WAHAROA LIVESTOCK LIMITED AND BOURTON FARMS LIMITED

[2024] NZHC 2650

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2024-409-183

[2024] NZHC 2650

UNDER

Section 290 of the Companies Act 1993

IN THE MATTER

of an application to set aside a statutory demand

BETWEEN

WAHAROA LIVESTOCK LIMITED

Applicant

AND

BOURTON FARMS LIMITED

Respondent

Hearing:	On the papers
Counsel:	K A Lomas for Applicant
Judgment:	13 September 2024

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

(Costs)

This judgment was delivered by me on 13 September 2024 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

WAHAROA LIVESTOCK LIMITED v BOURTON FARMS LIMITED [2024] NZHC 2650 [13 September 2024]

[1]                 In a judgment of 26 August 2024, with reasons delivered on 27 August 2024, I made an order setting aside a statutory demand issued by the respondent to the applicant.1 I held the applicant was entitled to costs, but because it was seeking above scale or indemnity costs I directed memoranda to be filed.2

[2]                 The applicant’s counsel has filed a memorandum of costs sought. Although the respondent’s counsel withdrew at the hearing, I am satisfied the applicant has taken appropriate steps to bring the memorandum to the respondent’s attention.3 There has been no memorandum on costs filed by the respondent.

[3]The applicant applies for either:

(a)indemnity costs; or

(b)scale costs with a 100 per cent uplift.

[4]                 Rule 14.6 of the High Court Rules 2016 deals with increased and indemnity costs. Relevantly for present purposes, r 14.6(3) and (4) provide:

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—

(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      Waharoa Livestock Ltd v Bourton Farms Ltd [2024] NZHC 2421.

2 At [22].

3      The memorandum on costs was sent to the applicant at its registered address for service.

(4)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

(b)the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; ...

[5]The applicant argues that it should be awarded indemnity costs because:

(a)the respondent issued the statutory demand knowing there was a dispute in relation to it which needed to be resolved and then failed to withdraw the demand; and

(b)the respondent conducted this proceeding in a way that added to the applicant’s costs because it:

(i)failed to file a notice of opposition and affidavits within the timeframe imposed by the High Court Rules and then sought leave to do so without adequately explaining the delay;

(ii)filed an unsworn affidavit of its director with no explanation for doing so;

(iii)filed a sworn version of its director in breach of the Court’s timetabling directions without seeking leave; and

(iv)failed to appear at the hearing of the application.

[6]                 I note that in addition to the above the respondent also failed to comply with the Court’s direction for the filing of submissions for the hearing.

[7]                 In the alternative, the applicant says if the Court is not minded to award indemnity costs a 100 per cent uplift on scale costs is appropriate. I was referred to AAI Ltd v 92 Lichfield Street Ltd (in rec and liq), where the use of the statutory demand procedure was an abuse of process because the respondent knew there was a dispute

as to whether the debt was payable.4 Dunningham J ordered a 100 per cent uplift on scale costs, noting:

[47] While noting that scale costs are intended to represent approximately two-thirds of actual costs, and an uplift of 50 per cent should therefore approximate actual costs incurred, there is no barrier to awarding higher costs as long as there is no over recovery.

[8]The applicant’s actual costs up to and including the hearing totalled

$31,627.44. By comparison, it says 2B scale costs with a 100 per cent uplift would be

$24,617.00 plus disbursements of $1,394.58. Accordingly, making an award with the uplift sought would not result in over recovery.

[9]                 I am not prepared to award the applicant indemnity costs. Awards of indemnity costs are a reasonable allocation of actual costs having regard to the appropriate time taken, the significance and complexity of the work, and the median hourly rate reasonably applicable.5 Here the amount claimed is significant for a proceeding of this kind and there is insufficient information provided to make an assessment of whether that amount is reasonable.

[10]              I accept that an uplift on scale costs is appropriate. There are two principal reasons for this. First, I consider that it should have been obvious to the respondent from very shortly after it issued the statutory demand that there was a genuine and substantial dispute as to the applicant’s liability for the amount of the demand. The position was made quite clear in the correspondence between the parties’ solicitors immediately following service of the demand. As I noted in my reasons for judgment of 27 August 2024, that dispute concerned who the contracting parties were for the supply of lambs that were the subject of the invoices upon which the statutory demand was based.6 I also set out the factors that support the applicant’s view that it is not liable for those invoices. I consider that upon a rational assessment of those factors it should have been obvious the statutory demand would ultimately be set aside. There was no justification for the respondent maintaining its demand.

4      AAI Ltd v 92 Lichfield Street Ltd (in rec and liq) [2016] NZHC 90 at [44].

5      Ryan v Lobb [2024] NZHC 386 at [26].

6      Waharoa Livestock Ltd v Bourton Farms Ltd, above n 1.

[11]              Second, once the applicant had applied to set aside the demand the respondent failed to comply with Court directions, adding needlessly to the applicant’s costs It also created circumstances that resulted in its solicitors applying for and obtaining leave to withdraw. In the face of advice from its solicitors that they would withdraw it did not instruct new counsel, nor did it advise the applicant or the Court that it would not maintain its opposition to the application but rather put the applicant to the unnecessary costs of preparing for a defended hearing that in the event were wasted when the hearing proceeded on an unopposed basis.

[12]              I have looked at the applicant’s calculation of 2B scale costs of the proceeding. I accept this is a category 2 proceeding for cost purposes and that the time allocations are appropriate. The issue that has given me most concern is whether it is appropriate to award an uplift of 100 per cent on scale costs. It appears to me that the cases where such uplifts are granted are outliers. In the case of AAI Ltd v 92 Lichfield Street Ltd (in rec and liq), Dunningham J considered the differential between actual and scale costs a factor in determining the uplift.7 The differential was greater in that case than in this. On balance I am awarding an uplift of 75 per cent on 2B scale costs.

Result

[13]The applicant is awarded costs of $21,539.88 plus disbursements of $1,394.58.

O G Paulsen Associate Judge

Solicitors:
Braun Bond & Lomas Ltd, Hamilton

Copy to: Mr Bourton

7      AAI Ltd v 92 Lichfield Street Ltd (in rec and liq), above n 4.