THP Long Bay Limited v Sahara Waterproofing Limited

[2023] NZHC 3623

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2169

[2023] NZHC 3623

UNDER

the Companies Act 1993, section 290

IN THE MATTER OF

an application to set aside a statutory demand

BETWEEN

THP LONG BAY LIMITED

Applicant

AND

SAHARA WATERPROOFING LIMITED

Respondent

On the papers:	7 December 2023
Appearances:	David van Hout / Rebecca Selby for the Applicant R J Macdonald for the Respondent
Judgment:	12 December 2023

COSTS JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

This judgment was delivered by me on 12 December 2023 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Russell Legal (D van Hout/R Selby), Auckland, for the Applicant

MBC Law Limited (R J Macdonald), Ellerslie, Auckland, for the Respondent

THP LONG BAY LIMITED v SAHARA WATERPROOFING LIMITED [2023] NZHC 3623 [12 December 2023]

Introduction

[1]                  THP Long Bay Limited (Long Bay) is seeking costs from Sahara Waterproofing Limited (Sahara), on an indemnity basis, or alternatively, increased costs. Sahara’s position is that costs should lie where they fall.

[2]                  Counsel for Long Bay filed submissions as to costs on 25 September 2023, counsel for Sahara filed a submission dated 3 November 2023, and counsel for Long Bay filed a memorandum dated 10 November 2023 in reply.

Background

[3]                  Sahara entered into a sub-contract with Long Bay in respect of a project at 2-4 Nerita Place, Long Bay, Auckland, for the sum of $99,120.10 plus GST. Long Bay signed the contract on 16 April 2023.

[4]                  On 26 July 2023 the project was completed and Sahara rendered its final invoice. After various discussions concerning a charge of $6,000 which Long Bay sought to deduct from the invoice, Sahara rendered an invoice for $29,063.69. Long Bay disputed this invoice, requesting it be issued for that sum less a retention of 10 per cent plus GST. Sahara pointed to cl 7.1 of the conditions of contract, indicating no retentions were to be allowed.

[5]                  On 25 August 2023, Sahara issued a statutory demand for $33,423.25, being the  sum  of  $29,063.69  plus  GST.  Sahara  withdrew  its  statutory  demand  on   11 September 2023 after Long Bay had lodged an application to set aside the statutory demand.

Legal Principles

Idemnity costs

[6]                  It is clear from the authorities that a high threshold must be passed before an order for indemnity costs is to be made. In Bradbury v Wespac Banking Corp the

Court of Appeal summarised the distinction between the three broad approaches to costs as follows:1

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

(b)increased costs may be ordered where there is a 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.

[7]                  In Bradbury, the Court of Appeal endorsed Goddard J’s remarks as to some of the categories in which indemnity costs have been ordered:

(a)The making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)commencing or continuing proceedings with some ulterior motive;

(d)doing so in wilful disregard of known facts or clearly established law; or

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions summarised in French J’s “hopeless case” test.

1      Bradbury v Westpac Banking Corp [2009] NCZA 234; [2009] 3 NZLR 400; (2009) 19 PRNZ 385 at [27].

Increased costs

[8]                  Rule 14.6(3) provides for when increased costs may be ordered and provides that:

(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 …

[9]                  In AA1 Ltd v Lichfield (in rec and in liq),2 Dunningham J determined that a 100 per cent uplift in costs was justified due to: the statutory demand served being an abuse of process, and the respondent in that case was aware that the alleged debt was disputed and served the statutory demand anyway; and the respondent had been warned that if it did not withdraw it risked a claim for increased or indemnity costs.3

Long Bay’s submissions

[10]              Ms Selby, for Long Bay, submits that Long Bay should be entitled to indemnity costs. Having referred to Bradbury v Westpac Banking Corporation4 and National Advanced Drivers School Limited v Black Sheep Enterprises Limited,5 Ms Selby submits that indemnity costs are appropriate because Sahara used the statutory demand procedure to apply pressure to Long Bay to pay a genuinely disputed debt.

[11]              In support of this view, Ms Selby refers to the fact that Long Bay’s solicitors wrote to Sahara’s solicitors on 4 September and 6 September 2023, requesting that the statutory demand was withdrawn by 7 September 2023 and warning that if it was not withdrawn Long Bay would apply to set aside the statutory demand and seek costs.

2      AA1 Ltd v Lichfield (in rec and in liq), [2016] NZHC 90.

3 Above, n 1, at [48].

4      Above n 1.

5      National Advanced Drivers School Limited v Black Sheep Enterprises Limited [2017] NZHC 2804 at [13]-[15].

The statutory demand was not withdrawn, and Long Bay filed its application to set it aside on 8 September 2023.

[12]              Ms Selby submits that Sahara has wrongly and disingenuously asserted that it was Long Bay’s responsibility to notify Sahara that it was drafting its application to set aside the statutory demand. She submits that has no credibility, given the warnings sent by Long Bay on 4 September and 6 September 2023.

[13]              Ms Selby submits that Sahara was, at all material times, aware there was a genuine dispute, including that Long Bay had a substantial counterclaim against it. She submits the appropriate step for Sahara to have taken was either to seek an adjudication or to commence arbitration in accordance with the terms of the sub- contract. She submits that instead Sahara chose to wrongly issue the statutory demand and then use it as a tool to coerce Long Bay to make payment and that Sahara had no intention of actually proceeding with the statutory demand process.

[14]              The quantum of indemnity costs claimed by Long Bay is $10,630.03 (excluding GST) in relation to the filing of the application to set aside the statutory demand, plus increased costs for the memorandum as to costs of $2,390.00 (being scale costs at 2B plus 100 per cent uplift) and sealing the Court order of $956.00 (based on 100 per cent uplift) plus disbursements of $590.00 (being $540.00 for the filing fee and $50.00 for the Court order sealing fee) totalling $14,566.03.

[15]              In the alternative, Long Bay seeks increased costs under r 14.6(3) on the basis that Sahara took and pursued an unnecessary step by issuing a statutory demand.   Ms Selby submits that 100 per cent increase in costs is appropriate as was ordered in the decision of AAI Limited v 92 Lichfield Limited (In Receivership and Liquidation).6 Ms Selby submits the circumstances of the present case are on all fours with the AAI Limited decision.

[16]              Long Bay’s claim for increased costs based on 100 per cent uplift against Sahara is for $12,906.00 plus disbursements of $590.00 Court fees, totalling

$13,496.00.

6 Above, n 2, at [48].

Sahara’s submissions

[17]Mr Macdonald, for Sahara, made the following submissions:

(a)Long Bay’s steps in continuing the dispute over Sahara’s invoices was based on an argument for the retention of 10 per cent, amounting to

$2,906.00. Mr Macdonald submits that in the circumstances a reasonable action for Long Bay would have been either to accept Sahara’s invoiced amount, or alternatively, pay the amount less 10 per cent reduction subject to discussion;

(b)the parties were in “constructive negotiations to resolve” the claim by Sahara, and Sahara had no notice of any kind that negotiations were at an end with Long Bay or that negotiations were at a point where an application to the Court would be made;

(c)Sahara had expected a resolution, and if that had not occurred, asserted that there was adequate time for Sahara to either withdraw its statutory demand or for Long Bay to apply to the Court. This submission appears to be based on the premise that had counsel for Long Bay notified Sahara’s solicitors it would have obviated the need for Long Bay’s application as the matter would have either been settled or Sahara would have agreed to withdraw its demand.

[18]              In this respect, Mr Macdonald refers to the decision in Cardrona Order Supply Limited v Queenstown-Lakes District Council:7

“it is a general principle that a party should attempt to resolve a dispute informally before bringing proceedings. This is frequently done through a “letter before action” the failure to do so may attract a reduction in costs under r 14.7(f)(ii) or increased or indemnity costs under r 14.6(4)(a) of the High Court Rules on the basis that the Applicant is pursuing an unnecessary step.”

[19]              Overall, Mr Macdonald submits that in the circumstances there is no evidence that Sahara was behaving unreasonably or exceptionally badly justifying indemnity

7      Cardrona Order Supply Limited v Queenstown-Lakes District Council [2022] NZHC 2770 at [13].

costs, nor that its statutory demand was in any way inappropriate. He submits that this is not a case for costs to be awarded to Long Bay, and certainly not for an uplift of costs or indemnity costs, and costs should lie where they fall.

[20]              In the alternative, Mr Macdonald submits that if costs are awarded against Sahara they should be reduced and allocated on the lowest scale.

Result

[21]              I am of the view that Long Bay is entitled to scale costs on a 2B basis, together with 100 per cent uplift. The reasons for this are:

(a)Sahara’s conduct in issuing the statutory demand and withdrawing it in the circumstances outlined by Mr Macdonald is not behaviour which is unreasonable or exceptionally bad, justifying indemnity costs.

(b)Sahara was warned by Long Bay’s solicitors that if it did not withdraw its statutory demand and forced Long Bay to incur the costs of trying to set it aside, it risked a claim for increased or indemnity costs. Sahara had the option of seeking an adjudication or arbitration under the terms of the sub-contract and it was unreasonable for it not to withdraw the statutory demand as proposed. By failing to take up that offer, it knowingly ran the risk of having to pay increased or indemnity costs.

(c)Sahara’s use of the statutory demand was an abuse of process, as it was aware there was a substantial dispute in relation to the debt underlying the statutory demand. While Mr Macdonald asserts the dispute was only in relation to the 10 per cent retention, Ms Selby submits that in fact the dispute was in relation to the whole of the invoice and Long Bay’s counterclaim.

[22]              In terms of the quantum of costs, I am not prepared to allow “costs on costs” in respect of Long Bay’s cost of preparing the memorandum as to costs. Consequently,

the cots allowed is reduced to $10,516.00 (being the costs of $12,906.00 reduced by deleting item 36).

Orders

[23]              I order that Sahara is to pay Long Bay 2B costs with a 100 per cent uplift, amounting to $10,516.00 plus disbursements of $590.00 for Court fees, totalling

$11,106.00.

…………………………….. Associate Judge Taylor