Senio Holdings Limited v Evergreen Homes & Construction Limited

[2023] NZHC 1944

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2022-425-53

[2023] NZHC 1944

UNDER

the Companies Act 1993

IN THE MATTER

of an application to set aside a statutory demand pursuant to section 290 of the Act

BETWEEN

SENIO HOLDINGS LIMITED

Applicant

AND

EVERGREEN HOMES & CONSTRUCTION LIMITED

Respondent

Hearing:

On the papers

Counsel:

M C Ryan for Applicant

M R Walker and B B Gresson for Respondent

Judgment:

25 July 2023

COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 25 July 2023 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

SENIO HOLDNGS LTD v EVERGREEN HOMES & CONSTRUCTION LTD (COSTS) [2023] NZHC 1944 [25 July 2023]

[1]    In a judgment of 17 May 2023, I granted Senio Holdings Ltd (Senio) an order setting aside a statutory demand issued by Evergreen Homes & Construction Ltd (Evergreen).1 I ordered that Senio was entitled to costs on a 2B basis but not in respect of any steps relating to an application by Senio’s director to represent it,2 which was ultimately withdrawn (the director’s application). Anticipating the possibility that there might be disputes, I reserved leave for the parties to address issues relating to quantum by memorandum for determination on the papers.

[2]    Counsel have conferred in relation to costs but have been unable to agree in respect of the following matters, namely whether:

(a)Senio is entitled to an allowance for filing a memorandum for a case management conference on 7 November 2022;

(b)Senio is entitled to costs for the preparation of reply submissions and a chronology for the hearing;

(c)Senio is entitled to costs for preparing a bundle of authorities;

(d)Evergreen is entitled to costs in respect of steps taken to respond to Senio’s amended originating application;

(e)Evergreen is entitled to costs for counsels’ appearances at a case management conference in relation to the director’s application; and

(f)Senio is entitled to a 50 per cent uplift on costs.

Memorandum for case management conference

[3]    Senio claims it is entitled to costs for a joint memorandum dated 7 November 2022 seeking a variation of timetabling directions that had been made on 20 September 2022. It relies on step 11 of sch 3 of the High Court Rules 2016 which provides for

1      Senio Holdings Ltd v Evergreen Homes & Construction Ltd [2023] NZHC 1191 at [46].

2 At [47].

costs in relation to “Filing memorandum for first or subsequent case management conference or mentions hearing.”

[4]    Evergreen says the memorandum was less than a page, made only a slight agreed adjustment to the timetable, and it would be disproportionate for an allowance to be made in respect of it.

[5]    Senio’s submissions do not address Evergreen’s challenge to the length of the memorandum. Rather, its submissions appear to concern attendance by counsel at a second case management conference which it says would have been held regardless of whether the director’s application was withdrawn.

[6]    I agree with Evergreen’s submission. The memorandum was so short and would require so little time to prepare that I cannot see that any claim for costs is justified.

Preparation of a joint bundle of authorities

[7]    Senio has claimed costs for preparation of a bundle of authorities for the hearing. It relies on step 41 of sch 3 of the High Court Rules which provides for costs in respect to the “Preparation by applicant of bundle for hearing”.

[8]    Senio accepts that no common bundle of documents was prepared for the hearing but says the claim should be allowed in respect of a bundle of authorities which Evergreen was consulted on prior to filing.

[9]    Evergreen argues that step 41 does not relate to the preparation of a common bundle of authorities. It says the filing of authorities to support legal submissions is a necessary part of step 40 of sch 3, which provides for costs of “Preparation of written submissions”. It says step 41 refers to the bundle of relevant documents filed in the proceeding.

[10]   In Deliu v Hong, Associate Judge Osborne clarified that step 25 (which allows for the preparation by an applicant of a bundle for hearing of an interlocutory

application) “relates to the set of relevant documents referred to in r 7.39(3)(d)(i)”.3 Those documents include a list of authorities.4 Based on that, his Honour disallowed a claim under step 25, but allowed disbursement costs for photocopying.  I note that  r 7.39 does not apply to proceedings commenced as originating applications,5 but it would be incongruous for step 41 to have a different focus than step 25 given the very same wording.

[11]   While there have been occasions where the Court has made an allocation for the preparation of a bundle of authorities where a bundle of relevant documents was not produced, 6 I do not consider that is the correct approach and I make no allowance under this heading.

Preparation of written submissions

[12]   Having made a claim for the preparation of written submissions, which Evergreen accepts, Senio has claimed a full second allowance in respect to reply submissions and a chronology. It relies on step 40 of sch 3 of the High Court Rules which provides for costs in respect of “Preparation of written submissions”.

[13]   Senio argues that while those reply submissions were only three pages long, the time allowed for a step includes time involved in considering issues and preparing and formulating the legal analysis, and it is not necessarily the case that a short document involves less time to prepare than a longer one.7 It further submits that step 40 of sch 3 does not distinguish between principal submissions and reply submissions, and it considers a full allowance is justified.

[14]   Evergreen argues that it is not appropriate nor reasonable for Senio to claim twice for the preparation of written submissions. It notes both the reply submissions and chronology were very short, and it does not accept that the issues that Senio was

3      Deliu v Hong [2013] NZHC 1934 at [21], point 14.

4      High Court Rules 2016, r 7.39(3)(d)(i).

5      Rule 19.10(1).

6      See PNL Alliance Ltd v Glenview Holiday Park Ltd [2021] NZHC 3241 at [7]; and Mockingbird Properties Ltd v Jhim Homes Ltd [2023] NZHC 431 at [8].

7      Minister of Education v James Hardie New Zealand [2018] NZHC 2960 at [16].

required to address were of any complexity or required any legal or factual analysis to warrant a second allowance of costs.

[15]   I agree with Evergreen’s submissions. The reply submissions were, in fact, contained on one page. There was nothing in them that could not have been raised orally at the hearing. The chronology should have accompanied Senio’s primary submissions. There will be no allowance in respect of this.

The balance of the items claimed

[16]I intend to deal with the remainder of the disputes outlined at [2] together.

Uplift on scale costs

[17]   Senio claims that it is entitled to a 50 per cent uplift on scale costs on the basis that Evergreen pursued an argument that lacked merit,8 used the statutory demand as a debt collection exercise,9 and failed without reasonable excuse to accept an offer of settlement.10

[18]   Senio’s application goes beyond what I had intended when I granted leave for the parties to come back to me on issues of quantum. Senio is asking me to alter that basis on which costs are to be calculated. Be that as it may, I will consider each of the matters that are raised.

Lack of merit

[19]   Senio says there was no merit in Evergreen’s contention that it was not obliged to render payment claims that complied with the Construction Contracts Act 2002 given there is no contracting out of that Act.11

8      High Court Rules, r 14.6(3)(b)(ii).

9      Rule 14.6(3)(d).

10     Rule 14.6(3)(b)(v).

11     Construction Contracts Act 2002, s 12.

[20]   Evergreen says the issue before the Court was the parties’ differing interpretations of a construction contract and the fact that its interpretation was not successful does not mean an order for increased costs should be made.

[21]   The fact that a party has not been successful in its arguments is not sufficient to support a claim of increased costs. This is already accounted for under an adverse award of scale costs. The Court will be cautious about embarking on a further analysis of the overall position taken by the unsuccessful party to determine if the position was unmeritorious, as that would not accord with the principle that the determination of costs should be predictable and expeditious.12

[22]   Senio’s submission that Evergreen’s case was unmeritorious is based on an argument that I did not consider in my judgment; that is, that Evergreen was required to issue payment claims because of the no contracting out provision that is s 12 of the Construction Contracts Act. I do not consider that argument is as straightforward as Senio believes it to be. However, my judgment was based on the proper interpretation of the contract, not s 12 of the Construction Contracts Act.13

[23]   The argument that Evergreen advanced in relation to the proper interpretation of the contract was not strong, nor was it so weak that it justifies an uplift on scale costs.

Using the statutory demand as a debt collection exercise

[24]   It is not a valid criticism of Evergreen, in my view, to assert the statutory demand has been used for debt collection purposes as in reality that is almost always its intended purpose. Senio’s real criticism of Evergreen is that it was aware there were disputes concerning the scope of work and the variations, as confirmed in a letter from Evergreen’s solicitor, and that Senio considered Evergreen owed delay damages which exceeded the sum of the statutory demand and would need to be accounted for in its final invoice. Senio says that it should receive an award of increased costs because Evergreen should not have issued the statutory demand but attempted to

12     At [23]; and High Court Rules, r 14.2(1)(g).

13     Senio Holdings Ltd v Evergreen Homes & Construction Ltd, above n 1, at [33].

resolve the dispute by engaging in negotiations in good faith as it was invited to do through an invitation to mediate in an email dated 11 July 2022.

[25]   Evergreen says that there has been no finding that it improperly sought to use the statutory demand process as a debt collection exercise or breached any of the dispute resolution provisions in the building contract.

[26]   There is, of course, precedent for courts awarding increased costs where statutory demands have been used for an improper purpose, which includes issuing a demand when it is known the amount claimed is subject to a genuine and substantial dispute. For instance, in AAI Ltd v 92 Lichfield Street (in rec and in liq), Dunningham J held that an order of increased costs was appropriate where the respondent used the statutory demand procedure in a way that amounted to an abuse of process as it knew there was a genuine dispute to be had and where it refused to withdraw the statutory demand when this was proposed by the applicant for the order to have the demand set aside.14

[27]   My assessment is that the issue of the statutory demand was certainly unwise, but I am unable to conclude it was an abuse of the statutory demand procedure and made no such finding in my judgment.

[28]   Evergreen’s position was that while Senio had raised disputes they were not ones that it could rely on because of the no set-off clause in the building contract.15 It considered the no set-off clause was a total answer to the matters Senio raised. Consistent with that view, it did not attempt to engage on the matters raised by Senio. Evergreen ultimately failed because of my finding the terms of the building contract required it to issue payment claims under the Construction Contracts Act rendering any consideration of the no set-off clause redundant.

[29]   Further, in relation to Senio’s suggestion for mediation, the correspondence indicates that Evergreen did not accept that proposal because Senio would not agree to the suspension of work pending mediation. As it was Senio’s position that

14     AAI Ltd v 92 Lichfield Street (in rec and in liq) [2016] NZHC 90 at [44]–[45].

15     Senio Holdings Ltd v Evergreen Homes & Construction Ltd, above n 1, at [3].

Evergreen had in fact suspended work much earlier, it is not clear why Senio would take that position.16

[30]I am not satisfied increased costs should be awarded on this basis.

Failing without reasonable excuse to accept an offer of settlement

[31]   Senio says it attempted to resolve the proceeding to avoid costs being incurred by proposing on 28 September 2022 that the disputed sum be held in Senio’s lawyer’s trust account until resolution of the dispute by arbitration, with this High Court proceeding being discontinued without any order as to costs. It says it should be awarded increased costs because Evergreen failed to accept the offer without reasonable excuse and has not obtained a better judgment as a result of the application being heard.

[32]   Evergreen says that the offer did not involve a compromise, was no more than an invitation for Evergreen to withdraw its statutory demand, and that the payment of funds into a trust account was no better for Evergreen than Senio retaining those funds.

[33]   Senio’s offer was, as it turned out, a good one because had Evergreen accepted the offer it would not have incurred any costs liability. But that said, there is force in Evergreen’s argument that what was offered was not in fact a compromise at all. If accepted, Senio would retain within its control the amount claimed in the statutory demand and there was no assurance that the sum would be transferred to Evergreen regardless of the outcome of arbitration.

[34]   Under r 14.6(3)(b)(v), one of the circumstances where the Court may direct a party to pay increased costs is where the party has contributed unnecessarily to the time or expense of the proceeding or a step in it by:

failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding[.]

16 At [14].

[35]   While I consider there is an argument Senio is entitled to an uplift on costs on this basis, I am not going to make such an award because of Evergreen’s claims to costs and how the proceeding was conducted.

[36]   I consider there is some merit in Evergreen’s position that it is entitled to credit for responding to Senio’s amended originating application17 and for steps it took in response to the director’s application, in particular its counsel’s attendance at a case management conference on 7 September 2022.18

[37]   In addition, in my assessment this was a case that was made far too complicated by the plethora of issues raised by Senio that played no part in the Court’s decision. While this did not add to Evergreen’s costs because of what I described in my judgment as the “commendably simple position” Evergreen adopted in response to Senio’s application,19 it could be considered that overall the award of 2B costs to Senio for all steps in the proceeding is generous.

Conclusion

[38]   Ultimately, all issues of costs are matters of discretion, albeit to be applied in a principled way having regard to the purposes and principles in the High Court Rules. Standing back and looking at the matter as a whole, I consider it is not appropriate to award an uplift on 2B scale costs, but I will also not make an order crediting the matters claimed by Evergreen.

Result

[39]   Senio is awarded costs on a scale 2B basis which I calculate to be $10,994 along with disbursements of $1,242.

O G Paulsen

Associate Judge

17     High Court Rules, sch 3 step 9.

18     Rule 15.23.

19     Senio Holdings Ltd v Evergreen Homes & Construction Ltd, above n 1, at [3].

Solicitors:

Solomons, Dunedin
Todd & Walker Law, Queenstown