Rodg & Co Limited v Country Hospitality Management (NZ) Limited

[2014] NZHC 3299

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-001802 [2014] NZHC 3299

BETWEEN

RODG & CO LIMITED

Plaintiff

AND

COUNTRY HOSPITALITY MANAGEMENT (NZ) LIMITED Defendant

Hearing:	25 July 2014
Appearances:	D Lang Siu for the Applicant S Shin on instructions for the Respondent
Judgment:	17 December 2014

COSTS JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 17 December 2014 at 4.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors / Counsel:

Lane Neave, Christchurch
Hucker & Associates, Auckland

Case officer:     Iutita Esekielu

RODG & CO LIMITED v COUNTRY HOSPITALITY MANAGEMENT (NZ) LIMITED [2014] NZHC 3299 [17 December 2014]

Introduction

[1]      On 6 October 2014 the plaintiff’s application against the defendant was withdrawn by leave.   By agreement, the dispute that gave rise to the liquidation application is to be dealt with by way of an application to the Disputes Tribunal.

[2]      The remaining issues in the liquidation proceeding are issues of costs. Each side seeks costs against the other on the discontinued proceeding:

(a)      The defendant seeks indemnity costs amounting to $11,737.88,  or alternatively 2B costs of $10,566.50 plus an uplift of 50 per cent, relying on the general presumption in r 14.2(a) that costs follow the event, and the presumption in r 15.23 that the discontinuing party should pay costs.   It submits that the application should never have been brought, and that it effectively succeeded in restraining advertising and staying the proceeding.   It also argues that it acted reasonably throughout, in contrast to the plaintiff, and that the Court should exercise its discretion to order indemnity or increased costs.

(b)The plaintiff seeks costs on a 2B basis, or alternatively, for costs to lie where they fall.  It submits that the defendant acted unreasonably by failing to take timely action on the statutory demand, thus making it necessary for the plaintiff to proceed with its liquidation application. It also argues that the defendant continued its unreasonable conduct by   opting   to   file   a   statement   of   defence   and   not   engaging meaningfully in negotiations, and by rejecting the plaintiff’s offers, thus prolonging the proceeding unnecessarily. Counsel submits in effect that in the circumstances its proposal as to costs is fair and just.

Background

[3]       The plaintiff was contracted by the defendant to undertake building and construction work at the Equestrian Hotel in Christchurch, which is owned by the

defendant.    During early 2014 the plaintiff issued invoices for the work totalling

$21,069.80.    The  defendant  did  not  initially dispute  the  invoices,  but  made  no payment towards them.  The plaintiff’s enquiries about payment went unanswered and on 16 May 2014 the plaintiff issued its statutory demand pursuant to s 289 of the Companies Act 1993, claiming $21,069.80 as a debt due and owing.

[4]      The defendant says that after receiving the statutory demand it filed an application for an order to set the demand aside, but that it transpired that the application was invalid because of a procedural error, as it had no right to bring a proceeding other than by a solicitor.  The defendant says however that it took other steps to respond to the plaintiff:

(a)      On 21 May, Mr Herbert, its sole director and shareholder, advised Mr Rogers, the plaintiff’s director, that he was getting independent advice as to the fair price for the work done.  On 26 May when the two met he conveyed the verbal advice that he had received from a Mr Timlin on that subject.

(b)On 6 June it advised that it disputed part of the amount claimed, invited the plaintiff to withdraw the statutory demand, and in support provided a report to the plaintiff and its solicitor from, an independent building  consultant,  Mr  Timlin,  who  had  examined  the  plaintiff ’s work and concluded that the reasonable cost of the work was less than the amount claimed.   On the basis of Mr Timlin’s assessment the defendant:

(i)Enclosed a cheque for $7,710 in full and final satisfaction of the claim; and at the same time

(ii)Paid $4,680 directly to a subcontractor in partial satisfaction of the debt, on the basis of its belief that the subcontractor was in fact its contractor.

(c)      In an exchange of emails on 12 June it again disputed that the amount demanded   was   correct   based   on   the   independent   assessment. Mr Herbert proposed the transfer of the dispute to the Disputes Tribunal, and that the costs of the liquidation proceedings be added to the claim. The plaintiff did not respond to the proposal.

[5]      In another exchange of emails on 16 June the defendant again proposed that the dispute be referred to the Disputes Tribunal.  It also offered to pay $8,679.80, the balance of the statutory demand, into the solicitor’s trust account or into the Court.

[6]      The plaintiff did not respond to this proposal, and on 18 July it applied for an order placing the defendant into liquidation.

[7]      Further discussions between the parties took place over two days between

22 and 24 July.  On 22 July the defendant’s solicitors informed the plaintiff that they were holding the disputed sum in their trust account and they asked for urgent confirmation that the plaintiff would not take any further steps in the proceeding, including advertising. The plaintiff did not respond, and:

(a)      On 24 July the defendant applied to restrain advertising and stay the liquidation proceedings;

(b)On 28 July the defendant again proposed that the plaintiff discontinue, and that it contribute $1,849.50 to costs and transfer the dispute to the Disputes Tribunal; and

(c)       On 1 August the defendant filed and served a statement of defence.

[8]      The plaintiff rejected the defendant’s proposals and made a calderbank offer. It said it would accept $7,679.80 in full and final satisfaction of the matter, with costs to lie where they fall. This offer was rejected by the defendant, and the parties continued negotiations, and:

(a)      On 4 August the plaintiff offered to discontinue the liquidation proceedings, and to transfer the claim to the Disputes Tribunal on the basis that each party was to bear its own costs.

(b)The defendant, by letter dated 7 August, indicated it agreed to this proposal save for costs, which it said should be resolved on the papers in this Court.  On  8 August it filed an affidavit as to its solvency from a chartered accountant.

(c)      In a letter of 12 August the plaintiff’s solicitors wrote to the defendant repeating  the  offer  of  4 August,  albeit  emphasising  the  plaintiff’s position that it did not accept that there was any genuine dispute.  The solicitors asked for an undertaking that the funds be held in the defendant’s solicitor’s trust account pending the decision of the Disputes  Tribunal.     This  was  essentially  what  the  defendant’s solicitors had proposed two months earlier on 16 June.

(d)On  14  August  the  defendant’s  solicitors  wrote  to  the  plaintiff’s solicitors and confirmed that they had instructions to hold the disputed amount  pending the Disputes Tribunal’s  decision.   The letter also confirmed the defendant’s intention to seek costs.  The outcome was that the parties finally reached an accord.  The plaintiff filed its notice of discontinuance on 22 August 2014.   When the matter was called in the Company Liquidations List on 3 October 2014 the proceeding was discontinued by leave, on the basis that costs remained for determination.

Principles

[9]      The Court has complete discretion on all matters relating to costs.1  This discretion is to be exercised in a principled way, the primary presumption being that

costs should follow the event.2

1      High Court Rules, r 14.1.

2      Rule 14.2(a).

[10]   The discontinuance of proceedings attracts essentially the same general presumption, in the form expressed in r 15.23.  Rule 15.23 expressly provides that unless the Court orders otherwise, a plaintiff that discontinues a proceeding must pay costs of and incidental to the proceeding up to and including discontinuance.   For this reason, principles governing award of costs for discontinued proceedings are applicable to the present case.

[11]     Generally, the Court will not consider the merits of the case or determine the outcome of  a hypothetical  trial.   As Tompkins  J  observed  in  North  Shore City Council v Local Government Commission (in the context of a discontinuance):3

It is now well established that as a general rule, in considering costs on a discontinuance, the Court will not consider the merits of the competing contentions. I state this as a general rule because I accept that there will be some circumstances where the merits, one way or the other, are so obvious that they should influence the costs issue.

[12]     His Honour also noted that it would be relevant to consider whether the parties that seek or oppose costs acted reasonably in commencing or defending the proceeding.4   Additionally, he noted the Court of Appeal’s approval of the following approach:5

… the real point at the end of the day is that one just has to look at the state of the action as it is at the time when the application is made and see what the fair and just thing to do is at that moment and time. Obviously in doing that one has to take a variety of different matters into account.

Discussion

[13]     I am satisfied that it was reasonable for the plaintiff to issue the statutory demand, as the defendant did not query the plaintiff’s invoices until well into May, and after the statutory demand had been served.  Therefore good reason exists for it to have some measure of compensation for the associated cost.   I propose in the

circumstances to allow 2B costs for issuing the statutory demand under item 48 of

3      North Shore City Council v Local Government Commission (1995) 9 PRNZ 182 at 186.

4      At 187.

5      At 187.

the High Court scale, 6 with the qualification that if the plaintiff has already had the benefit of such an order then there is to be no duplication.7

[14]   I am also satisfied that the defendant should have some measure of compensation, in accordance with the presumptions under rr 14.2(1) and 15.23 in respect of the steps that it has taken in relation to the liquidation application.  These are my reasons:

(a)      By the time that the plaintiff made its application for an order for liquidation (18 July), the defendant had furnished the plaintiff with the independent assessment; made the reasonable suggestion that the parties refer the dispute to the Disputes Tribunal; and offered to pay the disputed amount into trust pending resolution of the dispute so as to safeguard the plaintiff’s position.

(b)These factors have plainly led the plaintiff to acknowledge that it “now” considers insolvency to no longer be an appropriate process by which to resolve the dispute.  It does so by way of explanation for its eventual agreement to refer the dispute to the Disputes Tribunal, and to discontinue its liquidation application, There is no indication however as to any real reason why the plaintiff did not come to the sensible realisation that prompted that agreement before filing its liquidation application and I can only assume that it had no reasonable basis for not doing so. Instead it chose a path that inevitably triggered the need for the defendant to take formal steps by way of filing a statement of defence and an application to restrain advertising and to stay the proceeding.

(c)      Given these circumstances I can also only conclude that the plaintiff should have recognised much earlier on what it has come to acknowledge as obvious – the very real possibility that if it continued

with the liquidation application the Court would find that there was a

6      Item 48 in Schedule 3 of the High Court Rules.

7      The defendant says it filed a deficient application to set aside the statutory demand, and it is not clear on the material before me whether any orders for costs were made on that application.

genuine and substantial dispute as to the existence of the remaining amount of the claimed debt in the plaintiff’s statutory demand.

(d)It is well established that an order winding up a company will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the Court’s process to order liquidation. The governing consideration is whether the application proceeding savours of unfairness or undue pressure.8

The plaintiff’s position gives the strong impression of such pressure.

(e)      The defendant’s subsequent conduct reinforces the reasonableness of its position just as the plaintiff’s demonstrates ongoing unreasonableness.      Despite the defendant’s solicitors’ additional advice on 22 July that the disputed sum was actually held in their trust account and the filing of the accountant’s affidavit in early August as to the defendant’s solvency it still persisted in asserting that its liquidation application was an appropriate way to resolve the dispute. It was not until 22 August that it filed its notice of discontinuance.

(f)      Relevantly, the course that the plaintiff eventually came to accept as appropriate was what the defendant proposed as early as 16 June.

[15]     Accordingly,  there  is  nothing  to  rebut  the  presumption  that  costs  should follow the event.

[16]     I come then to the remaining issue as to whether an order for indemnity or increased costs is warranted, as opposed to normal scale costs.  I am not persuaded that there is a case for such costs, or that 2B costs would not be a fair measure of compensation.   My reasons relate to the defendant’s conduct up to early June and

before the plaintiff filed the liquidation application and are as follows:

8      Yan v Mainzeal Property and Construction Ltd [2014] NZCA 190.

(a)      There is no apparent reason why the defendant did not pay at the outset  what  it  thought  it  could  not  reasonably  dispute  or  why  it delayed in seeking the independent assessment.

(b)By  its  delay  it  chose  to  withhold  the  entire  sum  claimed  by  the plaintiff until 6 June when it could have paid a significant portion much sooner, including that portion which it decided to pay direct to a subcontractor.

(c)       The  defendant’s  decision  to  qualify  its  payment  in  early  June  of

$7,710, as a payment in full and final satisfaction of the total amount claimed, was hardly consistent with its objective of demonstrating the existence of a genuine dispute as to the balance of the claim. It was in effect a provocative response to the statutory demand.

(d)Though the defendant took a more reasonable and measured approach by the time the plaintiff filed its liquidation application (and thus should not be deprived of reasonable compensation for the steps it was  unreasonably put  to  in  having  to  respond  to  the  application) I think there must be some recognition of its own shortcomings before it did so.   I do not think there would be such recognition if it were now to receive increased or indemnity costs.

[17]     For the above reasons I am satisfied that the fair and just result is for the defendant to be compensated by an award of costs on a 2B basis for steps taken in response to the plaintiff ’s liquidation application plus disbursements.

[18]     I make an order for costs on a 2B basis in favour of the defendant on the steps it has had to take in the liquidation proceeding, together with associated disbursements, such costs and disbursements to be fixed by the Registrar.

Result

[19]     Counsel are directed to confer with a view to agreeing quantum. If they are unable to agree then either side may by brief memorandum seek that the matter be placed in the next available chambers list and I will hear from counsel further.

[20]     Any such memorandum is to be filed and served by 16 February 2015 failing which the Court will take it that there are no outstanding issues as to quantum.

Associate Judge Sargisson