Steelcraft Structural Limited v A 2 Z NZ Powercom Limited

[2022] NZHC 2164

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV2022-404-85

[2022] NZHC 2164

BETWEEN

STEELCRAFT STRUCTURAL LIMITED

Plaintiff

AND

A 2 Z NZ POWERCOM LIMITED

Defendant

Hearing:	On the papers
Appearances:	N Gillies for Plaintiff N King for Defendant
Judgment:	30 August 2022

JUDGMENT OF LANG J

[on costs]

This judgment was delivered by me on 30 August 2022 at 10.30 am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:

Hesketh Henry, Auckland Sinisa Law, Otahuhu

N King, Auckland

STEELCRAFT STRUCTURAL LTD v A 2 Z NZ POWERCOM LTD [2022] NZHC 2164 [30 August 2022]

[1]    On 11 August 2022 I began hearing an application by Steelcraft Structural Limited (Steelcraft) for an order placing the defendant, A 2 Z NZ Powercom Limited (Powercom), in liquidation. After hearing evidence from Steelcraft’s witnesses I adjourned the hearing until 15 August 2022 to enable Powercom’s director, Mr Devathasan, to give evidence.

[2]    At the resumed hearing I heard Mr Devathasan’s evidence and then adjourned the proceeding until 17 August 2022. Later that day I issued a judgment in which I held that I would make an order placing Powercom in liquidation if it did not pay the debt owing to Steelcraft in full by 17 August 2022.1

[3]    Powercom paid the debt in full on 16 August 2022. I then dismissed the application when the proceeding was called on 17 August 2022.

[4]    The parties have been unable to reach agreement regarding costs. I am therefore required to determine costs on the papers.

The arguments

[5]    Steelcraft seeks costs on either an indemnity or an increased basis. It contends it is entitled to recover its actual costs on an indemnity basis under both the Construction Contracts Act 2002 (the CCA) and the High Court Rules 2016 (HCR). Alternatively, it argues that it should be entitled to an award of increased costs because Powercom needlessly increased the cost of the proceeding by advancing arguments that had no merit.

[6]    Powercom opposes any award of costs being made. It says the present proceeding was entirely unnecessary. It contends the underlying dispute could have been resolved by Steelcraft providing it with documentation regarding the completion of the construction contract, as the terms required it to do. It therefore seeks an award of costs in its favour.

1      Steelcraft Structural Ltd v A 2 Z Powercom NZ Ltd [2022] NZHC 2017.

Powercom’s application for costs

[7]    Powercom has no basis on which it can claim costs. It was plainly the unsuccessful party because none of the arguments it advanced was successful. The application was ultimately only dismissed because Powercom paid the amount outstanding in full before the matter was called again following the defended hearing.

Indemnity costs

[8]    Steelcraft says it has incurred legal costs totalling approximately $68,800 in serving the statutory demand and prosecuting the present proceeding. As counsel for Steelcraft points out, s 23(2)(a)(ii) of the CCA provides that a claimant may recover, as a debt due in any court, the actual and reasonable costs of recovering a debt owing under a payment claim issued under the CCA. It relies on this provision as providing the Court with jurisdiction to award it indemnity costs.

[9]    I do not accept this argument. It may be possible for Steelcraft to serve a statutory demand or issue proceedings to recover its actual and reasonable legal costs as a debt due. However, in the context of a liquidation proceeding the Court may only award indemnity costs where they are payable under a contract (which is not the case here) or in accordance with the HCR.

[10]   The HCR provide for indemnity costs to be awarded in the following circumstances:

14.6     Increased costs and indemnity costs

…

(4)The court may order a party to pay indemnity costs if—

(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

(b)the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or

(c)costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or

(d)the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or

(e)the party claiming costs is entitled to indemnity costs under a contract or deed; or

(f)some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[11]   In Bradbury v Westpac Banking Corporation the Court of Appeal confirmed that awards of indemnity costs are reserved for cases in which a party to a proceeding has behaved either very badly or very unreasonably.2 I do not consider the manner in which Powercom conducted its case in this proceeding falls within this description. There is no basis for an award of indemnity costs under any of the grounds specified in r 14.6.

Increased costs

[12]   The Court has the power to award increased costs under r 14.6(3), which provides:

14.6     Increased costs and indemnity costs

(3)The court may order a party to pay increased costs if—

(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)      failing to comply with these rules or with a direction of the court; or

(ii)     taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)    failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

2      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27]-[28].

(iv)     failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)      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; or

(c)      the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d)some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

[13]   As I have already observed, Steelcraft contends that Powercom contributed unnecessarily to the time and expense of the proceeding by pursuing arguments that lacked merit. It therefore says jurisdiction exists to award increased costs under r 14.6(3)(b)(ii) and (iii).

[14]   I accept this argument because Powercom plainly advanced defences that had no merit. These included an allegation that Powercom was not the contracting party and that the payment claim on which the proceeding was based was invalid. Neither of these arguments was tenable but Steelcraft was nonetheless required to provide evidence and submissions to rebut them. Powercom also endeavoured to argue that the debt was in dispute when it had no ground to do so because it had not served a payment schedule in response to Steelcraft’s payment claim. None of these arguments was raised at the time Steelcraft served its payment claim. The only claim Powercom made at that time was that the variations claimed in the payment schedule were not authorised. As I observed in the judgment,3 those later advanced amounted to belated and technical arguments designed to avoid Powercom being placed in liquidation.

[15]   Powercom also failed to adequately plead its defence. This resulted in Steelcraft requesting further particulars and filing a subsequent memorandum in reply. Furthermore, Steelcraft was required at the hearing to respond to arguments that were

3      Steelcraft Structural Ltd v A 2 Z N Powercom Ltd, above n 1, at [14] and [17].

not referred to in the statement of defence or the particulars. Its current argument that Steelcraft could have avoided the cost of this proceeding by providing it with documentation required under the contract has never been to the forefront of its defence. It was merely referred to in passing.

[16]   These factors persuade me Steelcraft should receive an award of costs on a category 2B basis together with disbursements as fixed by the Registrar. Costs in relation to all steps other than the issuing of the statutory demand and the filing of the statement of claim are to be increased by 50 per cent to reflect the approach Powercom took to the proceeding.

[17]   Counsel for Powercom is correct that costs payable in undefended liquidation proceedings are to be calculated in accordance with steps 48 to 50 in the Third Schedule to the HCR. However, that is not the case where the application is defended. As Duffy J pointed out in Hanlon v Domain Orthopaedic Services Ltd, the steps listed under the heading “Company liquidation proceedings” in the Third Schedule do not exhaustively provide for costs payable in company liquidation proceedings.4 This explains why no provision is made under this heading for the filing of notices of opposition or the preparation of submissions.

[18]   Costs are therefore to be calculated in accordance with steps 48 and 49 in relation to the service of the statutory demand and the filing of the application seeking an order that Powercom be placed in liquidation. All remaining steps are to be calculated in accordance with those that apply to general civil proceedings.

Lang J

4      Hanlon v Domain Orthopaedic Services Ltd [2014 NZHC 1794 at [42].