Skylight Investments Limited v Kynoch Construction Limited
[2020] NZHC 437
•9 March 2020
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2019-454-76
[2020] NZHC 437
UNDER section 290 of the Companies Act 1993 IN THE MATTER
of an application to have a statutory demand set aside
BETWEEN
SKYLIGHT INVESTMENTS LIMITED
Applicant
AND
KYNOCH CONSTRUCTION LIMITED
Respondent
Counsel: J Bates for applicant
G Mason for respondent
Judgment:
9 March 2020
COSTS JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[On the papers]
[1] This proceeding was ultimately resolved in the terms set out in counsel’s joint memorandum of 5 February 2020. The only outstanding matter is costs. Regrettably, counsel have not been able to agree in relation to costs, and I now have memoranda from Mr Mason for the respondent and Mr Bates for the applicant.
[2] In this costs judgment I do not propose to outline the background or the details of the course that the proceeding has taken. It is sufficient to record the following:
(a)The context for the dispute is a contract pursuant to which the applicant engaged the respondent to carry out construction work;
SKYLIGHT INVESTMENTS LIMITED v KYNOCH CONSTRUCTION LIMITED [2020] NZHC 437
[9 March 2020]
(b)The respondent served a statutory demand dated 3 October 2018 on the applicant on 7 October 2019. This statutory demand related to a series of payment claims totalling approximately $500,000;
(c)On 17 October 2019 the applicant filed and served this application for an order setting aside the statutory demand, supported by affidavit evidence;
(d)On 30 October 2019 the respondent filed and served a notice of opposition, supported by affidavit evidence;
(e)On 6 January 2020 the applicant filed and served a notice of discontinuance of the proceeding;
(f)On 23 January 2020 the respondent filed and served an application for an order setting aside the applicant’s notice of discontinuance, supported by affidavit evidence;
(g)The parties then resolved the substantive issues and the matter was brought to an end as described.
[3] While all this was going on the respondent was seeking freezing orders. It was ultimately successful in this. On 8 November 2019 Doogue J awarded costs in favour of the respondent against the applicant in connection with the latter’s application for freezing orders.
[4] I approach costs conscious that there are two distinct components of this proceeding — the Companies Act 1993 component and the application for freezing orders. I am dealing only with the former, Doogue J having already dealt with costs in the latter. It is of course important to ensure there is some degree of symmetry between Doogue J’s costs order and any order I should make, and in particular that there is no double counting or double discounting in relation to costs.
[5] The respondent seeks costs on a 2B basis but contends for a 50 per cent uplift. It seems appropriate to deal first with the calculation of 2B costs, and then address the issue of any uplift.
[6] In his memorandum, Mr Mason calculates the respondent’s entitlement to 2B costs as follows:
Item
Narration
Days
Amount
48 Issuing Statutory Demand 0.2 $478.00 38 Filing notice of defence & supporting affidavit 2.0 4,780.00 39 & 10 Preparation for first CMC 0.4 956.00 39 & 11 Filing memorandum for first CMC 0.3 956.00 39 & 13 Appearance at first CMC 0.3 717.00 22 Filing interlocutory application re discontinuance 0.6 1,434.00 39 & 11 Filing memorandum 23 January 2020 0.4 956.00 $10,277.00
[7]The items of claim challenged by the applicant are:
(a)The third item (under 39 & 10) for filing and serving a memorandum for the first case management conference. The respondent says that the applicant did not file and serve such a memorandum. As far as I can see from the Court’s file, that is correct. I disallow this item;
(b)The sixth item (under 22) for filing the interlocutory application for an order setting aside the applicant’s discontinuance and supporting affidavit evidence. The applicant says that this is not warranted, essentially because of the proximity between the respondent’s preliminary letter inviting the applicant to agree to orders sought at 3:26 pm on 23 January 2020 and the email service of the application at 4:20 pm. In my view, this item should be allowed. The respondent was under no obligation to give the applicant an opportunity to agree to withdraw;
(c)The last item (under 39 & 11) for filing a memorandum on 23 January 2020. The applicant says that items 39 & 11 of the schedule relate to the filing of memoranda for case management conferences or mention hearings, whereas this memorandum was filed for neither, and was simply an explanatory memorandum which accompanied the interlocutory application for leave to set aside the applicant’s notice of discontinuance. I agree that there is no basis for this claim, and I disallow it.
[8]That leads to a total calculation of costs on a 2B basis of $8,365.00.
[9] On top of that the respondent claims disbursements of $1,006.10. The applicant opposes most of the disbursements claimed, but I can see no valid basis for disallowing these.
[10] The essential basis upon which the respondent seeks an uplift in costs are as follows:
(a)It is said that the application was weak from the start, that the grounds stated in it were never sufficient and the affidavit evidence filed and served in support was inadequate;
(b)It is said that the application and the evidence was misleading in important respects, including for example an assertion that the statutory demand constituted an abuse of process which was never substantiated;
(c)It is said that, behind the scenes, and not referred to in any of the papers, the applicant was re-financing and transferring properties to another company in an attempt to put those properties beyond the respondent’s reach;
(d)Perhaps most significantly, the respondent says that the applicant deliberately delayed acknowledging that its application could not succeed, including by filing a notice of discontinuance and then initially
resisting the respondent’s application to set aside that notice of discontinuance, in order to ensure that the respondent’s statutory demand became stale and could not be relied on as a basis for the commencement of proceedings to wind up the applicant.
[11] The applicant resists these criticisms and the claim to any uplift in costs, although Mr Bates’ memorandum of 21 February 2020 in response to the costs application simply asserts that there is “no basis for a 50 per cent uplift on costs” and does not address the points raised by Mr Mason in his memoranda of 13 and 21 February 2020 which I have summarised in any detail.
[12] The costs regime provided for in pt 14 of the High Court Rules 2016 is an attempt to identify — admittedly with a fairly broad brush — properly recoverable costs. The guiding philosophy as I understand it is that the successful party should ordinarily be entitled to recover approximately two thirds of his, her or its reasonable actual costs, and the scales provided for in schs 2 and 3 are the foundation for the calculation of these.
[13] My own view, which is consistent with the sweep of the authorities, is that the courts should only depart from scale costs in out of the ordinary cases. One of the reasons for this is that the objective of the costs regime is to ensure that costs are predictable.
[14] The courts have certainly recognised that there are situations in which costs awards should be increased or decreased on account of exceptional aspects of the case.
[15] One of those exceptional circumstances is where the court can fairly be satisfied that one party has been “gaming” the system to obtain an unfair advantage and thereby abusing the court’s process.
[16] I agree with Mr Mason that the applicant’s case here was wafer thin from the outset, that the application and the evidence in support of it demonstrated as much and that there are at least grounds for concern that the respondent delayed resolution of the matter for ulterior purposes. Those things said, the fact that a party’s case is weak is
certainly not a foundation in and of itself for an order for increased costs and although there may a lingering suspicion as to the applicant’s motives for discontinuing the proceeding and initially resisting the respondent’s application for an order to set aside that discontinuance, I am not persuaded that the Court should reach an adverse view as to that.
[17] In my view, this is a case which is insufficiently out of the ordinary to justify a departure from scale costs.
[18] The respondent will be entitled to its costs on a 2B basis and disbursements in the amounts already referred to, that is to say costs totalling $8,365 and disbursements totalling $1,006.10.
Associate Judge Johnston
Solicitors:
Brown & Bates Ltd, Napier for the applicant
Alison Green Lawyer Ltd, Palmerston North for the respondent
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