Teak Construction Group Limited v KMJB Harris Limited

[2025] NZHC 1248

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-2336

[2025] NZHC 1248

UNDER

the Companies Act 1993

IN THE MATTER

of an application to set aside a statutory demand

BETWEEN

TEAK CONSTRUCTION GROUP LIMITED

Applicant

AND

KMJB HARRIS LIMITED

Respondent

Hearing:	On the papers
Counsel:	A J B Holmes for Applicant N P Tetzlaff for Respondent
Judgment:	21 May 2025

JUDGMENT OF ASSOCIATE JUDGE PAULSEN (COSTS)

This judgment was delivered by me on 21 May 2025 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

TEAK CONSTRUCTION GROUP LIMITED v KMJB HARRIS LIMITED [2025] NZHC 1248 [21 May 2025]

[1]                 In a judgment of 28 March 2025, I granted Teak Construction Group Ltd’s (Teak) application to set aside a statutory demand issued by KMJB Harris Ltd (KMJB).1 I directed counsel to confer on costs and if they could not agree memoranda were to be filed within 14 days.

[2]                 Teak filed a memorandum on 14 April 2025 advising there had been no agreement on costs and that it was seeking category 2 band B scale costs with an uplift of 50 per cent.

[3]                 Subsequently, on 17 April 2025 counsel filed a joint memorandum seeking an extension of time for KMJB to file its memorandum on costs to 28 April 2025 because counsel was ill and had not returned to work. I granted the extension.

[4]                 KMJB’s memorandum was filed on 16 May 2025. It accepts Teak is entitled to costs but opposes an uplift on scale costs.

Principles in relation to costs

[5]                 All issues of costs are discretionary, but the discretion must be exercised judicially having regard to the principles set out in the High Court Rules 2016 (the Rules). Rule 14.2 sets out the general principles applying to the determination of costs, including:

(a)the party who fails with respect to a proceeding should pay costs to the party who succeeds;2

(b)an award of costs should reflect the complexity and significance of a proceeding;3 and

(c)as far as possible the determination of costs should be predictable and expeditious.4

1      Teak Construction Group Ltd v KMJB Harris Ltd [2025] NZHC 700.

2      High Court Rules 2016, r 14.2(1)(a).

3      Rule 14.2(1)(b).

4      Rule 14.2(1)(g).

[6]                 A party seeking increased costs bears the onus of demonstrating that such costs are justified.5 Relevant to Teak’s application for increased costs is r 14.6(3) of the Rules, as follows:

14.6     Increased costs and indemnity costs

...

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

...

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

…

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

...

[7]                 Rule 14.6(3)(b) is concerned with improper or unreasonable conduct on the part of the party against whom increased costs are sought. Increased costs will not be appropriate where there is some reasonable explanation for the losing party’s conduct.6

[8]                 An uplift on scale costs is justified only to the extent that a party’s failure to act reasonably contributed to the time and expense of the proceeding or some step in it. A party applying for increased costs will usually have to identify steps in respect to which the other party’s unreasonable conduct contributed to increased costs.7

5      Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].

6      Valmar Trustee Ltd v Smart Water Technology [2016] NZHC 1583 at [12].

7      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [44]–[47].

However, where the losing party’s case lacked merit, it may be appropriate for increased costs to apply to all steps.8

[9]                 In a statutory demand context, the Court has not infrequently ordered an uplift on scale costs where a statutory demand has issued in circumstances where it was, or ought to have been, known that the sum demanded was genuinely disputed on substantial grounds.9 An example is AAI Ltd v 92 Lichfield Street (in rec and in liq), where Dunningham J awarded an 100 per cent uplift on scale costs when a demand was issued knowing the sum was disputed and the issuer of the notice was warned that if the demand was not withdrawn increased or indemnity costs would be sought.10

[10]              Teak was the successful party and is entitled to scale costs. The only issue is whether increased costs are justified. Teak says increased costs should be awarded because KMJB:

(a)pursued arguments that lacked merit;

(b)failed without reasonable justification to accept legal arguments; and

(c)failed without reasonable justification to accept an offer to dispose of the proceeding by KMJB withdrawing the statutory demand.

[11]              Counsel submits that, as my judgment records, KMJB’s arguments evolved or pivoted over time but its primary suggestion that NZS 3910:2013 governed the subcontract between the parties was unsupportable and plainly was never the parties’ intention. It is said that suggestion was first raised by KMJB on 21 August 2024, more than 18 months after KMJB had commenced work. Teak says the argument was advanced again at the hearing, although not supported by the evidence of KMJB’s director and was inconsistent with the express terms of the subcontract and the conduct of the parties.

8      NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [50]–[53]; and Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434, [2017] ERNZ 733 at [57].

9      The New India Assurance Company Ltd v Ziwi Ltd [2024] NZHC 3817 at [15].

10     AAI Ltd v 92 Lichfield Street (in rec and in liq) [2016] NZHC 90.

[12]              Teak submits that what appears to have occurred was that KMJB had served the statutory demand and then opposed the application to set it aside relying on a technical legal argument, without regard to what was actually agreed between the parties and without regard to how they conducted themselves for more than 18 months.

[13]              Finally, Teak argues that an award of increased costs is justified because KMJB did not accept an offer made to dispose of the proceeding by the withdrawal of the statutory demand.

[14]              KMJB submits that there is no basis to award Teak increased costs. It submits the factual and legal arguments it advanced in opposition to Teak’s application were cogent and rational, not fanciful or entirely unarguable on their face, and did not therefore lack merit. It submits that while its arguments evolved during the hearing, that is not inappropriate in circumstances where counsel is responding to a Judge’s responsiveness to submissions.

[15]              It is also argued that Teak’s offer to settle the matter upon the withdrawal of the statutory demand was not an offer for the purposes of r 14.6(3)(v) (or r 14.10) and it was not unreasonable for KMJB to maintain the demand when Teak’s offer did not contain any real analysis of the facts or legal position which should have caused KMJB to reconsider its approach.

My view

[16]              In my view, the statutory demand should never have been issued by KMJB and the application to set it aside should not have been opposed.

[17]              Contrary to the argument advanced for KMJB, I do not accept that there were no factual disputes that were incapable of being resolved on this application. For instance, KMJB did not challenge Teak’s evidence in the fundamental respect that KMJB accepted Teak’s payment terms at the meeting of 23 February 2023. It is difficult to see how KMJB could ever have thought it could successfully oppose Teak’s application when it did not challenge that evidence. KMJB also proceeded on an incorrect factual basis, including that the payment terms under NZ 3910:2013 were

the same as under the Construction Contracts Act and that its payment claims were consistent with the default provisions of that Act.

[18]              I do not accept either the submission that the arguments advanced for KMJB had merit. I agree that it is not unusual for a party’s position to evolve during the hearing, at least to some degree. However, here it was correctly acknowledged by counsel at an early stage that the position adopted for KMJB as to the application of NZS 3910:2013 could not be sustained. The fresh argument advanced was, in my view, simply indefensible for the reasons I set out in my judgment.11

[19]              It is unnecessary to consider the argument concerning whether Teak’s proposal to resolve the matter upon the withdrawal of the statutory demand was an offer for the purposes of r 14.6(3)(v) (or r 14.10). What is clear is that insufficient consideration was given to whether the statutory demand should have been issued in the first place, and having been issued whether Teak’s application to set it aside could ever be resisted.

[20]              In those circumstances, I consider that a 50 per cent increase on scale costs is appropriate.

[21]              I have considered the schedule of costs claimed by Teak which appears to be in order. No issue has been taken with it by KMJB.

Result.

[22]              Teak is awarded scale costs on a 2B basis with a 50 per cent uplift in the amount of $19,359.00 plus disbursements of $1,382.86.

O G Paulsen Associate Judge

Solicitors:

Kennedys, Auckland

Smith and Partners, Auckland

11     Teak Construction Group Ltd v KMJB Harris Ltd, above n 1, at [55]–[57].