T M Consultants Limited v Morgan
[2025] NZHC 2577
•5 September 2025
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-570
[2025] NZHC 2577
UNDER the Insolvency Act 2006 IN THE MATTER
of a bankruptcy
BETWEEN
T M CONSULTANTS LIMITED
Judgment Creditor
AND
DANEEN SHEREE MORGAN
Judgment Debtor
Hearing: (On the papers) Counsel:
S T Cunneen for Judgment Creditor
D N Morgan (self-represented Judgment Debtor)
Judgment:
5 September 2025
JUDGMENT OF ASSOCIATE JUDGE LESTER
(on inclusion of debt collector’s fees in judgment by default)
T M CONSULTANTS LIMITED v MORGAN [2025] NZHC 2577 [5 September 2025]
[1] In this proceeding, TM Consultants Limited (TMC), sought an order adjudicating Ms Morgan bankrupt.
[2] TMC issued proceedings in the District Court against Ms Morgan in April 2024. TMC had provided engineering services to Ms Morgan’s business and TMC sought judgment for unpaid invoices under a guarantee given by Ms Morgan.
[3] The value of the invoices included in the statement of claim was $29,908.30. Those invoices were raised between 20 September 2022 and 11 December 2023.
[4] The statement of claim pleads that two payments were made, but dates for those payments are not provided.
[5]There then appears the following pleading:
Debt collection costs were incurred of $7,958.48 and invoiced for on invoice number INV 1268 on 24 January 2024.
[6] TMC’s statement of claim does not identify whether the $7,958.48 is GST inclusive. As TMC could claim the GST on the amount it had been charged, it could only seek recovery of the GST exclusive amount which would have been $6,920.42.
[7]TMC sought judgment for $32,968.53. That amount is calculated as follows:
(a)for the value of the invoices for the services provided: $29,908.30
(b)less the two pleaded payments: $1,698.25 and $3,200;
(c) plus debt collection costs: $7,958.48 giving a total judgment sum of $32,968.53.
[8] Ms Morgan did not file a statement of defence. Judgment by default was entered against her for $33,633.17 which was the $32,968.53 plus interest along with scale costs for the preparation of the statement of claim, the entry of judgment with disbursements (being the filing fee, the sealing fee and a service fee) which
arrived at a total judgment of $36,224.17. Judgment by default was entered on 8 July 2024.
[9] A certificate of judgment was obtained and bankruptcy proceedings commenced.
[10] The bankruptcy proceeding had its first call scheduled for 20 February 2025. A number of adjournments were granted because it had been agreed that Ms Morgan would pay $2,000 per week.
[11] There was a default in the payment plan which resulted in the matter coming before me on 10 July 2025. At that point, I raised the quantum of the debt collection agency fee included in the amount claimed. The Minute I issued said: “Adjourned to 21 August 2025 in order for debt collection agency costs to be reviewed. Expected balance would be paid by 21 August 2025. If any issue about reasonable level of agency costs, that to be reviewed on 21 August 2025.”
[12] On 19 August 2025, solicitors for TMC filed a memorandum addressing the debt collection agency costs of $7,958.48 which formed part of the judgment debt.
[13] The breakdown is unsatisfactory. I note the breakdown does not purport to be an actual time record but is headed “Labour and Time Investment” which suggests the fee as an “investment” should be greater than the time spent. For a start, it records that the debt amount was $30,569.06. That is not the amount that was claimed in the statement of claim and there is no way of determining how the debt referred to in the breakdown is calculated. There then appears “Collection rate: 25% (Industry Standard)” to arrive at what is said to be total collection costs of $8,788.60. Of course, the $8,788.60 is not the amount that was claimed in the statement of claim. There is then produced what purports to be a breakdown of time attendances. Frankly, I am sceptical as to the accuracy of the document. For example, under the heading “Initial contact attempts” there is a claim for 30 calls at 15 minutes each. It is not credible that there were 30 calls all of 15 minutes each. There is also a claim for written correspondence with an item called “Follow up notices 1.5 hours at $75 per hour”.
How a “follow up notice” can justify a claim for 1.5 hours, I do not know or at least the number of notices claimed for is not set out.
[14] There is a claim under the heading “Skip tracing and investigation”. Why this was necessary is unexplained. There is then a claim under the heading “Field Activities” including property visits, and assets inspection but why these were necessary is again unexplained.
[15] Under the heading “Administrative and Overhead Costs” there is an item called “Account Management” of $600 and another item called “Technology and Systems” of $200. These are simply round sum claims that tell me nothing about the claim.
[16] Accordingly, actual costs are said to be $6,593.75 with GST of $989.06 and it is said that actual were $7,582.81. Again, that is not the number in the statement of claim but appears to be advanced to try and justify the claim for 25 per cent of the debt.
[17] However, the short point is it appears the claim for debt collection costs have been calculated by applying a flat fee of 25 per cent which would be $7,642.26 if the debt was $30,569.06. It is not possible on the information provided to be sure, but the agents fee refers to a standard collection rate and when applying that rate, it results in a figure very close to the fee in the District Court statement of claim. In the absence of a full explanation or the provision of the invoice raised by the collection agency, I conclude that the fee was based on 25 per cent. The fact I cannot reconcile how the fee in the statement of claim is made up by reference to the material provided by the debt collection agency, reinforces their fee was not a liquidated amount.
[18] The contract between TMC and Ms Morgan has been produced. That contract permits TMC to:
Charge [Ms Morgan] for the external costs we incur in attempting to recover the unpaid debt in accordance with clause 11.3.
[19]Clause 11.3 reads:
The Client will be liable for any costs we incur in attempting to enforce our rights under the Agreement including legal costs on a solicitor-client basis.
[20] Accordingly, TMC is entitled to recover its costs but it is clear that any claim for indemnity costs must be for actual and reasonable costs.
[21] The law is clear that any costs claimed under such a clause must be reasonable. I take the following summary from The Law of Costs in New Zealand:1
Rule 14.6(4)(e): Entitlement Under Contract or Deed
3.27 A contractual entitlement to indemnity costs imports no need to demonstrate unreasonable or ‘bad’ behaviour.
While the courts have consistently held that the bargain between the parties should generally be upheld, that does not translate into an open-ended liability for whatever the claimant party might have decided to spend on legal fees and disbursements. Accordingly, the costs liability ordered under a contractual entitlement to indemnity costs may end up being less than what the claimant party actually incurred.
The primary qualification to be observed about the entitlement to costs is that they must be reasonable within the relevant contractual wording and reasonable in sum. It is clear that the court will not simply order costs based on what the claimant has expended, as this will not necessarily represent what reasonable costs would be. That approach is somewhat in tension with enforcing the contractual obligation to pay, but the courts have been consistent in reinforcing that whatever the plaintiff might have chosen to pay (including in circumstances outside of legal costs) is not determinative.
The Court of Appeal in Black v ASB Bank, put the elements to consider as follows:
(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
1 David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022).
(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.
(footnotes omitted)
[22] In Norwich Properties Ltd v Mark Gray Architect, Associate Judge Osborne in the context of an application to set aside a statutory demand issued for professional fees, held that the debt for professional fees and interest in the demand was a liquidated sum.2 The creditor could itself calculate the interest.
[23]His Honour said:
[79] On the other hand, the costs and disbursements, which are the subject of the order which I will be making, are of a different nature. While the entitlement to claim indemnity costs arises from the contract, the amount payable is subject to determination by the Court pursuant to a discretion, albeit a somewhat limited discretion. The amount of costs and disbursements which ultimately becomes due and owing on an indemnity basis remains uncertain until the Court adjudicates.
[24] The significance of the above legal propositions is that TMC’s claim to recover the costs it was charged was not for a liquidated amount. The significance of that conclusion is that judgment for that sum should not have been entered by default. Because any recovery of costs pursuant to a costs recovery clause is “subject to determination by the Court pursuant to a discretion” it is a matter that requires a Judge to determine and cannot be claimed by way of default judgment.
[25] The definition of “Liquidated Demand” in the District Court Rules 2014 (r 15.7) is as follows:
(5)For the purposes of this rule and rule 15.9, liquidated demand means a sum that —
(a)has been quantified in, or can be precisely calculated on the basis of, a contract relied on by the plaintiff; or
(ab)is qualified in, or can be precisely calculated on the basis of, or by reference to, an enactment relied on by the plaintiff; or
(b)has been determined by agreement, mediation, arbitration, or previous litigation between the same parties; or
2 Norwich Properties Ltd v Mark Gray Architect [2015] NZHC 994 at [78].
(c)is a reasonable price for goods supplied or services rendered (when no contract quantifies the price).
[26] It is said that the amount of a claim is settled when it is not, on the pleadings, open to any real dispute or doubt.3 Here, on its face, a claim for nearly $8,000 for debt collection costs on a claim of less than $30,000 before proceedings have been issued was, on the pleadings, “open to real dispute or doubt”.
[27] However, the short point is that where a creditor seeks to recover costs they have incurred in reliance on an indemnity costs clause, the creditor needs to demonstrate that the costs claimed are fair and reasonable. That means that the sum claimed in the present case was not quantified in, nor could it be precisely calculated on the basis of a contract relied on by TMC with the debt collection agency no more than a party can rely on their contract with their solicitor to say that their actual costs should be accepted on the basis they were contractually bound to pay those costs.
[28] That TMC may have agreed to pay the debt collection costs does not make the fee a liquidated amount.
[29] In my view, the District Court erred in entering judgment by default for the collection costs.
[30] As a result of my raising of this issue at the hearing, the parties have agreed the level of debt collection costs to be paid. That means that the judgment in the District Court should be set aside to the extent of the amount over and above the agreed sum. However, that is a matter for the District Court.
[31] It also means solicitors should not be seeking judgment by default where a component of the sum claimed are collection costs. Judgment by default can be sought for the core debt, interest and disbursements, but if judgment is sought for indemnity collection costs however incurred, then it needs to be by way of formal proof.
3 Adrienne Wing Laws of New Zealand: Civil Procedure District Court at [376], citing
Wing v Leeder [1961] NZLR 30 at [33].
[32] I mentioned earlier the fact that it appears for which judgment was sought for these costs included GST. The learned authors of McGechan on Procedure note that:4
Indemnity costs are aimed to provide the successful party with full recovery of its actual costs. To achieve this the court must know the GST liabilities of the successful party.
[33] I assume TMC was GST registered and so its claim to recover its debt collection costs should have excluded the GST component of the invoice it received but again, I have not been provided with full detail.
[34] This proceeding was adjourned to 18 September 2025 for costs to be paid along with the agreed debt collector’s fee.
[35] TMC’s solicitors are to provide a copy of this judgment to the debt collection agency involved. The Registrar is requested to provide a copy of this judgment to the Registry of the District Court that processes applications for judgment by default.
Associate Judge Lester
Solicitors:
Godfreys Law, Christchurch (for Judgment Creditor)
Copy to:
D S Morgan (self-represented Judgment Debtor)
4 Jessica Gorman and others McGechan on Procedure (online ed).
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