THE NEW INDIA ASSURANCE COMPANY LIMITED AND ZIWI LIMITED

[2024] NZHC 3817

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-946

[2024] NZHC 3817

BETWEEN

THE NEW INDIA ASSURANCE COMPANY LIMITED
Applicant

AND

ZIWI LIMITED

Respondent

Hearing:	On the papers
Counsel:	C Walker KC / S M W Chow for the Applicant B J Burt / M P Pritchard for the Respondent
Judgment:	13 December 2024

COSTS JUDGMENT OF GARDINER J

This judgment was delivered by me on 13 December 2024 at 2.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Duncan Cotterill, Auckland Mayne Wetherell, Auckland

THE NEW INDIA ASSURANCE COMPANY LTD v ZIWI LTD [2024] NZHC 3817 [13 December 2024]

Introduction

[1]    In a judgment delivered on 26 September 2024, I granted the application by The New India Assurance Co Ltd (NIA) to set aside the statutory demand and ordered Ziwi Ltd (Ziwi) to pay NIA’s costs and reasonable disbursements.1

[2]The parties have been unable to agree costs. NIA seeks indemnity costs of

$101,356.40, plus costs of over $5,000 that are yet to be invoiced. Alternatively, NIA seeks scale costs on a 3C basis with a 50 per cent uplift, in the amount of $85,779.

[3]    Ziwi opposes indemnity costs, saying that an award of 2B costs with a 50 per cent uplift is appropriate. It calculates that cost and disbursements totalling

$24,811.86 are payable to NIA.

Legal principles

[4]Rule 14.6(4) states that 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

…

(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.

[5]Rule 14.6(3) concerns increased 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—

…

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

1      The New India Insurance Co Ltd v Ziwi Ltd [2024] NZHC 2770.

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

Submissions

[6]    NIA submits that Ziwi acted improperly, or at least unnecessarily in terms of r 14.6(4)(a), in issuing the statutory demand. The judgment found that NIA had raised a genuine dispute before the demand was issued; that there was no evidence of QBE having made a lead clause decision before the demand was issued; and that Ziwi should not have invoked the statutory demand procedure, but instead should have issued ordinary proceedings.

[7]    NIA submits that Ziwi compounded its improper and unnecessary conduct  by defending the application to set aside the statutory demand without proper grounds including by:

(a)only leading evidence from Mr Boase, who had no involvement in the negotiation of the relevant policy, and not leading evidence from its broker Mr Groenestein, who did;

(b)relying on hearsay statements from QBE, Integra, and Gallagher but not leading any evidence from them;

(c)using Mr Boase rather than a loss adjuster or other expert to give evidence of the quantum of the alleged debt, and to do so by reference to the Integra reports as hearsay; and

(d)dramatically changing Ziwi’s position on the amount said to be undisputably owing without any proper foundation between the notice of opposition, Mr Boase’s supplementary affidavit and his third affidavit.

[8]    Alternatively, NIA submits  that  indemnity  costs  should  be  ordered  under r 14.6(4)(f), because the statutory demand should never have been issued and was an abuse of process. They rely on the case of CP Wyndham Street Hotel Holdings Ltd v Hames Sharley International Ltd HC where indemnity costs were ordered.2

[9]    Ziwi submits that the courts have typically ordered scale 2B costs, plus 50 per cent increase where the statutory demand procedure was inappropriate. Ziwi accepts that based on the judgment, costs in this amount are payable.

[10]   Ziwi submits that there is nothing in Ziwi’s actions that can be characterised as the sort of exceptionally bad behaviour or flagrant misconduct that may give rise to indemnity costs.

Analysis

[11]   Despite the use of the word “unnecessary” in r 14.6(4), the courts have held that indemnity costs should only be awarded in rare cases where there has been exceptionally bad behaviour. The Court of Appeal stated in Bradbury v Westpac Banking Corporation that:3

The distinction among our three broad approaches: standard scale costs; increased costs; and indemnity costs may be summarised broadly:

(a)standard scale applies by default where cause is not shown to depart from it;

(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[12]The Court of Appeal continued, stating:4

Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant”…

2CP Wyndham Street Hotel Holdings Ltd v Hames Sharley International Ltd HC Auckland CIV-2007-404-3367, 11 October 2007.

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

4      Bradbury v Westpac Banking Corporation, above n 3, at [28].

[13]   The Supreme Court has commented on the rarity of circumstances in which indemnity costs are appropriate:5

In New Zealand, costs have not been awarded to indemnify successful litigants for their actual solicitor and client costs, except in rare cases generally entailing breach of confidence or flagrant misconduct. Except in such cases, in both the Court of Appeal and the High Court orders for party and party costs have been limited to a reasonable contribution to the costs of the successful party.

[14]   In the judgment I concluded that NIA had raised a genuine dispute about whether the business interruption (BI) policy had site-specific sub-limits or not, before the statutory demand was issued. I also considered that the statutory demand was premature, because Ziwi had not submitted its final claim and the loss adjustment process was incomplete.

[15]    The orthodox approach in these circumstances is for increased costs to be ordered.6 In ETB Realty v Eastlight Asset Trading No 3 Ltd, the Court held that an uplift on 2B scale costs of up to 50 per cent was not uncommon where an “ill-advised” statutory demand was improperly issued and set aside by the Court.7

[16]   In a recent decision, the Court ordered a 50 per cent uplift in costs against the issuer of a statutory demand where the issuer knew, or ought to have known, that the debt claimed was disputed; no legal advice was taken prior to the issue of the statutory demand; and the issuer had the opportunity to withdraw but did not do so.8

[17]   I am of the view that an order for increased costs with a 50 per cent uplift is also appropriate here. I do not consider that Ziwi’s conduct in issuing the statutory demand or defending the application can be characterised as exceptionally bad or flagrant misconduct. The judgment recognised that NIA’s interpretation of the policy had difficulties. Furthermore, while the judgment concluded that there was no evidence before the Court to show that the lead insurer had made a decision before the statutory

5      Prebble v Awatere Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467 at [6], footnote omitted.

6Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR14.6.02(3)(a)(i)].

7ETB Realty v Eastlight Asset Trading No 3 Ltd [2016] NZHC 609 at [16]–[20], citing Norwich Properties Ltd v Mark Gray Architect [2015] NZHC 994 at [31].

8      Haines v Memelink [2021] NZHC 1063 at [19]–[27].

demand was issued, I accept that Ziwi might reasonably have considered that the lead clause was triggered.

[18]   The CP Wyndham Street Hotel Holdings case is distinguishable. In that case, Associate Judge Faire awarded indemnity costs because there was no relationship between the parties that could have justified the statutory demand; and the respondent company issued the demand under a signature which purported to be its managing director and solicitor when that was not the case.

[19]   The question is then whether the uplift should be applied to costs on a standard 2B basis as Ziwi contends; or a 3C basis as NIA contends. NIA submits that the application concerned a substantial alleged debt and raised complex matters of fact and law, to require counsel with special skill and experience.  Furthermore, that  Band C is appropriate for all steps, given the commercial significance and factual complexity.

[20]    I do not agree that the proceeding was of a complexity or significance that necessarily required counsel with special skill and experience. While complex for an application to set aside statutory demand, the proceeding was of average complexity in terms of High Court proceedings generally. The application turned largely on contractual interpretation. The lead clause issue involved a specialised area of law but the issue itself was not especially complicated.

[21]   NIA elected to engage experienced counsel with special skill. But what is an appropriate daily recovery rate and what is a reasonable time does not depend on the skill or experience of the solicitor or counsel involved, or the time spent by the solicitor or counsel involved (or on the costs actually incurred by the party claiming costs).9 A losing party is responsible only for a contribution towards the costs of the notional counsel suitable for the particular proceeding, not the actual counsel involved.10 Category 2 is appropriate.

9      High Court Rules 2016, r 14.2(1)(e).

10     Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544, (2007) 18 PRNZ 743 at [31].

[22]   Having said that, I accept that the time for some of the steps would have reasonably exceeded the normal time involved in an originating application. In particular, the time involved in filing the application and supporting affidavits; and preparing written submissions. I consider that a time allocation of 4 days (between band B and C) for step 37 (filing application and affidavits) and Band C is suitable for step 40 (written submissions for the hearing). Band B is suitable for the remaining steps. I do not allow for second counsel.

Result

[23]I order the respondent to pay the applicant costs and disbursements of

$40,944.36.

Gardiner J