG Wrightson Ltd [2007] NZCA 342 at [26] where the Court of Appeal held that increased costs would not be awarded based solely on the making of “walk away” settlement offers.
[20] Furthermore, I do not accept the Respondents’ submission that because the Applicant’s cost entitlement at that stage was modest the offer ought to be treated as an offer falling within r 14.11(4)(b), on the basis that the offer was close to the value or benefit of the judgment obtained. Costs awards are often modest and even a costs award of approximately $5,000 would have been significant. This submission also assumes that 2B costs for the filing of one, rather than two, originating applications to set aside would have been the appropriate award at that time which I do not accept for the reasons discussed below.
[21] As a result of these conclusions, I consider the Applicant is entitled to costs up until and including the hearing and not just until 25 May 2023.
[22] In addition, the Respondents are not entitled to costs pursuant to either r 14.11(3)(b) or r 14.6(3)(b)(v) from 25 May 2023, on either a 2B or increased basis, as I do not accept that the Applicant failed to accept the Respondents’ offer without reasonable justification.
What is the appropriate quantum?
[23] To determine quantum, the first task is to determine the appropriate steps, category and band before determining whether increased costs ought to be awarded.6
Appropriate steps, category and band
[24] The Applicant attaches a schedule setting out the steps for which they claim costs, totalling $32,026.00 on a 2B basis, with columns calculating costs with a 50 per cent uplift, totalling $48,039.00, and an 80 per cent uplift, totalling $57,646.80.
[25] The items included in the schedule include the filing of two separate originating applications to set aside and supporting affidavits. This is because two separate statutory demands were filed 13 days apart.
[26] The Respondents submit that only costs for one application ought to be awarded because the documents were very nearly identical and therefore no
6 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
substantial additional time would have been required to produce these documents. I accept that the two applications are very similar, but the affidavits filed in support are sufficiently different that it is appropriate to order costs for each of the proceedings.
[27] Furthermore, the Respondents chose to serve the statutory demands separately, almost ten working days apart, so that it would have been very difficult for the Applicant to combine the applications into one proceeding. For this reason, and because the affidavits are sufficiently different, I consider that 2B costs are appropriate for the filing of both applications and supporting affidavits.
[28] Contrary to the Respondents’ submission, I consider that the usual 2B costs are appropriate for the joint memorandum on 10 March 2023 because, although short, organising joint rather than separate memoranda adds additional expense but is to be encouraged.
[29] The Applicant seeks costs for two joint memoranda filed on 20 April 2023, one in each of the proceedings seeking an adjournment by consent. I only allow costs for one joint memorandum as they were short and one joint memorandum could have been filed for both proceedings. I consider that 2B costs are appropriate however as, again, a joint memorandum takes more time to prepare than separate memoranda.
[30] The Applicant seeks two days for each of their reply affidavits in the two proceedings by analogy with step 37, the filing of the originating application with supporting affidavits. I acknowledge that leave was granted for affidavits in reply to be filed but consider that one day for each is appropriate rather than the two days claimed. Step 37 is to cover the costs of the application as well as the original affidavit and the reply affidavit will have taken less time than the original so the costs for the affidavit in reply ought to be less than step 37.
[31] I consider that 2B costs are also appropriate for the 12 July 2023 memorandum. The Respondents submit that costs ought not to be payable because the memorandum was necessitated by the Applicants “doubly-belated” filing of reply affidavits and that it did not comply with the deadline under r 7.26(1) or the deadline in Associate Judge
Gardiner’s minute dated 26 May 2023. The Respondents submit they should not bear the cost of this memorandum.
[32] However, as the Applicant pointed out in its without prejudice letters, the Applicant delayed filing reply evidence to save costs in the hope the parties would settle. Following comprehensive settlement letters on 28 February 2023, 14 April 2023 and 24 May 2023, a further letter was sent on 29 June 2023 making two alternative settlement offers:
(a)full and final settlement of all matters in dispute including withdrawal of demands on the basis the Applicant pays $1,000 to the respondents; or
(b)withdrawal of the statutory demands only on the basis the respondents pay $25,000.000 as a contribution to the legal costs incurred.
[33] The second alternative offer was open until 5 July 2023. The 12 July 2023 memorandum was filed following the failure to accept this offer (or withdraw the demands in any event). As the Applicant’s letter predicted, the Court looks favourably on these attempts to settle. In the circumstances, I consider that 2B costs are appropriate for this memorandum.
[34] Finally, I have allowed for second counsel at the hearing because I accept that the facts of the case were relatively complex. I agree with counsel for the Respondents that the statutory demands were for relatively low values but the consequences of the demands not being set aside are serious for the Applicant and so second counsel can be justified.
[35] I attach a schedule to this judgment summarising the steps which are appropriately claimed.
Should increased costs be awarded and on what steps?
[36] The Applicants seek an uplift of 80 per cent in costs on the basis that the Respondents refused to accept valid legal arguments and failed without justification
to accept offers to resolve the disputes by other means. Furthermore, they say that the Respondents failed to withdraw the statutory demands despite the Applicant’s solicitors sending a letter on 28 February 2023 after the statutory demands were issued:
(a)plainly identifying that the alleged debts were disputed;
(b)emphasising that the dispute relating to the Applicant’s claim for an abatement of rent and outgoings during the COVID-19 pandemic was genuine and substantial;
(c)highlighting Burgered Restaurants Auckland v Chunilal where the Court held that the Respondents erred in seeking recovery of rental arrears through the statutory demand procedure and that the dispute should have been submitted to arbitration;7
(d)urging the Respondents to withdraw the statutory demands to avoid incurring further legal costs for all parties; and
(e)offering to negotiate a fair proportion of rent and outgoings for the periods that the Applicant was unable to fully access the leased premises.
[37] The Applicant submits the Respondents persisted with their refusal to withdraw the statutory demands, despite the Applicant's solicitors sending a further letter dated 14 April 2023, inter alia:
(a)highlighting the case of Coffee Culture Franchises Limited v Home Straight Park Trustees Limited where the Court considered a dispute regarding rent and outgoings payable during the Covid-19 pandemic, and held that statutory demands should only be issued where the test for legal liability is already established, which was not the case in this instance;8 and
7 Burgered Resturants Auckland v Chunilal [2022] NZHC 1903.
8 Coffee Culture Franchises Limited v Home Straight Park Trustees Limited [2021] NZHC 577 at [36].
(b)making a settlement offer to resolve all disputes between the parties.
[38] The Applicant's solicitors extended further offers to the Respondents to negotiate the disputes between the parties, none of which the Respondents meaningfully engaged with. These further offers were set out in emails dated 24 May 2023, 29 June 2023 and 9 August 2023 respectively, in which the Applicant, inter alia, reiterated the reasons why the Applicant would be successful with its applications, the indications in the case law that statutory demands were issued inappropriately in these circumstances and the existence of genuine and substantive disputes.
[39] The Applicant therefore submits that in accordance with the case of Four Avenues Property Group Ltd v Higgs Construction Ltd, an uplift in costs is justified on the grounds that the Respondents refused to withdraw their statutory demands and engage with the Applicant to resolve the disputes through negotiation as offered by the Applicant.9 The Applicant says the Respondents have contributed unnecessarily to the time or expense of the proceedings and caused the Applicant to incur significant costs, including being compelled to proceed with two applications to have the statutory demands set aside, and preparing for and attending the hearing of these applications, when “quite frankly, these applications were an abuse of process.”
[40] The Respondents submit in response that there is no basis on which to award increased costs. The Respondents record in their costs memorandum that the critical issue, as identified by the Applicant, was the extent to which the Applicant was entitled to an abatement of rent and outgoings due to the Covid-19 pandemic. The Respondents accept that issue was raised in the Applicant’s letter of 28 February 2023 but say that they responded comprehensively on 9 March 2023, pointing out deficiencies in the Applicant’s supporting affidavits on this subject.
[41] The Respondents submit that the Applicant’s response on 14 April 2023 did not seek to defend its supporting affidavits, rather it stated that the Applicant would reply to the Respondents’ evidence if the matter could not be settled.
9 Four Avenues Property Group Ltd v Higgs Construction Ltd [2016] NZHC 1202.
[42] The Respondents point to the fact the judgment records the Applicant’s evidence “could have been worded more clearly”, although acknowledging there was “sufficient evidence to establish that it is reasonably arguable that Master Design was unable to fully operate its business”.10
[43] The Respondents therefore submit that this is not a case where the demanded sums were clearly subject to a genuine and substantial dispute from the outset as the Applicant’s evidence on the critical issue was, at least on its face, deficient, and supplemented by reply evidence. In these circumstances, it was not abusive to have made the statutory demands nor was it inappropriate to have opposed the applications to set aside the statutory demands, and ultimately to contend that the Applicant’s evidence failed to clear the requisite threshold at the statutory demand stage.
[44] In addition, the Respondents submit that they were justified in rejecting the Applicant’s offers of settlement as they did not relate solely to the statutory demands but were made in full and final settlement of all amounts owing under the lease. They accept that the Applicant’s offer of 29 June 2023 proposed as an alternative the withdrawal of the statutory demands but only if a payment of $25,000 was made for legal fees, an amount the respondents say is substantially more than the Respondents’ costs entitlement at that point, not least, they say, given the Respondents’ own offer to settle the proceedings.
[45] In the judgment, I concluded there was clearly a substantial and genuine dispute in respect of rent at Alert level 3 and outgoings at both Alert levels 3 and 4 in respect of both statutory demands.
[46] In addition, I concluded that cl 27.5 of the lease required a fair reduction in rent and outgoings in respect of the pandemic where the tenant cannot fully conduct its business from the premises. I held that in this case, in the same way as for the café in Coffee Culture, the Applicant needed to be able to fully access the premises, including for customers. Importantly, I relied on the Facebook posts annexed to the Respondents’ affidavits to find that it was reasonably arguable that this did not amount to “fully operating the business”. Furthermore, I held there appeared to be an
10 Master Design Furniture Ltd v Veronica West Ltd, above n 1, at [54].
additional issue as to whether Master Design is entitled to further abatement because cl 27.5 relates not only to rent but also to outgoings. All of these points, including relying on Coffee Culture, were raised by the Applicant’s solicitors in their comprehensive letter of 14 April 2023 prior to the filing of evidence in reply.
[47] In these circumstances, I consider that certainly from the time of the Applicant’s letter on 14 April 2023, increased costs ought to be payable as counsel for the Applicant at that stage highlighted the Coffee Culture case where the Court considered a similar dispute concerning rent and outgoings payable during the COVID-19 pandemic and held that statutory demands should only be issued where the test for legal liability is already established. This clearly was not the case in this instance.
[48] I do not add increased costs for the memoranda filed on 20 April 2023 as I allow time for the Respondents’ counsel to consider the letter referring to Coffee Culture on 14 April 2023. However, I award increased costs from the filing of the reply affidavits in June 2023 onwards. A 50 per cent uplift is appropriate as I do not consider the Respondents reasonably considered the position and whether it was appropriate to continue with their opposition at that point. As the authors of McGechan on Procedure point out, any increase above 50 per cent is unlikely as the daily recovery rate is calculated on the basis that it is two thirds of the daily rate considered reasonable for a proceeding.11 Counsel for the Applicant has confirmed that the Applicant’s actual costs exceed the costs claimed on the basis of an 80 per cent uplift but not by how much. Anything more than a 50 per cent uplift is essentially moving closer to indemnity costs for which the threshold is significantly higher.
[49] In awarding increased costs, I accept that several of the settlement offers made by the Applicant were offers to settle all matters, not just in respect of the statutory demands. At any stage, however, the Respondents could have withdrawn the statutory demands on the basis that there was a genuine dispute. It was not necessary for agreement to be reached on costs or settlement of the substantive dispute before doing so. The Companies Court is not the appropriate forum for such a dispute, as had been
11 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [14.6.02(2)(a)].
pointed out to them a number of times by counsel for the Applicant. The Respondents instead took an unreasonable approach appearing to ignore the word “fully” qualifying “conduct the Tenant’s business” in cl 27.5 of the lease and that a fair proportion of rent and outgoings would cease to be payable as a result of the Covid emergency. Furthermore, the Applicant’s solicitor warned in their letters that increased costs would be sought if the applications were required to proceed.
[50] I consider that the Respondents clearly contributed to the time and expense of the proceedings in terms of r 14.6(3)(b)(iii) by not withdrawing the statutory demands after the letter of 14 April 2023 and that a 50 per cent uplift is appropriate from the filing of the reply affidavits onwards.
Disbursements
[51] The Applicant attaches a schedule of its disbursements to its memorandum totalling $2,467.85 together with copies of invoices. These appear appropriate, and the Respondents do not dispute any of the amounts claimed. I therefore order disbursements to be paid as sought.
Result
[52] The Respondents are to pay costs to the Applicant on a 2B basis jointly and severally as set out in the attached schedule with a 50 per cent uplift for the steps from 20 April 2023, totalling $33,699.00 in costs plus disbursements of $2,467.85.
Associate Judge Sussock
SCHEDULE 1
Item Steps taken Allocated day or parts day Appropriate daily recovery rate Total Total including 50% uplift
(from 20
April 2023)
37 Originating application and supporting affidavit (270) 2 $2,390.00 $4,780.00 37 Originating application and supporting affidavit (318) 2 $2,390.00 $4,780.00 39/11 Joint Memorandum (10 March
2023)
0.4 $2,390.00 $956.00 39/11 Joint Memorandum
(20 April 2023 x2)
0.4 $2,390.00 $956.00 Reply affidavit (318)
(8 June 2023)
1 $2,390.00 $2,390.00 $3,585.00 Reply affidavit (270)
(8 June 2023)
1 $2,390.00 $2,390.00 $3,585.00 39/11 Memorandum (12 July 2023) 0.4 $2,390.00 $956.00 $1434.00 39/12 Appearance at mentions hearing 0.2 $2,390.00 $478.00 $717.00 40 Preparation of written submissions 1.5 $2,390.00 $3,585.00 $5,377.50 41 Preparation of bundle for
hearing
0.6 $2,390.00 $1,434.00 $2,151.00 42 Appearance at
hearing
1 $2,390.00 $2,390.00 $3,585.00 43 Second counsel 0.5 $2,390.00 $1,195.00 $1,792.50 Total $33.699.00
2
0
1