Tuakau Pet Food Processors Limited v Driedfresh Limited
[2024] NZHC 3579
•28 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-000160
[2024] NZHC 3579
UNDER the Companies Act 1993 and High Court Rules 2016 BETWEEN
TUAKAU PET FOOD PROCESSORS LIMITED
Applicant
AND
DRIEDFRESH LIMITED
Respondent
Hearing: On the papers Counsel:
D Delic for the Applicant
Respondent currently represented by its director, R Guy
Judgment:
28 November 2024
COSTS JUDGMENT OF GARDINER J
This judgment was delivered by me on 28 November 2024 at 10.00 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
SD Legal Limited, Auckland
TUAKAU PET FOOD PROCESSORS LTD v DRIEDFRESH LTD [2024] NZHC 3579 [28 November 2024]
Introduction
[1] On 21 December 2023 the respondent, Dried Fresh Limited (DriedFresh) issued and served a statutory demand on the applicant, Tuakau Pet Food Processors Limited (Tuakau). The demand was for an alleged debt of $44,064.40, comprised of unpaid invoices for the lease of dryer equipment from DriedFresh.
[2] Tuakau applied to set aside the statutory demand on the grounds that there was a substantial dispute about whether the debt was owing or due; and the parties were contractually required to attempt to resolve their dispute by way of mediation. In terms of the dispute, Tuakau claimed that DriedFresh’s shareholder and director, Richard Guy, had made representations about the drying cycle time of the machine, which Tuakau relied on, and which were untrue.
[3] Mr Guy filed a notice of opposition to the set-aside the application on behalf of DriedFresh. DriedFresh maintained that there was no dispute over the debt. It relied on the lease agreement that provided that DriedFresh as not responsible for the quality of the equipment, or its fitness for any particular purpose, and that no representation or warranty had been made.
[4] When the matter was first called on 23 February 2024, the Court issued a minute advising that DriedFresh must be represented by counsel and adjourning the proceeding to enable the company to appoint counsel. A further adjournment was granted on 15 March 2024.
[5] The matter was then set down for a hearing, prior to which time DriedFresh was required to have appointed counsel, or Mr Guy given leave to represent the company. Mr Guy applied for leave to represent DriedFresh. He did so on the grounds that the company could not afford to instruct legal counsel (partly, he said, because of Tuakau’s actions). He said that he had made diligent efforts to secure legal counsel, and that he understood the legal issues involved in the case.
[6] In a decision issued on 23 August 2024, I refused Mr Guy’s application to represent DriedFresh. In my assessment, there was clearly a genuine and substantial dispute about whether the debt was owing and due: additionally Tuakau arguably had
a counterclaim and/or equitable set-off for losses it allegedly sustained because the machine did not perform as Mr Guy allegedly said it would. I explained that the statutory demand process is not suitable for disputed debts, and that where there is a dispute over whether the debt is owing or due, a plaintiff should file ordinary proceedings. I noted that in this case the amount at issue fell within the jurisdiction of the District Court, and that there is no bar in the District Court to a company being represented by its director in proceedings.
[7] At a further call on 6 September 2024, Mr Guy again sought to represent the company. Associate Judge Taylor ordered that unless DriedFresh was represented by counsel by 20 September 2024 its opposition would be struck out and Tuakau’s application granted. On 17 September 2024, DriedFresh withdrew the statutory demand. As this rendered the application moot, it was dismissed, with the parties invited to file submissions on costs.
Tuakau’s claim to increased costs
[8] Tuakau now seeks costs with an uplift of 50 per cent to a total of $22,944.00, plus disbursements of $540.00. Tuakau argues that the statutory demand was an abuse of process because Mr Guy was aware that there was a genuine and substantial dispute over whether the debt was due. It says that when the dispute arose in mid-2023, Tuakau attempted to resolve the dispute by mediation as required by the licensing agreement. It says that after Tuakau was required to apply for a mediator to be appointed when Mr Guy would not agree, Mr Guy then failed to engage in the mediation process.
[9] Furthermore, when Mr Guy issued the statutory demand, counsel for Tuakau emailed him on the same day advising that the statutory demand was inappropriate because there was a clear dispute and putting him on notice that indemnity costs would be sought if Tuakau was required to make an application to set aside the statutory demand. DriedFresh did not respond.
[10] Tuakau also submits that Mr Guy’s failure to instruct counsel throughout the proceedings added to Tuakau’s costs.
Mr Guy’s opposition
[11] Mr Guy has filed submissions for DriedFresh. He maintains that the application to set aside the statutory demand was based on fabricated disputes, that Tuakau’s claim regarding drying cycle times is without merit, that the dispute resolution clause did not apply, and that the statutory demand was only withdrawn because Mr Guy was not given leave to represent the company. He submits that DriedFresh was unable to appoint counsel because of Tuakau’s failure to pay the debt. Mr Guy says that any award of costs would severely worsen DriedFresh’s financial situation, jeopardising its ability to repay a government research and development loan.
Legal principles
[12] The unsuccessful party is generally ordered to pay costs to the successful party, but this ultimately remains at the discretion of the Court.1
[13] The Court’s jurisdiction to award increased costs is derived from r 14.6 of the High Court Rules 2016. Rule 14.6 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
1 High Court Rules 2016, r 14.1 and 14.2(1)(a); Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [19].
(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.
[14] It is well settled that where statutory demands are issued inappropriately, increased costs are routinely awarded.2 In Norwich Properties Ltd v Mark Gray Architect, 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.3
[15] In two recent decisions,4 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, 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.
Discussion
[16] While DriedFresh withdrew the statutory demand before Tuakau’s application was determined by the Court, it did so because the Court had refused Mr Guy leave to represent DriedFresh. The Court’s reason for refusing leave was that there was clearly a genuine and substantial dispute about the debt. In these circumstances, it is appropriate that DriedFresh pay Tuakau’s costs.
2 Andrew Beck (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR14.6.02(3)(a)(i)] cited in Herbert Construction Co Ltd v Viking Group Ltd HC Napier CIV-2011-441-206, 19 September 2011 at [17].
3 Norwich Properties Ltd v Mark Gray Architect [2015] NZHC 994 at [31].
4 Haines v Memelink [2019] NZHC 2169 at [39]–[51]; and Haines v Memelink [2021] NZHC 1063 at [19]–[27].
[17] As to whether increased costs should be ordered, Mr Guy’s conduct in issuing and not withdrawing the statutory demand was egregious given that there was obviously a dispute between the parties which Tuakau had referred to mediation. Furthermore, Tuakau’s solicitor wrote to Mr Guy when the statutory demand was issued pointing out that the statutory demand was inappropriate and that the contract was clearly in dispute. Mr Guy had the opportunity to withdraw the statutory demand, but he elected not to.
[18] On the other hand, I accept as genuine Mr Guy’s explanation that he attempted to secure legal counsel, but that the company could not afford to make the upfront payment required. That is unfortunate, as I consider that had Mr Guy sought legal advice the statutory demand would not have been issued in the first place or at least would have been withdrawn earlier.
[19] Balancing these considerations, I consider that DriedFresh should pay Tuakau’s 2B costs with a 25 per cent uplift.
[20] An adjustment is required to the schedule of costs at Appendix C to Tuakau’s memorandum as the appearances were at mentions hearings rather than case management conferences and therefore the time allocation should be 0.2 days rather than 0.3 days.
Result
[21] I order DriedFresh to pay Tuakau’s costs on a scale 2B basis with a 25 per cent uplift in the amount of $18,223.75 and disbursements of $540.00.
[22] This order is subject to DriedFresh providing the Registrar with invoices for the legal costs to confirm that costs in this amount were actually incurred.
Gardiner J
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