Nags Head Horse Hotel Ltd v Epsom Woods Ltd
[2020] NZHC 2973
•11 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-465
[2020] NZHC 2973
UNDER the High Court Rules and the Companies Act 1993 IN THE MATTER
of setting aside a statutory demand
BETWEEN
NAGS HEAD HORSE HOTEL LIMITED
Applicants
AND
EPSOM WOODS LIMITED
Respondent
Hearing: On the papers Counsel:
AAH Low for applicant DG Hayes for respondent
Judgment:
11 November 2020
JUDGMENT OF FITGERALD J
[As to costs]
This judgment was delivered by me on 11 November 2020 at 4:00pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Alexandra Law & Associates, Auckland
Hunwick Law Ltd, Hamilton
Nags Head Horse Hotel Limited v Epsom Woods Limited [2020] NZHC 2973 [11 November 2020]
Introduction
[1] The applicant (Nags Head) seeks indemnity costs against the respondent (Epsom Woods) on Nags Head’s application to set aside a statutory demand.
[2] Nags Head’s application came before me for hearing on 25 August 2020. After some initial discussion with counsel and adjourning for a short time to enable counsel for Epsom Woods in particular to consider the matters raised and to take instructions, the application to set aside was granted by consent.
[3] At the conclusion of the hearing, Nags Head indicated that it would seek indemnity costs on the application. I made timetable orders, including that Epsom Woods’ costs submissions were to be filed on or before 22 September 2020. Despite this, Epsom Woods only filed its costs submissions on 2 November 2020, some six weeks’ late. No explanation was given for the delay.
[4] In these circumstances, it would be open to the Court to determine costs on the basis of Nags Head’s submissions only. But given indemnity costs are sought, I have taken into account the submissions made on Epsom Woods’ behalf.
[5] There is no dispute that Nags Head is entitled to scale costs (on a 2B basis).1 The real contest is whether indemnity costs ought to be awarded.
Background to application to set aside statutory demand
[6] Nags Head was the first mortgagee of a property located in Waitakere, Auckland (the Property). The registered owners of the Property were Mr Peter Mawhinney and Waitakere Forest Trustee Limited. A second (and third) mortgage had been granted over the Property to Sixty-Six Auckland Limited (Sixty-Six). Evidence filed on the application to set aside the statutory demand explained that Sixty-Six’s shareholder is the son of Mr Mawhinney, and its director is Mr Mawhinney’s brother.
1 Though Epsom Woods disputes some of the individual steps claimed for by Nags Head.
[7] Mr Mawhinney is well known to this Court as a frequent litigant in relation to the Property. In February 2019, Mr Mawhinney was the subject of an order made by Hinton J pursuant to s 166 of the Senior Courts Act 2016, namely that:2
[Mr] Mawhinney, in any capacity, including but not limited to as a trustee of any trust, is restrained from commencing or continuing any civil proceeding (or matter arising out of a civil proceeding) that relates in any way to [the Property] for a period of five years.
[8] Hinton J’s judgment provides some background to the protracted litigation in relation to the Property (which includes litigation by Mr Mawhinney against Nags Head).
[9] Given defaults on the underlying loan agreement between Nags Head and the registered proprietors of the Property, in 2016 Nags Head decided to exercise its power of sale pursuant to its mortgage. Given the history of litigation in relation to the Property, Nags Head applied to the High Court for assistance in relation to the sale process, which was conducted under the Court’s supervision. This included the Court ruling on various cost items for the purposes of a dispute between Mr Mawhinney and Nags Head as to the redemption amount under Nags Head’s mortgage.
[10] In the event, the Property was sold by mortgagee sale in December 2016, with that sale settling in March 2017. Based on Nags Head’s calculations, there were no surplus funds exceeding its priority amount for on-payment to the subsequent mortgagees.
[11] Approximately two years later, Nags Head received correspondence from a solicitor acting for Epsom Woods, stating that Epsom Woods had been assigned all of Sixty-Six’s rights and interests in the second mortgage over the Property. In this letter, Epsom Woods said it should have been paid approximately $154,000 of the proceeds of the sale of the Property which it said exceeded Nags Head’s priority amount as first mortgagee.
[12] Correspondence between Nags Head’s and Epsom Woods’ solicitors continued over the ensuing months. In that correspondence, Epsom Woods then relied on being
2 Auckland Council v Mawhinney [2019] NZHC 299 at [160].
the assignee of interests in both the second and third mortgages over the Property, and claimed a total amount of $177,814.04, plus an additional amount of $211,879.50. The amount of $177,814.04 was said to be based on Nags Head’s “own calculations” of its priority amount, and was said to have wrongly included “additional costs” associated with protecting Nags Head’s security and enforcing its power of sale (the additional costs). The further amount of some $211,000 was said to be owing on the basis of an interpretation dispute as to what was to be included in Nags Head’s priority amount.
[13] In the event, the statutory demand later issued by Epsom Woods only referred to the amount of $177,814.04, namely the dispute over the additional costs.
[14] In the affidavit material filed by Epsom Woods in support of its opposition to Nags Head’s application to set aside, an interest in the third mortgage only over the Property was asserted. Further, in its submissions filed in support of its opposition to the application to set aside, counsel for Epsom Woods clarified that no claim was made under the second mortgage, as that claim was spent, and that the claim was “about the third mortgage” only. Counsel also stated that the third mortgage no longer existed and had not been assigned, and what had been assigned was Epsom Woods’ right to be paid money in excess of Nags Head’s priority amount. The claim to such funds was said to be “based on negligence of the solicitors [who calculated the priority amount] or breach of duty as mortgagee, but not the mortgage”.
Mr Mawhinney’s involvement
[15] Given Mr Mawhinney’s connections with the director and shareholder of Sixty-Six, and that Mr Mawhinney apparently retained a one thousandth share in the underlying mortgage (or debt) said to have been assigned to Epsom Woods, Nags Head was concerned that Epsom Wood’s actions in making the claim and issuing the statutory demand were being driven wholly or in part by Mr Mawhinney. A Mr Dossa, a director of Epsom Woods in more recent times (but not the director who issued the statutory demand, being a Mr Paul Alexander), said in an affidavit that Nags Head’s concerns were unfounded. Mr Alexander did not provide an affidavit in the proceedings.
[16] Given the above, I cannot, and for the purposes of the present costs judgment need not, make any determination as to whether Mr Mawhinney was involved in the recent claim by Epsom Woods against Nags Head. I simply observe, however (as I also noted with counsel for Epsom Woods at the hearing), that Hinton J’s order in relation to Mr Mawhinney restrains him, in any capacity, from commencing or continuing any civil proceedings that relate to the Property, and thus would likely include acting as a shadow director of a company.
The hearing of the application to set aside
[17] As noted earlier in this judgment, after discussion with counsel at the outset of the hearing of Nags Head’s application and raising a number of matters on which I would need to hear from counsel, the application was granted by consent.
[18] Subsequent to the hearing, I issued a minute summarising the background to the application being granted by consent. Given the matters relied on by Nags Head in support of its application for indemnity costs, it is helpful to set out the relevant aspects of my minute:3
[2] I conveyed to counsel at the outset of the hearing a number of matters on which I would need to hear from counsel, and a preliminary view as to whether the matter might be more appropriately dealt with via some other forum rather than by the issue of a statutory demand.
[3] The statutory demand was issued for the amount of $177,814.04 only. Accordingly, any interpretation issue arising in relation to paragraph (b) of the definition of “First Mortgagee Priority Amount” in the Deed of Priority (in the context of amounts charged pursuant to cl 15.4.2 of the Loan Agreement between Nags Head and the original mortgagor) did not arise on the statutory demand.
[4]Further, there appeared to be issues requiring resolution in relation to:
(a)the underlying legal cause of action or right by which the respondent (Epsom Woods), as the assignee of a loan agreement between Sixty-Six Auckland Ltd and the mortgagor, presently claims against Nags Head; and
(b)whether that right is properly characterised as debt presently due and owing.
[5] I raised these points as Mr Hayes’ submissions stated that the third mortgage had not been assigned by Sixty-Six Auckland Ltd to Epsom Woods
3 Nags Head v Epsom Woods CIV-2020-404-465, minute dated 25 August 2020.
and indeed that the mortgage no longer exists. If that is the case, there would need to be clarity around Epsom Woods’ present legal entitlement as against Nags Head to payment of a surplus (if any) on the sale of the property in question. Pursuant to s 185 of the Property Law Act 2007 (PLA), a vendor mortgagee has an obligation to apply surplus monies to, inter alia, any amounts secured by any subsequent mortgage, encumbrance or security interest. It is not clear that the loan agreement between Sixty-Six Auckland Ltd and the mortgagor is itself a “security interest”. Further and in any event, the authorities reviewed to date indicate that a subsequent mortgagee or holder of a security interest’s legal entitlement to surplus funds arises once the quantum sought to be paid from any surplus is proven to be due and owing.4
[6] As also discussed at the hearing, Epsom Woods raised whether the additional costs charged by Nags Head and recovered from the sale proceeds (legal fees, rates and Bayleys’ commission) fall within the scope of the first mortgagee’s priority amount. Mr Hayes’ submissions proceeded on the basis they did not because the loan agreement between Nags Head and the mortgagor did not provide for recovery of such costs, and also the definition of the priority amount in that document refers only to the sum of $840,000 plus interest.
[7] But it transpired this morning that the copy of the loan agreement produced in evidence by Epsom Woods – like the Priority Deed – was incomplete. The complete copy does contain a provision regarding costs. And while Table C in the loan agreement refers to the priority amount being “$840,000 plus interest”, the Deed of Priority as between the three mortgagees, in its definition of “First Mortgagee Priority Amount”, includes reasonable expenses incurred by the first mortgagee in protecting the security under the mortgage or exercising any powers or rights under the mortgage. I also noted that s 87 of the PLA would appear to capture such costs (as is also reflected in s 185(2)). Ms Low also pointed to Palmer J’s minute of 24 February 2017 in Nags Head Horse Hotel Ltd v Mawhinney submitting that this Court has already ruled on the appropriateness of those amounts.5
[8] I emphasise that I do not convey the above points as any kind of formal or final view on the matters arising. They simply reflected my initial observations, and some of the key matters I saw as requiring resolution on the present application.
(Footnotes omitted, emphasis in original)
The parties’ submissions
Nags Head’s submissions
[19] Against this background, Nags Head submits that Epsom Woods acted vexatiously, frivolously, improperly and unnecessarily in defending the proceedings.6
4 See, for example, Murphy v Westpac Banking Corporation [1994] 1 NZLR 187 (HC) at [195].
5 Nags Head Horse Hotel Ltd v Mawhinney CIV-2016-404-653, minute dated 24 February 2017, at [2(c)], [3(c)] and [4(c)].
6 High Court Rules 2016, r 14.6(4)(a).
Counsel submits that “there can be few cases where the need for indemnity costs is more clearly made out”.
[20] Nags Head first submits that there were no grounds to issue the statutory demand in the first place. Counsel notes that Nags Head had made it clear from the outset that the underlying claim said to support the statutory demand was disputed and would be strenuously denied. Nags Head further submits that the fact Epsom Woods asserted multiple bases to support its claim, and changed those as the matter progressed, including at the hearing itself, further evidences that there was a genuine dispute in relation to the underlying claim.
[21] Nags Head further submits that the changing nature of the underlying claim calls into question whether Epsom Woods issued the statutory demand for a proper purpose. Nags Head submits that “each change in tack” reflects a failure to make reasonable inquiries before issuing the statutory demand.
[22] Nags Head also submits that Epsom Woods made unnecessary and improper allegations in its underlying claim, which were plainly not supported by either the contemporaneous documents or as a matter of law. For example, it points to the fact that the claim was advanced on the basis that the additional costs could not be claimed by Nags Head as part of its priority amount. Nags Head submits that pursuant to the Priority Deed between the three mortgagees, the “First Mortgagee Priority Amount” clearly includes such additional costs, given the First Mortgagee Priority Amount is “the aggregate” of the “First Mortgage Amount” plus interest and costs associated with protecting the first mortgagee’s security and exercising its powers of sale.
[23] In this context, counsel points to the fact that key documents filed by Epsom Woods in support of its opposition to the application to set aside the statutory demand were incomplete, and in particular:
(a)the Deed of Priority omitted the relevant pages defining what fell within the scope of the First Mortgagee Priority Amount; and
(b)the underlying loan agreement omitted the pages which confirmed that the additional costs were amounts secured by the first mortgage.
[24] Nags Head further notes that costs incurred in protecting and enforcing its mortgage security are recoverable as a priority amount as a matter law in any event, pursuant to ss 87 and 92 of the Property Law Act 2007. Counsel for Nags Head also submits that its entitlement to recover such other costs, and the amounts claimed for them, had in fact already been determined by Palmer J in earlier proceedings between it and Mr Mawhinney.
[25] Nags Head therefore says Epsom Woods’ underlying claim was hopeless, and thus could never have supported the issue of a statutory demand.
Epsom Woods’ submissions
[26] As noted, Epsom Woods does not dispute that costs ought to follow the event, such that a costs award may be made in Nags Head’s favour on a 2B basis. It disputes, however, that indemnity costs ought to be awarded.
[27] Epsom Woods says that further evidence was adduced by Nags Head on the day of the hearing which raised further issues that could not be answered on the day, and which was clearly a factor in consenting to the statutory demand being set aside. Further, counsel notes that Nags Head’s costs submissions focus on the underlying substance of the dispute between the parties, which is not properly answered in a costs application, but may nevertheless be answerable.
[28] Presumably for these reasons, Epsom Woods does not engage in any substantive way with the points made by Nags Head in its costs submissions. It notes, however, that only reasonable actual costs can be awarded and that if indemnity costs are to be considered, the “notional 100 per cent recovery” should reflect a 50 per cent uplift of scale costs (to reflect the usual two-thirds costs recovery assumed under the High Court Rules 2016).7
7 Relying on Norwich Properties Ltd v Mark Gray Architect [2015] NZHC 994.
[29] Further, Epsom Woods submits that as Nags Head’s counsel is registered for GST, any indemnity award ought to be reduced by the amount of GST.
[30] More generally, Epsom Woods points to authority that an application to set aside a demand hearing has been described as “short and to the point”.8 Epsom Woods say that Nags Head’s approach to the case (with “multiple levels of support”) is the “antithesis of the low threshold approach” and resulted in over-preparation and incurring unnecessary costs. Despite this submission, Epsom Woods does not suggest any reduction per se to the actual costs sought by Nags Head. It does, however, point to particular steps claimed (in the alternative) by way of scale costs which it says have either been duplicated or are not claimable, which would reduce any scale costs awarded.
[31] Epsom Woods also says that while Palmer J did rule on the additional costs, this was only in relation to the amount required from Mr Mawhinney to redeem the first mortgage, which says nothing about whether the additional costs were properly recoverable as part of Nags Head’s priority amount.
Discussion
[32] In my minute dated 25 August 2020, I recorded that counsel for Epsom Woods’ approach to resolution of the application to set aside the statutory demand was a “proper and responsible one”. But that observation does not necessarily reflect my view of Epsom Woods’ approach to the issue of the statutory demand, nor its opposition to the application to set the demand aside, which continued until the morning of the hearing.
[33] Indemnity costs may be awarded in those circumstances set out in r 14.6(4) of the High Court Rules, which relevantly provides as follows:
14.6 Increased costs and indemnity costs
…
(4)The court may order a party to pay indemnity costs if—
8 Referring to Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413 at [25].
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; 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.
Indemnity costs are exceptional, and are reserved for situations such as:9
(a)commencing or continuing proceedings for some ulterior motive;
(b)doing so in wilful disregard of known facts or clearly established law; or
(c)making allegations which ought to have never been made (summarised as the “hopeless case” test).
[35] In assessing (c) above, the Court will consider whether, for any reason, a party persisted in what should on a proper consideration be seen to be a hopeless case.10
[36] Generally, costs are to reflect how parties acted during litigation, not before it.11 Nevertheless, I consider it appropriate to take into account the propriety in Epsom Woods issuing the statutory demand in the first place. This is because the only reason the litigation was commenced is because a statutory demand had been issued, and the onus then fell on Nags Head to apply to have it set aside. As such, the grounds for an application to set aside a statutory demand, and any opposition to the application, will necessarily call into the question the appropriateness of issuing the demand in the first place. Further, given issuing a statutory demand is a serious step and one which is not to be done for an improper purpose, it would be unfortunate if a court could not take into account (when determining the costs of an application to set aside a statutory
9 Bradbury v Westpac Banking Corp [2009] 3 NZLR 400 (CA) at [29].
10 At [23], with reference to J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301 (FCA) at 303.
11 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].
demand) whether the demand ought to have been issued at all, on the basis that its issue did not strictly fall within the scope of the “proceeding” before the court.12
[37] Turning to the facts of the present case, I am satisfied this is a case in which it is appropriate to make an award of indemnity costs, rather than, for example, increased scale costs. In short, I consider that Epsom Woods ought to have known that its case (in issuing the statutory demand and then opposing the application to set it aside) had no prospect of success, and thus it acted unreasonably in pursuing its opposition to the application (at least until part way through the actual hearing). I say this for the following reasons.
[38] First, as noted, the application to set aside was ultimately granted by consent. That (appropriate) approach, not taken until the hearing itself, reflected what were in my view fairly obvious and significant issues arising on the underlying claim to support the statutory demand – at least to the extent of giving rise to a genuine and substantial dispute about the suggested debt.13 This is particularly so given the statutory demand was only issued in the amount reflecting what was said to be the wrongful recovery by Nags Head of the additional costs as part of its priority amount. Once the complete transaction documents are taken into account, as well as the relevant provisions of the Property Law Act 2007, it ought to have been evident to Epsom Woods that there was a genuine and substantial dispute about its case that those costs did not fall within the First Mortgagee Priority Amount. The fact the application was ultimately dealt with by consent reinforces that the issue of a statutory demand was unlikely to have ever been the appropriate vehicle for resolving the matters in issue between the parties.
[39] Further, it is no answer to this to say the position and evidence developed at the hearing itself. It is incumbent on a party issuing a statutory demand to make proper inquiries as to whether there is a debt presently due and owing, and to carefully consider whether there is arguably a genuine and substantial dispute (factually and/or
12 Noting, however, that the issue of a statutory demand is arguably the initial legal step in a proceeding to set aside the demand; see the observations in Ebert Construction Ltd v Advance Windows Ltd (2001) 14 PRNZ 681 (HC) at [2].
13 See, for example, those matters raised in my minute dated 25 August 2020 and set out at [18] above.
legally) as to the existence of that debt. That is not to say a party issuing a statutory demand has to agree with the position being advanced by the company resisting the suggested debt, or consider that the opposing party has a strong case. The party issuing the statutory demand will presumably firmly believe its position is right. But the issue is whether there is arguably a genuine and substantial dispute, and if so, acceptance that the dispute is properly resolved through some means other than the statutory demand process.
[40] Second, I was concerned that Epsom Woods’ position changed, and more than once, through the parties’ correspondence and at the hearing. Again, a party taking the step of issuing a statutory demand will be expected to have “their ducks in a row” as to the precise basis upon which they say a debt is presently due and owing to them, before taking the (serious) step of issuing a statutory demand. This is particularly so given the strict and tight timeframes which follow the issue of a statutory demand, such that it is “obviously incumbent on the issuer of a statutory demand to ensure that the demand is being issued on a proper basis”.14 Epsom Woods did not have its ducks in a row before issuing the demand.
[41] Third, it is particularly concerning that key aspects of key transactional documents (upon which Epsom Woods relied to support its underlying claim) were missing from the materials filed in its opposition to Nags Head’s application to set aside. For example, Epsom Woods’ underlying claim depends on what costs fall within the scope of the First Mortgagee Priority Amount (see cl 1 of the Schedule to the Deed of Priority). But as the version of the Deed of Priority annexed to Epsom Woods’ first affidavit omitted the page containing the definition of “First Mortgagee Priority Amount”, it is unclear how Epsom Woods reached the conclusion that the additional costs claimed by Nags Head fell outside that definition. And it persisted with its opposition to the application even after the full copy of the Deed of Priority had been made available to it.
14 Rembrandt Custodians Ltd v Pro-Drill (Auckland) Ltd HC Auckland M337-IM03, 13 June 2003 at [38].
[42] I am not prepared to infer Epsom Woods’ successive omissions from key documents were deliberate, as suggested by counsel for Nags Head.15 But at the very least, the omission of key aspects of the two key documents relied on to support Epsom Woods’ claim suggests a fairly high degree of carelessness.
[43] Finally, and drawing the above threads together, there is in my view a residual concern that the statutory demand was not issued for a proper purpose. Sixty-Six’s “loans and or mortgages”16 in relation to the Property are said to have been assigned to Epsom Woods on 8 November 2018.17 It is not clear why a statutory demand was not issued until more than a year later. It is also unclear whether Epsom Woods’ solicitors were involved in issuing or advising on the issue of a statutory demand. If they had been, it may have avoided the demand being issued at all. The demand was issued by Mr Alexander, a director of Epsom Woods. As noted, Mr Alexander did not give an affidavit in support of Epsom Woods’ opposition to the application to set aside. The courts have observed that, while not a requirement of the Companies Act 1993, statutory demands nevertheless ought to be issued by the creditor’s solicitor rather than by the creditor itself (or a debt collection agency), given the serious consequences which flow from such a step and the strict timeframes involved.18 That the statutory demand does not appear to have been issued through Epsom Woods’ solicitors further suggests that it did not properly turn its mind to a number of (potential) issues with the underlying claim prior to choosing to go down the path of issuing a statutory demand.19
15 Counsel for Nags Head notes that Epsom Woods had previously filed the complete version of Nags Head’s loan agreement in separate proceedings.
16 Deed of Assignment of Loans dated 8 November 2018.
17 I note that Nags Head disputes whether there was a valid assignment, given Mr Mawhinney’s interest in the underlying mortgage and that he was not a party to the Deed of Assignment. I make no comment on whether there was a valid assignment.
18 In Ebert Construction Ltd v Advanced Windows Ltd, above n 12, at [2], Master Gambrill observed that given a solicitor’s overriding duty to the Court, statutory demands ought to be issued through the relevant party’s solicitor, who will then be obliged “to evaluate whether in law, a demand is sustainable before they take the responsibility of issuing the same”. See also Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd [2013] NZHC 3077 at [21(d)]; Rembrandt Custodians Ltd v Pro-Drill (Auckland) Ltd, above n 14, at [39]; and Nuvita Manufacturing and Development Ltd v Design and Managements Services Ltd [2013] NZHC 3256 at [28].
19 I say “potential” issues, as it is clearly not necessary or indeed possible for the Court on an application to set aside a statutory demand to resolve those issues one way or another, let alone on an application for costs.
Amount of indemnity costs — discussion
[44] Having reached the conclusion that an award of indemnity costs is appropriate, the next question is the quantum of the award. Nags Head claims a total of $26,360.29, inclusive of GST and disbursements.
[45] Indemnity costs are determined by reference to the successful party’s actual costs (and not by reference to scale costs), but those actual costs can be reduced if the Court considers they are unreasonably high.20 The costs are calculated by reference “a reasonable allocation of actual costs”, based on the appropriate time taken, the significance and complexity of the work and a median hourly rate reasonably applicable.21
[46] Indemnity costs will include GST if the party receiving the award is not GST registered and thus unable to recover GST, or is registered but for other reasons unable to recover the GST paid to its solicitors.22 Conversely, a costs award will exclude GST if the party can recover GST,23 and a court will assume this to be the case unless advised otherwise.24
[47] I have reviewed the actual costs sought to be recovered by Nags Head. Counsel for Nags Head is charged at a rate of $500 per hour. I consider that appropriate, and also that it was appropriate that counsel of that seniority be involved in the matter, given her background knowledge to the issues arising (dating back some years) and the seriousness for Nags Head if the application to set aside the statutory demand was not successful.
[48] Further, in relation to the actual work undertaken, I am largely satisfied that the costs were reasonably incurred. There is, however, one aspect of the costs claimed which I consider to be too high and for which I propose to make a reduction.
20 McGechan on Procedure (online ed, Thomson Reuters) at [HR14.6.03(2)(a)].
21 Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 (HC) at [209].
22 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016) 23 PRNZ 260 at [13].
23 At [13].
24 At [16].
[49] In addition to preparation of the application to set aside the statutory demand and the evidence filed in support of it, some 20.2 hours have been claimed in relation to general preparation for the hearing (excluding attendance at the hearing itself).25 In my view, such general preparation time for what is intended to be a fairly short-form hearing, over and above the preparation of the application to set aside and the evidence in support (through which the legal and factual grounds for the application will have crystallised), is too high.
[50] In assessing reasonable actual costs in relation to preparation time in a matter of this kind (which does not, in my view, warrant calling for further submissions from the parties or seeking expert evidence on the quantum of costs – both of which would only add further to the parties’ respective legal costs), the Court can only take a fairly high level and broad-brush view. I propose to reduce the actual hearing preparation time by eight hours (being approximately one day of preparation), which reduces the amount of actual legal costs claimed by an amount of $4,000.
[51] Epsom Woods makes no submissions on the disbursements claimed, which are largely the filing fee, process server costs and the hearing fee. There is, however, an “office services” charge of just under $400 (excluding GST) for copying, binding and bundles/authorities (which appears to have been charged at a rate of 2.5 per cent of the total of the invoiced fees). The bundles for this case, however, were small and an amount of just under $400 for their preparation is again in my view too high. I allow
$200.
[52] As will be evident from the above, the indemnity costs award is to include GST. Counsel for Epsom Woods notes that Nags Head’s solicitors are registered for GST. But counsel for Nags Head has confirmed that as a mortgage is an exempt financial service for GST purposes, Nags Head is unable to recover GST. Accordingly, it will be unable to recover the GST element of the amounts it has paid to its solicitors. Hence the award ought to include GST.
25 This includes eight hours drafting submissions for the hearing; three hours finalising casebook, evidence and a memorandum for the Court; reviewing Epsom Woods’ submission; and nearly 10 further hours of general preparation for the hearing and ancillary matters.
Result and orders
[53] There is accordingly an award of indemnity costs in Nags Head’s favour against Epsom Woods in the amounts set out in the first schedule to Nags Head’s costs submission dated 3 September 2020, save that:
(a)the legal fees claimed on the second invoice ($18,222.00) are reduced by $4000 to $14,222.00 (which will have a consequent reduction in the GST applicable to those fees); and
(b)the office services charge in the second invoice ($396.13) is reduced to
$200 (which will again have a consequent reduction in the GST applicable to that charge).
Fitzgerald J
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