Wimplex v Open Country Dairy Limited
[2023] NZHC 1476
•13 June 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-136
[2023] NZHC 1476
UNDER the Companies Act 1993 in the matter of an application to set aside a statutory demand BETWEEN
WIMPEX LIMITED
Applicant
AND
OPEN COUNTRY DAIRY LIMITED
Respondent
Hearing: On the papers Counsel:
C J Shannon and I Cummings for Applicant K E Cornegé for Respondent
Judgment:
13 June 2023
COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 13 June 2023 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
WIMPEX LTD v OPEN COUNTRY DAIRY LTD [2023] NZHC 1476 [13 June 2023]
[1] The applicant applied to set aside a statutory demand issued to it by the respondent. The respondent did not oppose the application except as to costs. Directions were made by consent for the filing of submissions as to costs on the basis that the Court would deal with the matter on the papers. Those submissions have now been filed.
Factual background
[2] On 19 May 2022, the applicant and the respondent entered into a supply agreement pursuant to which the respondent agreed to supply and the applicant agreed to purchase a large quantity of A2 milk powder. There were several shipments of the goods to be made, with the first shipment in October 2022.
[3]The agreement included a clause which read:
In the event that a Contract is fully or partially cancelled … without prejudice to any other rights or remedies the Customer must reimburse the Company for any costs incurred as a consequence of such cancellation or suspension, including without limitation, packaging and re-packaging costs, storage costs, financing costs, foreign exchange losses, loss of profits and any diminution in the value of the Goods due to price movements. …
[4] Before the first shipment, the applicant indicated that it no longer required the goods and it sought to cancel the supply agreement. This was because its Chinese clients, to whom the goods were to be on-sold, had cancelled their orders due to the re-emergence of COVID-19. After attempts in correspondence to have the applicant take the goods, the respondent cancelled the supply agreement on 4 January 2023, giving notice that it intended to recover its full losses.
[5] On 9 March 2023 the respondent’s solicitors, Tompkins Wake, wrote to the applicant demanding payment of $527,939 said to be “for the loss suffered by OCD as a result of Wimpex’s failure to discharge its contractual obligations” within 10 working days failing which the respondent would be taking further steps to enforce its claim along with default interest, enforcement costs and legal fees.
[6] The applicant did not respond to the demand until 29 March 2023 when its solicitors, Duncan Cotterill, sent an email to Tompkins Wake advising that it had been instructed, was reviewing the documents, and would be preparing a response.
[7] By that stage, Tompkins Wake had already received instructions from the respondent to prepare a statutory demand and had concerns about the applicant’s insolvency given the advice it had received from the applicant that its large Chinese customers had cancelled their orders for 2023. Tompkins Wake issued the statutory demand and it was served on 4 April 2023. I note that prior to service, on 3 April 2023, Tompkins Wake advised Duncan Cotterill that a statutory demand had been served, although that turned out to be incorrect and it was actually served later. In any event, the clear intention was to issue the statutory demand without waiting for further correspondence from Duncan Cotterill.
[8] On 5 April 2023, Duncan Cotterill wrote to Tompkins Wake disputing the statutory demand. It said there was a genuine substantial dispute as to the amount claimed in the statutory demand (which it set out in some detail), and asserted that the statutory demand was an abuse of process. Duncan Cotterill required confirmation by 6 April 2023 that the statutory demand would be withdrawn failing which the applicant would make application to set aside the statutory demand and seek indemnity costs.
[9] On 11 April 2023, Tompkins Wake wrote to Duncan Cotterill denying the statutory demand was an abuse of process, making a relatively small concession as to the amount of the demand, but indicating that it would withdraw the statutory demand if its concerns in relation to the applicant’s solvency were addressed. Its terms were that the statutory demand would be withdrawn if the applicant would:
(a)provide evidence of solvency in an acceptable form; and
(b)pay the amount claimed by the respondent, which was then
$459,076.88 into Duncan Cotterill’s trust account with irrevocable instructions that the amount was to be held on trust until the dispute between the parties was resolved by judgment or agreement.
[10] Tompkins Wake advised that if those terms were not acceptable the respondent reserved its rights to pursue its claim against Wimpex. It is not immediately clear whether that referred to separate proceedings or an intention to continue to rely upon the statutory demand.
[11] On 14 April 2023, Duncan Cotterill responded to Tompkins Wake indicating that as the respondent had not withdrawn the statutory demand, the applicant would file an application to set aside the statutory demand and raise the issue of abuse of process with the Court and seek indemnity costs.
[12]This application to set aside the statutory demand was filed on 14 April 2023.
[13] On 17 April 2023, Tompkins Wake emailed Duncan Cotterill advising their client would withdraw the statutory demand if there was no issue of costs.
[14] On 24 April 2023, Duncan Cotterill wrote refusing that offer, instead seeking indemnity costs of $13,500 plus disbursements.
[15] On 1 May 2023, Tompkins Wake wrote to Duncan Cotterill proposing that the respondent pay scale costs calculated on a 2B basis of $4,780 on the basis that the amount would be paid into Tompkins Wake’s trust account until resolution of the substantive dispute between the parties.
[16] On 2 May 2023, the respondent filed a notice of opposition to the application to set aside the statutory demand but only in relation to costs.
The position of the parties
[17] The applicant seeks indemnity costs. It says indemnity costs are appropriately payable because:
(a)the statutory demand was flawed and an abuse of process;
(b)the respondent was advised that if the statutory demand was not withdrawn the applicant would apply to the Court and seek indemnity costs;
(c)despite being on notice that the demand was disputed, the respondent affirmed the statutory demand and sought to exploit it; and
(d)costs follow the event and as the applicant was successful by consent the order for indemnity costs meets the interests of justice.
[18] The applicant refers to r 14.6(4)(a) of the High Court Rules 2016 which provides the Court may order a party to pay indemnity costs if “the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing or defending a proceeding or a step in a proceeding”. It submits indemnity costs have been awarded on applications to set aside an inappropriate statutory demand including unopposed applications. It referred in particular to National Advanced Drivers School Ltd v Black Sheep Ent Ltd,1 and Nags Head Horse Hotel Ltd v Epsom Woods Ltd.2
[19] In National Advanced Drivers School, Associate Judge Doogue noted that service of the statutory demand seemed to come within r 14.6(4)(a) because it triggered the need for a Court application. There the application to set aside the statutory demand was unopposed and indemnity costs were awarded.
[20] In Nags Head Horse Hotel, Fitzgerald J awarded indemnity costs stating, “I consider it appropriate to take into account the propriety in Epsom Woods issuing the statutory demand in the first place”.
[21] The respondent’s position is that the applicant is entitled to costs on a 2B basis with reasonable disbursements. It submits this is not a case where indemnity costs are appropriate because it says it has not acted vexatiously, frivolously, improperly or unnecessarily in commencing, continuing or defending a proceeding or a step in the
1 National Advanced Drivers School Ltd v Black Sheep Ent Ltd [2017] NZHC 2804, (2017) 24 PRNZ 734.
2 Nags Head Horse Hotel Ltd v Epsom Woods Ltd [2020] NZHC 2973.
proceeding and that the authorities relied upon by the applicant can be distinguished because:
(a)The statutory demand was not an abuse of process as it was issued in good faith. It is said the respondent considered the requirements for issuing a statutory demand were met, and it had genuine concerns about the applicant’s solvency.
(b)The respondent took legal advice before issuing the statutory demand and the applicant had not raised any arguments in relation to the claim before the statutory demand was issued.
(c)When the demand was issued and the applicant raised arguments in relation to the claim, the respondent accepted a part of the amount demanded was not payable, and it sought to reach agreement regarding withdrawal of the statutory demand.
(d)Once the application to set aside the statutory demand was filed it acted pragmatically and reasonably agreeing to the order setting it aside by consent.
My assessment
[22] The applicant was the successful party and is prima facie entitled to costs, and that much is accepted by the respondent. The issue is whether it is entitled to indemnity or increased costs.
[23] Whilst r 14.6(4)(a) does not appear to apply directly to the circumstance of a proceeding commenced by a party in response to a disputed statutory demand, clearly those principles can be applied to a case such as this by analogy.
[24] Also relevant is that issues of costs are discretionary and as the Court of Appeal observed in Kinney v Pardington,3:
3 Kinney v Pardington [2021] NZCA 174 at [1].
Questions of costs are ultimately a matter of discretion. The exercise often requires assessment of a wide range of factors. The overall objective is to achieve an outcome that best meets the interests of justice in the given case in accordance with any applicable costs rules and consistent with established principles.
[25] I have closely considered the decisions referred to by the applicant. They bare some similarities with this case and I accept that the statutory demand should not have been issued. The demand was not in respect of a debt due but for unliquidated damages, which is not a proper foundation for a statutory demand.4 Whilst the respondent has raised questions concerning the applicant’s insolvency, that alone cannot justify use of the statutory demand procedure.
[26] I think, also, justified criticism can be made of the respondent in respect to the manner in which it responded to the initial challenge made to the demand. Whilst the respondent’s position is that it has always acted pragmatically, the reality is that prior to the filing of the application to set aside the statutory demand it did not agree to unconditionally withdraw the demand, but always sought to leverage off it to its advantage, seeking terms that would have required the applicant to effectively provide it with security for the full amount of its claim. It therefore should have been expected that those terms would not be acceptable and an application would be made to set aside the statutory demand.
[27] That said, I do not consider the circumstances of this case are entirely on all fours with either National Advanced Drivers School or Nags Head. In National Advanced Drivers School, there was no appearance by the respondent to oppose the claim for indemnity costs. In Nags Head, Fitzgerald J identified four factors which led her to the view that indemnity costs should be paid. These were:
(a)that the application to set aside the demand was granted by consent in face of what the Judge considered were fairly obvious and significant issues arising on the underlying claim to support the statutory demand;
(b)that the respondent’s position changed more than once through the parties’ correspondence and at the hearing;
4 Re Prime Link Removals Ltd [1987] 1 NZLR 510 (HC).
(c)that it appeared that aspects of the key transactional documents were missing from the materials filed in the opposition to the application; and
(d)there was a residual concern the statutory demand was not issued for a proper purpose.
[28] Nags Head is also distinguishable from the present because there the respondent opposed the application to set aside the demand and only agreed to a consent order to withdraw it during the hearing. In short, there was greater justification in Nags Head than in this case for an award of indemnity costs.
[29] Standing back and looking at the matter broadly, it is my assessment that this is a case where there is justification for an increased award of costs but I am not satisfied that indemnity costs are appropriate. It appears to me that from the respondent’s perspective, the applicant was clearly in breach of the supply agreement and that the amounts demanded were recoverable. While it overreached in issuing the statutory demand I cannot infer that it did so frivolously or vexatiously or knowing it to be an abuse of process.
[30] Further, context is important and here that includes that the respondent’s initial demand of 9 March 2023 gave the respondent a reasonable ten working days to respond but there was not response from Duncan Cotterill until 29 March 2023. Even then, the response did not address or dispute the demand, nor did it provide a timeframe within which a response would be provided.
[31] In all the circumstances, I consider that the interests of justice justify the making of an award to the applicant of scale costs with a 50 per cent markup. I calculate scale costs on a 2B basis for steps 37 and 11 of Schedule 3 of the High Court Rules and on a 2A basis in respect to step 24 (for submissions on costs). The amount awarded including the markup is $10,396.50.
Result
[32]The applicant is awarded costs of $10,396.50.
O G Paulsen Associate Judge
Solicitors:
Duncan Cotterill, Christchurch Tompkins Wake, Hamilton
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