National Advanced Drivers School Limited v Black Sheeo Ent. Limited

[2017] NZHC 2804

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2017-419-148 [2017] NZHC   2804

BETWEEN

NATIONAL ADVANCED DRIVERS

SCHOOL LIMITED Applicant

AND

BLACK SHEEP ENT. LIMITED Respondent

Hearing:	10 November 2017
Appearances:	Mr J Ussher for Applicant
Judgment:	10 November 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

NATIONAL ADVANCED DRIVERS SCHOOL LIMITED v BLACK SHEEP ENT. LIMITED [2017] NZHC

2804 [10 November 2017]

[1]      The parties in the intituling to this proceeding have been referred to as plaintiff and defendant.  I shall refer to them as applicant and respondent.

[2]      The application before the Court was filed on 24 May 2017.  It seeks an order setting aside a statutory demand which was served on the applicant on 11 May 2017. The applicant also seeks an order that the respondent pay the applicant’s costs on an indemnity or increased basis.

[3]      The applicant has, in my view, established its entitlement to relief.   It has brought the application pursuant to s 289 of the Companies Act 1993 in compliance with the time limits applicable to filing applications of this kind.

[4]      The application is justified because there is a substantial dispute as to whether the debt alleged to be owing in the statutory demand is owing.

[5]      The brief background is that the applicant company entered into an agreement to purchase a driving school business.  The applicant is an established operator.  The structure of the agreement for the purchase of the business which was going to be acquired did not involve the acquisition by the applicant of the burden of the existing contracts which the entity operating the business had entered into.  The applicant was not going to take over the contracts that the vendor entity had with sales staff and with driving instructors. Mr Mark Gilbert who is the director of the applicant has explained in his affidavit that as part of the agreement that his company made with the vendor the applicant agreed to enter into contracts with the vendor’s contractors on similar and not inferior terms of contract to those which the vendor had with them.

[6]      One of the sales contractors was a Mr James Still.

[7]      Mr Gilbert deposes that despite discussions, his company did not enter into an agreement with Mr Still.  Mr Gilbert however considered that the applicant as the purchaser in the arrangement had in fact obtained some advantage from work that Mr Still had carried out, albeit pursuant to his contract with the vendor.   Mr Gilbert, reasonably, made arrangements to provide some compensation for that work. However it would appear that Mr Still may not have been paid what he considered his

full entitlements by the vendor company.  He therefore concluded that he had a right to make a claim against the applicant, as the purchaser of the business, for commissions etc which he had earned.   Under his contract with the vendor the applicant correctly took the view that it was under no liability to Mr Stills. That is the genesis of the dispute between the two sides.

[8]      In due course Mr Still enlisted the assistance of a company called Law Debt Collection Limited which operates from Manurewa, Auckland.   A number of inconsistent claims were made on Mr Still’s behalf.  In the result Law Debt Collection Limited on behalf of Mr Still, or more accurately a company that Mr Still was associated with, Black Sheep Ent Limited, served a statutory demand on the applicant in the sum of $41,480.50.  The uncontradicted evidence of Mr Gilbert is that he did not enter into any contract or incur any liability either with Mr Still or Black Sheep Ent Limited for any such sum.

[9]      Steps were then taken to set aside the statutory demand. The position was also carefully explained to Law Debt Collection Limited by the applicant through its legal advisors.  They made it clear that any statutory demand would probably be set aside.

[10]      Mr Ussher also, on behalf of the applicant, on 3 May 2017, warned Law Debt Collection Limited that if a statutory demand were to be issued and an application made to set it aside then indemnity costs would be sought against “your client”.  He made the sensible suggestion that Mr Still/Black Sheep Ent Limited should take legal advice.  However, the respondent was undeterred and served the statutory demand as I have already counted.

[11]     The respondent has not taken any steps in the proceeding to set aside the statutory demand.

[12]     In my view it is plain that an order is required as I have already indicated and there will orders in terms of paragraph 1(a) of the Notice of Originating Application dated 24 May 2017.

[13]     The  next  point  concerns  costs.     In  my  view  the  respondent  behaved irresponsibly in proceeding with the statutory demand procedure when there had been full disclosure of circumstances which ought to have made it clear that there was a genuine and substantial dispute about the asserted liability.  Further, it is well known that the Court disapproves of the use of statutory demands in situations where there is a genuine dispute.   The use of statutory demands in such circumstances can be oppressive on the recipient.  That is because, as the notices generally warned, if the notice is not complied with then steps will be taken for the liquidation of the company. Such a notice can have an intimadatory effect.  As well it will be necessary for the recipient to apply to the High Court for an order of the kind which has been sought in this case.  The process of doing so is constrained by quite tight time limits and the result is that the applicant has to act urgently and often with considerable legal cost to bring the necessary application in the High Court to set aside the statutory demand. No doubt all of these consequences were known to the agent of the respondent in this case. Further, the respondent in proceeding as it did, and not enquiring about the basis for issuing a statutory demand, was at the least negligent.  In my view all of these circumstances mean that this is the sort of case where an order for indemnity costs can be contemplated.

[14]     High Court Rule 14.6 states that an order for indemnity costs is available where there has been conduct that is described as acting:1

… Vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding”;

[15]     The service of the statutory demand would seem to come within the Rule just quoted but even if it does not, the fact that the respondent having served the statutory demand and triggered the need for the application to be made took no steps, points in my view to a frivolousness and an indifference to the consequences of the actions taken.  An order for indemnity costs is well justified in my view.

[16]     The applicant seeks indemnity costs of $10,365.07 excluding GST.  Included in that amount are the disbursements which have been incurred (this is the actual

disbursements incurred) as well as some additional scale costs.  The scale costs relate

1 High Court Rules 14.6 (4)(a).

to preparation of the memorandum for the hearing today ($446) and the hearing for which a like claim is made.   The figure of $10,365.07 does not include costs and disbursements in regard to the items of the memorandum for this conference and through to the stage sealing any order.  This latter category of items comes to $1,388. When added to the indemnity costs the grand total is $11,753.07.  there will be an

order that the respondent is to pay such costs.

J.P. Doogue

Associate Judge