Volumex Nominees Limited v Vesta Solutions Limited

[2012] NZHC 3621

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV 2011-443-000575 [2012] NZHC 3621

UNDER  the Companies Act 1993

IN THE MATTER OF     an application under s 290 to set aside a statutory demand

BETWEEN  VOLUMEX NOMINEES LIMITED Applicant

ANDVESTA SOLUTIONS LIMITED Respondent

Hearing:         On the papers

Appearances: D J King/A McGowan for applicant

E Telle/L T Meys for respondent

Judgment:      21 December 2012

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 21 December at 3.45pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

D J King/A McGowan, Dennis King Law, PO Box 1092, New Plymouth 4340

E Telle/L T Meys, Neilsons Lawyers, PO Box 13723, Onehunga 1643

VOLUMEX NOMINEES LIMITED V VESTA SOLUTIONS LIMITED HC NWP CIV 2011-443-000575 [21

December 2012]

[1]      This is a dispute over entitlement to costs on this application to set aside a statutory demand.  The application was not pursued because the respondent, Vesta Solutions Ltd, withdrew the demand.

[2]      The applicant, Volumex Nominees Ltd, seeks an order for scale costs of

$2,983.40 on the grounds that it was the successful party by reason of Vesta having withdrawn the demand.

[3]      Vesta, on the other hand, contends that it should be awarded indemnity costs of $5,500(or alternatively increased or scale costs) on the grounds that Volumex could not have succeeded on its application (for procedural reasons) and that its decision to withdraw the demand was made for purely pragmatic reasons.

[4]      The parties are agreed that the successful party should also be entitled to costs. There is an issue over what is reasonable.

Background

[5]      In 2011 the respondent, Vesta Solutions Ltd, undertook property management services for the applicant, Volumex Nominees Ltd.  Vesta invoiced Volumex for the sum of $18,995.75 for those services.   Volumex paid $10,000 on the 20th  of the following month.  Vesta unilaterally accepted that the balance could be paid on the

20th of the month following, to assist Volumex with its cash flow.

[6]      There is a dispute as to what occurred after the due date passed without payment.  Vesta contends that it made a number of requests for payment and was informed that the invoice had been approved for payment.  It says that it understood Volumex was having financial difficulty, and that in addition to making various requests for payment, it had also warned Volumex that it would issue a statutory demand if payment was not made.  Its chief executive officer, Mr Keen, says that he had a telephone conversation with Volumex’s solicitor on 2 August 2011, and was told that payment would be made as soon as the solicitor obtained authority from Volumex’s director, Mr P Yarrow.  He relies on email correspondence two days later

in which Volumex’s solicitor informed him that there was no dispute that the invoice had been approved for payment, but that Vesta was still wishing to see timesheets for the work.

[7]      Mr Keen says that Volumex had never required timesheets for invoices in the two years of prior dealings, and he considered that this was simply an excuse to delay payment.   He responded requiring payment of the approved invoice by the close of business that day.  He said that when that did not occur Vesta gave Volumex further time to make payment; but then instructed its solicitors to prepare a statutory demand.  It was served on 5 October 2011.

[8]      The statutory demand had stated:

Documents for service on the above named Vesta Solutions Ltd may be left at the address for service or may be:...

(c)       transmitted to the solicitor by facsimile to [phone].

[9]      Volumex’s solicitor has sworn an affidavit in which she acknowledges that the invoice had been approved for payment “by the former directors of [Volumex]”, but says that she had requested timesheets in relation to this invoice “repeatedly” and thought she had made it clear that although the invoice had been approved, Volumex would not pay it until it had seen the time records.  There is support for her evidence in the same email of 4 August 2011 on which Vesta relies.  The material parts of the email read:

I have not been able to speak to my client yet regarding your latest request, which I note was less than 48 hours ago.  Please not that I have asked you several times for your timesheets in relation to this invoice but I have not received them yet.   I point out, once again, that I am not disputing this invoice has been approved for payment, but my client would still like to see a copy of your timesheets.

I look forward to receiving your timesheets, and I will be in contact once I

receive further instructions regarding your request.

[10]     Following service of Vesta’s statutory demand, Volumex filed the application in this proceeding on 19 October 2011.  It sent a copy of the application to Vesta by facsimile on 19 October 2011 (within the statutory timeframe).

[11]     The ground relied upon for setting aside was that Vesta had been negligent in management of Volumex’s property, and Vesta had a counter-claim for losses caused (loss of rental) which exceeded the amount of the demand.

[12]     The application that was sent to Vesta by facsimile did not include a Court number or a date of hearing.   Volumex’s solicitor says that the Court had not processed the application and allocated a date of hearing at that time.  A further copy of the application, bearing the Court number and date of hearing, was served on 3 or

4 November 2011 (Volumex says that it sent its facsimile late on 3 November 2011, whereas contends it received it on 4 November 2011), again by facsimile.

[13]     Prior to the first call of Volumex’s application, Vesta informed Volumex that it was withdrawing the statutory demand.  Mr Keen says that this decision was made for pragmatic reasons (it was not economic to pursue the dispute in the High Court) and without prejudice to its view that its application was a nullity because it had not been properly served and there was no valid substantive ground for it.

[14]     Prior to the first call of the application the parties filed a joint memorandum advising that Vesta had withdrawn the statutory demand without prejudice to its arguments, and that Volumex wished to discontinue the proceeding, but there was a dispute as to costs.  The parties were agreed that Volumex could apply for an order for costs, and Vesta was entitled to oppose any application, with the successful party being entitled to costs on that dispute. A notice of discontinuance was filed with that joint memorandum.

[15]     The Court made orders that the proceeding was discontinued with costs to be determined on the basis of memoranda to be filed.

The arguments

[16]     Volumex initially sought costs on a scale 1A basis, plus disbursements, on the

basis that the withdrawal of Vesta’s statutory demand amounted to a discontinuance,

triggering the presumption that the withdrawing party is liable for costs.1

1 Relying on Telecom New Zealand v Landmark Technologies Ltd (2010) 10 NZCLC 264,619 (HC).

(a)      A determination of costs required a consideration of whether Volumex acted reasonably in issuing its demand  and whether Volumex  had acted reasonably in bringing its application, and then putting a claim for costs.

(b)It had a reasonable basis for believing that the debt was undisputed and that Volumex might be insolvent:

(i)Volumex had admitted the debt, and payment was overdue by more than two months;

(ii)Volumex  had  not  disputed  liability;  nor  raised  its  alleged counter-claim notwithstanding that Vesta had warned that it would issue a statutory demand if payment was not made;

(iii)Volumex   had   never   before   required   Vesta   to   produce timesheets, and in light of advice that payment had been approved, the request for timesheets appeared to be a strategy to delay.

(c)      It acted reasonably in withdrawing the demand without prejudice to its position on the application, given that it was then entitled to pursue the debt in the Disputes Tribunal as a dispute had been raised and that it was uneconomic and wasteful of Court resources  to pursue the dispute in this Court.

(d)      Volumex had acted unreasonably in:

(i)bringing its application without making known that there was an  ongoing  issue  over  the  invoice  or  raising  its  alleged counter-claim;

(ii)bringing   its   application   improperly   (which    made   the application a nullity); and

(iii)relying on a ground which could not succeed (a counter-claim for an unliquidated amount that did not impugn the debt and was not sufficiently proven).

(e)      Volumex had refused a reasonable offer to discontinue with no issue as to costs.

(f)      On those bases, it is entitled to indemnity costs, or at the very least, increased costs.  However, if unsuccessful in that, it says that it should be awarded scale 2B costs.

(g)If the Court held that Volumex was entitled to costs, its claim was not calculated correctly.

[18]    Volumex filed a memorandum in reply, submitting that it had not acted unreasonably in bringing its application:

(a)      It had made clear that it wanted timesheets for the invoice before it paid the outstanding balance; and

(b)It had brought its application appropriately: the statutory demand provided for service by facsimile, and it had to serve the application without the Court number or date of hearing because the application was brought on the last available date and the Court had not allocated a date.

[19]     In addition, and in the event that the Court was to determine that Vesta was entitled to costs, the 20 hours sought on an indemnity basis was unreasonable, and out of proportion to the amounts in dispute.

[20]     There is a general presumption that a party who discontinues a proceeding will be liable for costs.2   The withdrawal of a statutory demand is commonly equated to a discontinued proceeding.3

[21]     This general presumption is subject to the Court’s overriding discretion as to costs.  The presumption may be displaced where it would be just and equitable to do so.4   In determining whether it is just and equitable to displace the presumption, the Court’s primary enquiry is whether a plaintiff acted reasonably in commencing the proceedings, and a defendant acted reasonably in defending them.5

The central issue

[22]     The critical issue in this case is whether Volumex notified Vesta that it was disputing the amount owing.  If it did not do so, Vesta cannot be criticised for issuing its demand, or for its subsequent decision to withdraw it when faced with Volumex’s application (taking into account, in that respect, that the application was brought on the basis of a counter-claim, rather than the alleged dispute over the invoice).6

[23]     Some explanation needs to be given of a dispute to constitute proper notice of the dispute.7  A mere assertion that a debt is not due is insufficient.

[24]     I do not accept that Volumex gave appropriate notice to Vesta that it disputed the amount owing.    The statement by Volumex’s solicitor in her email correspondence of 4 August 2011 is equivocal at best – the significant point that Vesta would have taken from it was that the invoice had been approved.  The request

for timesheets does not clearly raise or explain a dispute.   In that respect it is

2 High Court Rules, r 15.23.

3 Telecom New Zealand v Landmark Technologies Ltd at [26].
4 High Court Rules, r 14.1.

5 Olive Francis Retirement Home Ltd v Director-General of Health HC Auckland CIV 2005-404-

1367, 13 July 2005 at [15]; Oggi Advertising Ltd v McKenzie (1998) 12 PRNZ 535 (HC).

6 Delay in raising a dispute until bringing of an application to set aside a demand is unreasonable, and warrants a refusal to award costs: Gioco Investments Ltd v Emac Electrical Ltd HC Hamilton CIV

2003-419-1626, 15 April 2004 at [23] – [24].

7 ACP Media Ltd v RAM Commercials Ltd HC Wellington CIV 2008-485-2512, 16 February 2009 at

[13].

significant that Volumex did not raise Vesta’s failure to provide timesheets as a ground for setting aside in its application (that was confined to the counterclaim which had not been raised previously).

[25]     On that basis I consider that Vesta acted reasonably in issuing its statutory demand.   I take into account that it did not do so for a further two months after telling Volumex on 4 August 2011 that it required payment by that date.   On that basis Volumex has only itself to blame for having to bring its application.  Further, I accept that Vesta acted reasonably in electing to withdraw the demand once it saw the alleged counter-claim, notwithstanding the issues that it has raised.  On that basis I do not consider that Volumex is entitled to costs.

Vesta’s claim for costs

[26]     Vesta did not take any steps to oppose the application before withdrawing its demand.   Accordingly,  it  seeks  costs  simply on  the  basis  of  the  understanding reached between the parties, and recorded in their joint memorandum of 2 December

2011, that it would be entitled to seek costs if it successfully opposed Volumex’s

application.

[27]     As  I  have  already  indicated,  Vesta  contends  that  it  should  be  awarded indemnity costs for the very substantial amount of time that it says that was required to resist Volumex’s application, and to present a case for the lack of merit for the application.  It will be apparent, however, from the reasons I have already given that Vesta had only to address Volumex’s case that the statutory demand was issued unreasonably.  In presenting its arguments over service and the lack of merit on the counter-claim, it went beyond what was needed.  I also take the view that there is no

merit in the procedural arguments – and accept the points made by Volumex on that.8

I do not need to address the submissions in respect of the alleged counterclaim any further than I already have, in pointing out that that was not a matter that was

advanced ahead of issue of the statutory demand.

8 See s 387(1)(e) and (f), Companies Act 1993 and Exactics Process Innovations Ltd v Hollands

Worldwide Ltd HC Auckland M1677-IM99, 17 November 1999 at [6].

[28]     I do not accept that this is an appropriate case either for indemnity costs9  or increased costs.10   The critical issue is whether Volumex had no basis for pursuing a claim for costs.   Volumex was prima facie entitled to rely on the presumption in favour of awarding it costs as the successful party.  Although I have found against it

on that (by coming to the view that the dispute was not properly raised) I do not consider this to come within the category of wilful disregard of known facts or clearly established law required for an award of indemnity costs.11

[29]     The case does not reach that standard.

[30]     Turning then to the claim for increased costs, Vesta has argued that increased costs should be awarded because of Volumex’s refusal to accept a reasonable proposal,  namely  that  costs  lie  where  they  fall.    There  is  some  merit  in  that. However, in order to make a finding on increased costs, I would need to establish a starting point in the scale in the High Court Rules and to determine what the proper costs would be for responding to Volumex’s application for costs.  The time that has been given (20 hours) covers a number of matters which were not required.

[31]     On balance, I consider that Volumex’s claim addressed appropriately in no more than a day and a half and that Vesta’s claim can be accommodated fairly by an award under the appropriate provision in the scale.

Decision

[32]     I award costs to Vesta against Volumex on a scale 2B basis, by analogy with item 24 of Schedule 3 to the High Court Rules, being an allocation of 1.5 days.  I

consider that that order allows appropriately for Vesta’s time without any increase.

Associate Judge Abbott

9 High Court Rules, r 14.6(4).

10 High Court Rules, r 14.6(3).

11 See Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, adopted in Hedley v Kiwi Cooperative Diaries Ltd (2002) 16 PRNZ 694 (HC) and endorsed in Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [24] – [29]..