S & D Kanji Investments Limited v Platform Homes Limited
[2022] NZHC 3546
•19 December 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-793
[2022] NZHC 3546
UNDER s 290 of the Companies Act 1993 BETWEEN
S & D KANJI INVESTMENTS LIMITED
Applicant
AND
PLATFORM HOMES LIMITED
Respondent
Hearing: On the papers Counsel:
AR Nicholls for the Applicant
JP Forsey and AJ Hopping for the Respondent
Minute:
19 December 2022
COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 19 December 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Nicholls Law Ltd, Auckland Duncan Cotterill, Auckland
S & D KANJI INVESTMENTS LTD v PLATFORM HOMES LTD [2022] NZHC 3546 [19 December 2022]
Introduction
[1] This proceeding was discontinued by consent by Minute of Moore J dated 28 September 2022 with the issue of costs to be dealt with on the papers if not agreed.
[2]Costs have not been able to be agreed and memoranda have now been filed.
[3] By memorandum dated 4 October 2022, the respondent seeks costs on an indemnity basis of $24,241 excluding GST plus disbursements of $275.65 pursuant to the terms of the contract between the parties and in light of the applicant’s conduct. In the alternative, they seek an uplift on 2B costs. An affidavit of Ms Cheryl Green of Duncan Cotterill is filed in support.
[4] The applicant has filed a memorandum in response dated 11 October 2022 submitting that scale costs on a 2B basis are appropriate in all of the circumstances.
Relevant costs principles
[5] The starting point is that costs are at the discretion of the Court.1 Although the discretion is wide, it is not unfettered. Rule 14.2 of the High Court Rules 2016 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;
…
[6] On a discontinuance, the applicant bears the onus of displacing the presumption in r 15.23 of the High Court Rules that they must pay the respondent’s costs. Rule 15.23 provides:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
1 High Court Rules 2016, r 14.1.
[7] “Proceeding” is defined in the High Court Rules as “any application to the Court for the exercise of the civil jurisdiction of the Court other than an interlocutory application”.2
[8] The application to set aside a statutory demand was filed as an originating application under Part 19 of the High Court Rules and so falls within the meaning of “proceeding”. Rule 15.23 therefore applies to this application.
[9]The principles applying to the application of r 15.23 are summarised in
McGechan on Procedure:3
(a)The r 15.23 presumption obviates any requirement for the defendant to demonstrate that the plaintiff acted unreasonably in commencing and then discontinuing the proceeding. The defendant has the advantage of the presumption even where there has not been such unreasonableness.
(b)Although the r 15.23 presumption is designed to give a certain and predictable outcome upon discontinuance, it may be displaced if the court finds there are circumstances which make it just and equitable that it should not apply.
(c)Although the court is not limited in factors it may take into account when considering whether the presumption is displaced, generally:
(i)The court will not consider the merits of respective cases unless they are so obvious that they should influence the costs outcome.
(ii)The court will consider the reasonableness of the stance of both parties up to the point of discontinuance: whether it was reasonable for the plaintiff to bring and continue the proceeding; and for the defendant to oppose the proceeding. The plaintiff will not be able to avoid the presumption by showing that at one point it had reasonable grounds for believing it would be successful in the proceeding.
(iii)The reason for discontinuing may be relevant, for example a change of circumstances rendering the proceeding unnecessary. However it must be clear that the plaintiff would have succeeded had the circumstances … not changed …
(d)The court’s general discretion in r 14.1 as to costs can also override the general principles relating to discontinuance.
2 High Court Rules 2016, r 1.3.
3 Robert Osborne (ed) McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.23.01]; citing Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973, FM Custodians Ltd v Pati [2012] NZHC 1902 at [10]–[12] and Opus International Consultants Ltd v Colac Bay Vision Ltd [2015] NZHC 1782, [2015] NZCCLR 19 at [20]–[24].
[10] In this case the applicant does not dispute that costs are payable. It instead submits that costs ought to be paid on a 2B rather than an indemnity or increased basis.
[11] The Court may order a party to pay increased costs if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it by, among other things:
(a)taking or pursuing an unnecessary step or an argument that lacks merit;4 or
(b)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument.5
[12] Indemnity costs are provided for in r 14.6 and may relevantly be ordered where:6
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
…
(e)the party claiming costs is entitled to indemnity costs under a contract or deed.
…
[13] As the Supreme Court held in Synlait Milk Ltd v New Zealand Industrial Park Ltd, determining whether there is an entitlement to indemnity costs in a particular situation is a matter of contractual interpretation, with ordinary principles of contractual interpretation applying.7
[14] In Black v ASB Bank Ltd, the Court of Appeal held that when assessing whether indemnity costs claimed under a contract are reasonable, the Court is required to make an objective assessment of:8
4 Rule 14.6(3)(b)(ii).
5 Rule 14.6(3)(b)(iii).
6 Rule 14.6(4)(a).
7 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [192].
8 Black v ASB Bank Ltd [2012] NZCA 384 at [80], citing Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887 and Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].
(a)what tasks attract a costs indemnity on a proper construction of the contract;
(b)whether the tasks undertaken were those contemplated in the contract;
(c)whether the steps undertaken were reasonably necessary in pursuance of those tasks;
(d)whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and
(e)whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.
[15] In addition, in Crown Money Corporation Ltd v Grassmere Estate Trust Co Ltd the High Court held that in order to obtain an order for indemnity costs, the claimant should provide the following information:9
(a)whether the claimant is registered for GST purposes;
(b)a sufficient description of the work undertaken;
(c)what hourly rates were charged; and
(d)any additional evidence which is relied upon to show that the rate charged is a reasonable one having regard to the principles normally applicable to solicitor/client costs.
[16] I consider below whether indemnity costs are available taking the above principles into consideration.
Contractual provision providing for indemnity costs
[17] The respondent submits that the construction contract between the parties plainly provides for indemnity costs, relying on clause 128 of the Agreement. Clause 128 provides:
The RMB is entitled to recover from the Owner, on an indemnity basis, all costs and expenses (including legal costs on a client/solicitor basis) incurred in connection with the recovery of any amount due and payable by the Owner under the Building Contract including, without limitation, all costs and expenses incurred:
9 Crown Money Corporation Ltd v Grassmere Estate Trust Co Ltd (2008) 19 PRNZ 591 (HC) at [14].
(a)repossessing and/or selling any goods or materials;
(b)registering any memorandum of mortgage or caveat; or
(c)in relation to any court proceedings.
[18] The memorandum filed on behalf of the applicant opposing costs on an indemnity basis does not refer to this clause or resist payment under it, other than in a general comment that the “applicant submits that the respondent has not sought actual reasonable costs”.
[19] A copy of the signed contract containing clause 128 is attached to the affidavit of Mr Suresh Kanji, a director of the applicant, filed in support of the application to set aside the statutory demand. There can therefore be no question that this is an operative term. As set out above, by reference to the factors set out in Black v ASB Bank Ltd after identifying the contractual term, a Court is required to assess:10
(b)whether the tasks undertaken were those contemplated in the contract;
(c)whether the steps undertaken were reasonably necessary pursuant to those tasks;
(d)whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and
(e)whether any other principles drawn in the general law of contract would in whole or in part deny the claim and its prima facie right to judgment.
[20] As set out above, the respondent seeks indemnity costs on a solicitor/client basis of $24,241 excluding GST plus disbursements of $275.65. An affidavit exhibiting copies of the relevant invoices is filed in support of the costs memorandum. The costs memorandum records that Building Disputes Tribunal costs are not claimed but otherwise does not make further submissions relating to the steps above. The two invoices exhibited to the affidavit filed do not provide sufficient information to allow an objective assessment of whether the rate at which the steps were charged was reasonable, step (c) above, as there is no information as to what hourly rates were charged.
10 Black v ASB Bank Ltd, above n 8, at [80].
[21] In addition, the 30 June 2022 invoice includes an entry for reviewing and discussing options including adjudication by default and preparing a notice of adjudication by default process which appears to be a task relevant to the process before the Building Disputes Tribunal for which costs have already been awarded. I do not consider therefore that I am in a position to award indemnity costs on the basis of the material available.
Scale Costs with Uplift
[22] Taking a pragmatic approach however, I am prepared to award costs on a 2B basis with a 50 per cent uplift. The applicant resists any uplift on the basis that arguments based on the validity of payment claims had previously succeeded in the High Court. Those cases however related to issues with compliance in respect of the payment claim itself rather than the matters raised in the application to set aside the statutory demand in this case.
[23] Where in terms of r 14.6(3)(b)(ii) an argument lacks merit and is inherently unlikely to succeed, increased costs apply to all steps.11 In the Minute issued after the first call of the application to set aside in this matter, Associate Judge Gardiner recorded that the respondent had correctly set out the legal position at paragraph 4 of its memorandum: that where a statutory demand is for a payment claim made under the Construction Contracts Act 2002 (CCA) and no payment schedule is issued, the pay now, argue later principle limits the application of s 290 of the Companies Act 1993. As Associate Judge Gardiner noted “[a] statutory demand may only be set aside where the payment claim has not been validly served; or the CCA’s requirements for a valid payment claim have not been met”. Her Honour recorded that, in response, Mr Nicholls confirmed that the applicant’s case is that the invoice that is the subject of the statutory demand is not a valid payment claim under the CCA. The application proceeded on that basis but the adjudicator’s decision makes it clear that the applicant did not challenge the validity of the payment claim in terms of the requirements of the CCA.
11 NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636; and Broad Spectrum (New Zealand) Ltd v Nathan [2017] NZCA 434, [2017] ERNZ 733 at [57].
[24] In these circumstances I consider it is appropriate to award increased costs and that a 50 per cent uplift is appropriate. This is particularly the case in circumstances where the contract contained a valid indemnity clause and costs are not being awarded on that basis only because sufficient information has not been provided to assess the reasonableness of those costs. Requiring that information to be provided now would only add to the costs of all parties.
Result
[25] I therefore order the applicant to pay costs on a 2B basis with a 50 per cent uplift in the amount of $13,264.50 plus total disbursements of $275.65 to the respondent.
Associate Judge Sussock
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