New Zealand Superfood and Company Limited v Ad International Co Limited

[2023] NZHC 3114

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-429

[2023] NZHC 3114

BETWEEN

NEW ZEALAND SUPERFOOD AND COMPANY LIMITED
Applicant

AND

AD INTERNATIONAL CO. LIMITED

Respondent

Hearing:	On the papers
Appearances:	Michael J Robinson/Catherine Pendleton for the Applicant Seungmin Kang for the Respondent
Judgment:	8 November 2023

COSTS JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

This judgment was delivered by me on 8 November 2023 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Turner Hopkins Solicitors (M J Robinson/C J Pendleton), Takapuna, for the Applicant Fairbrother Family Law (Seungmin Kang), Napier, for the Respondent

NEW ZEALAND SUPERFOOD AND COMPANY LIMITED v AD INTERNATIONAL CO. LIMITED [2023]

NZHC 3114 [8 November 2023]

Introduction

[1]    On 22 February 2023 NZ Superfood and Company Limited (NZ Superfood) received a statutory demand from AD International Co. Ltd (AD International). On 8 March 2023, NZ Superfood made an application to set aside the statutory demand. On 4 August 2023, the Court gave judgment in favour of NZ Superfood, granting  NZ Superfood’s application to  set  aside  AD  International’s  statutory  demand  (the Judgment).

[2]    At [69] of the Judgment, counsel were directed to endeavour to agree costs, failing which counsel were to file memoranda as to costs. Counsel for NZ Superfood filed a memorandum dated 1 September 2023, counsel for AD International filed a response dated 8 September 2023, and counsel for NZ Superfood filed a reply dated 14 September 2023.

NZ Superfood’s submissions

[3]    NZ Superfood submits that as the successful party it is entitled to costs which, under r 14.2(1)(a) of the High Court Rules 2016, should follow the event. Counsel submits that NZ Superfood was entirely successful in this proceeding because:

(a)the Court found there are substantial and genuine disputes between the parties;

(b)NZ Superfood did not need to rely on the argument regarding the agency/contractual parties because, in any event, there were clearly substantial and genuine disputes between the parties;

(c)therefore NZ Superfood was successful in its application to set aside the statutory demand.

[4]    NZ Superfood submits it is entitled to full-scale costs and disbursements in this proceeding which, calculated on a 2B basis, amount to $13,870.66.

Costs on an indemnity/increased costs basis

[5]    NZ Superfood seeks legal fees on an indemnity or increased costs basis. The grounds on which counsel submits indemnity/increased costs are justified are as follows:

(a)Prior to the issuing of the statutory demand, the NZ Superfood raised disputes with AD International in respect of the amounts later claimed in the statutory demand and accordingly AD International was on prior notice that the amounts claimed were genuinely disputed and therefore that the statutory demand process was inappropriate in the circumstances.

(b)On 3 March 2023, NZ Superfood sent a letter to AD International requesting the withdrawal of the statutory demand and in the letter advised AD International that there as a genuine and substantial dispute as to the alleged debt and therefore, if the statutory demand was not withdrawn, then NZ Superfood reserved the right to place the letter before the Court and seek an uplift in costs. AD International did not accept the offer and failed to withdraw the statutory demand.

(c)On 22 March 2023, NZ Superfood sent to AD International a letter setting out details of the genuine and substantial dispute in detail. The letter also contained a Calderbank offer for a full refund of the goods. AD International did not accept this offer and failed to withdraw the statutory demand.

[6]    Counsel submits that subsequent to the judgment NZ Superfood sent the following settlement offer in respect of costs, on a ‘without prejudice save a to costs’ basis:

(a)Scale costs and disbursements:  $13,870.66

(b)Actual legal costs in responding to the statutory demand including disbursements: $20,005.00

(c)Without prejudice save as to costs in the

settlement offer in respect of costs:  $16,000.00

[7]    Counsel for NZ Superfood submits that it is appropriate that NZ Superfood be awarded indemnity costs, including the costs of preparing these submissions as to costs (being $1,400.00 plus GST) in accordance with the principles in Calderbank v Calderbank.1 Indemnity costs total $21,300.00.

AD International’s submissions

Indemnity or increased costs

[8]    Counsel for AD International submits that neither of NZ Superfood’s letters date 3 March 2023 nor dated 22 March 2023 warrants indemnity or increased costs in the light of r 14.6 of the High Court Rules and the principles of Calderbank, for the following reasons:

(a)In the letter of 3 March 2023 NZ Superfood’s main claim was the denial of the contractual relationship between the parties, which was rejected by the Court, and while it further stated that “the alleged debt is disputed” there were no particulars provided in support;

(b)In the letter of 22 March 2023 NZ Superfood advanced two main claims:

(i)the denial of the contractual relationship between the parties, which was rejected by the Court, and

(ii)AD International’s alleged reaffirmation of the contract in November 2021 and February 2022. However the latter was

1      Calderbank v Calderbank [1975] 3 All ER 333.

not the issue discussed during the hearing and upheld by the Court in NZ Superfood’s favour.

[9]    Counsel for AD International submits that AD International equally responded to the letters dated 3 March 2023 (and made Calderbank offers) on 13 March 2023, and 24 March 2023 respectively. Counsel submits that because AD International reasonably attempted to settle the matter and has been partially successful in establishing there was a contractual relationship between the parties, it is not appropriate to award costs on an indemnity or increased basis.

Scale costs

[10]   Counsel for AD International makes the following submissions in response to NZ Superfood’s application for scale costs on a 2B basis:

(a)1A scale costs are more appropriate in the light of rr 14.3 and 14.5(2) as this proceeding could by junior counsel in the High Court where:

(i)setting aside a statutory demand in general is relatively straightforward in nature;

(ii)in  particular,   this   case   involved   a   small   amount   (about $51,750.00) falling far short of the normal High Court jurisdiction.

(b)Item 42 - the court appearance should be based on “the actual time” occupied by the hearing measured in quarter days rather than how long it was initially allocated for. The hearing continued from 10:05am until 11:15am and therefore counsel submits the time should be reduced from 0.5 days to 0.25 days.

(c)Awarding costs for preparation of a memorandum of costs is not as of right and is inappropriate in this case. As it shown, letters shared between the parties as to costs, with genuine disputes as to costs (including the items for scale costs) and therefore AD International

cannot be seen as having unreasonably declined NZ Superfood’s proposal of costs.

[11]Counsel submits scale costs on a 1A basis are $3,736.50.

Reduction in costs

[12]   Counsel for AD International submits there should be a reduction from scale costs under r 14.7 due to NZ Superfood’s unsuccessful claims as follows:

(a)removing item 11 for filing another joint memorandum on 13 April 2023 at the initiative of and for the benefit of NZ Superfood seeking to vacate the hearing allocated on 27 June 2023, which was unsuccessful; and

(b)a 40 per cent further reduction from items 37, 40, 41 and 42 for NZ Superfood’s unsuccessful pursuit of the claim that the parties had no contractual relationship, despite AD International having put it on clear notice by its letters of 13 March 2023 and 24 March 2023.

Disbursements

[13]   Counsel for AD International also disputes the service fee of $262.66 for engaging a process-server which counsel submits was unnecessary where email service to counsel, as stated in the statutory demand on 8 March 2023 at 3:22pm were already sufficient under r 19.12A(2).

[14]In conclusion, counsel for AD International submit an award of costs of

$2,051.10 and disbursements of $1,180.00.

Legal principles

[15]   It is clear from the authorities that a high threshold must be passed before an order for indemnity costs is to be made. In Bradbury v Westpac Banking Corp the

Court of Appeal summarised the distinction between the three broad approaches to costs as follows:2

(a)a standard scale applies by default where cause is not shown to depart from it;

(b)increased costs may be ordered where there is a failure by the paying party to act reasonably; and

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[16]   In Bradbury, the Court of Appeal endorsed Goddard J’s remarks as to some of the categories in which indemnity costs have been ordered:3

(a)The making of allegations of fraud, knowing them to be false and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)commencing or continuing proceedings with some ulterior motive;

(d)doing so in wilful disregard of known facts or clearly established law; or

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions summarised in French J’s “hopeless case” test.

2      Bradbury v Westpac Banking Corp [2009] NZCA 234; [2009] 3 NZLR 400; (2009) 19 PRNZ 385 at [27].

3      Bradbury, above n 10, at [29].

Result

[17] In my view NZ Superfood is awarded costs on a 2B basis, adjusted as set out at [18] below. The reasons for this are:

(a)As has been noted above at [15] in relation to the decision in Bradbury v Westpac Banking Corp,4 indemnity costs are appropriate where the party has behaved either badly or very unreasonably. In my  view,  AD International has not reached this standard of behaviour and therefore indemnity costs are not justified.

(b)Increased costs are not justified. NZ Superfood has pursued the argument relating to the contractual party as its principal argument or reaffirmation of the contract in November 2021 and February 2022 and did not enunciate clearly the issues in dispute as early as could have been done.

(c)Various offers were traded back and forth between the parties and these should be taken into account in balancing the issue of costs between the parties.

(d)As NZ Superfood was the successful party and the issue of NZ Superfood pursuing the agency/contractual parties issue has already been taken into account at [17](b), the 40 per cent reduction in 2B costs sought by AD International is not justified.

[18]   The 2B costs should  be  adjusted  by  removing  Item  11  as  counsel  for  AD International is correct that the application by NZ Superfood to vacate the fixture on 27 June 2023 was unsuccessful. As to the proposal that the time allocated for the hearing should be reduced from 0.5 days to 0.25 days, in my view, this is contrary to r 14.5(2) which provides that determination of what is a reasonable time for a step must be made by reference to the stated bands and no authority has been cited by counsel for AD International for this adjustment. As to the disbursements relating to

4      Bradbury v Westpac Banking Corporation [2009] NZCA 334; [2009] 3 NZLR 400.

the service fee, I will allow this, as although an address for service was specified in the statutory demand, I am not convinced r 19.12A(2) permitted service by email without confirmation that that mode of service would be accepted by the recipient.

[19]Accordingly, 2B costs are adjusted from $12,428.00 to $11,472.00.

Orders

[20]   I order that AD International is to pay NZ Superfood the sum of $11,472.00 in 2B costs, together with disbursements of $1,442.66, totalling $12,914.66.

……………………………. Associate Judge Taylor