Zixin Limited v Billion Straven Limited
[2025] NZHC 251
•26 February 2025
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-468
[2025] NZHC 251
UNDER the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
ZIXIN LIMITED
Applicant
AND
BILLION STRAVEN LIMITED
Respondent
Hearing: On the papers Counsel:
A J Summerlee and K T Mead for Applicant S Caradus for Respondent
Judgment:
26 February 2025
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
(Costs)
This judgment was delivered by me on 26 February 2025 at 3.00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
ZIXIN LIMITED v BILLION STRAVEN LIMITED [2025] NZHC 251 [26 February 2025]
[1] In a judgment of 18 December 2024 I granted Zixin Limited’s application to set aside a statutory demand issued by Billion Straven Limited.1 I also held that Zixin was entitled to costs.2 The quantum of those costs has not been agreed and memoranda have been filed by counsel for me to determine the matter.
[2] Zixin is a 50 per cent shareholder in Billion. The statutory demand was issued by Billion in respect of sums said to have been made as on-demand loans. Zixin argued they were not loans but repayments of capital on its investment in Billion. It also argued it had counterclaims against Billion that exceeded the amount of the demand. In my judgment I accepted Zixin’s position that the sums in issue were not on-demand loans was fairly arguable. Given that finding, it was unnecessary for me to consider Zixin’s counterclaims against Billion.
[3] Zixin applies for indemnity costs and disbursements amounting to $39,944.50 or, in the alternative, seeks a 100 per cent uplift on 2B scale costs. Billion, which has only recently instructed Mr Caradus to act, argues that 2B scale costs should be awarded and that there is no basis to award either indemnity or increased costs.
Submissions on costs
[4] Zixin primarily relies upon r 14.6(4)(a) of the High Court Rules 2016, which sets out the factors for the Court to consider when exercising its discretion to award indemnity costs, including where a “party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding”. Zixin argues that this high threshold for awarding indemnity costs has been met for several reasons.
[5] First, it says the statutory demand was issued in circumstances where disputes had been raised concerning steps taken by the director of Billion to alter the Companies Office share register records without Zixin’s knowledge and using that to obtain personal borrowings of $1.6 million secured by way of mortgage over Billion’s properties. Zixin contends that in the face of those allegations, which provided the
1 Zixin Ltd v Billion Straven Ltd [2024] NZHC 3913.
2 At [42].
factual foundations for its counterclaims, the statutory demand should not have been issued.
[6] Second, after Billion issued the statutory demand Zixin’s lawyers wrote to Billion’s lawyers on two occasions setting out why there was a substantial dispute in respect of the amount claimed, requesting that the demand be withdrawn, and putting Billion on notice that it would apply to set aside the demand and seek indemnity costs. Despite that, Billion refused to withdraw the demand. Zixin submits that Billion abused the statutory demand procedure in circumstances where it had been put on notice that Zixin considered Billion was manipulating the statutory demand procedure to undo an agreed repayment of capital to Zixin.
[7] Third, Zixin also argues Billion misconducted itself in the manner it carried out its defence of the application by withholding relevant evidence (financial accounts of Billion) that Zixin had requested and providing inaccurate translations of WeChat messages so as to colour amounts received by Zixin as loans rather than repayments of capital. Zixin says it was put to extra cost in engaging a translator and related solicitor-client costs to review a large number of communications between the parties. Zixin also submits it was wrong for Billion to rely on the WeChat messages in any event as they were found to be lacking in context, related in part to personal loans that were not in issue, and almost all postdated the payments in dispute.
[8] Billion says Zixin’s submissions in relation to its conduct prior to the issue of the application to set aside the statutory demand are irrelevant to costs and the key issue is how the parties conducted themselves after the application was filed.
[9] Billion then submits there was no misconduct on its part because it issued the statutory demand only to recover sums which it believed were acknowledged by Zixin’s director as being loans, albeit the Court found otherwise.
[10] Billion contends that while the Court did make findings that the evidence relied upon by Billion of the WeChat messages was not helpful, there was no finding that it had acted improperly or for a collateral purpose in issuing the statutory demand.
[11] Billion also argues that Zixin points to nothing that would justify increased costs, save for the absence of company accounts and difficulties in translating WeChat messages. In respect of the latter matter, it says such difficulties are common where parties speak English as a second language and the Court should not punish a party with increased costs “because they speak another language”.
[12] Billion also argues that the indemnity costs sought are very high, being triple 2B scale costs, and that it appears some of the attendances relate to wider commercial matters. It contends that if indemnity costs are to be awarded it should be entitled to review Zixin’s lawyers’ time and attendance records.
[13] Billion relies on authorities to the effect that an increase above 50 per cent of scale costs is unlikely, albeit that there is authority for a 100 per cent uplift.3 Billion says the Courts have not often ordered more than a 50 per cent uplift on scale costs even where a party has issued an ill-advised statutory demand or misused the statutory demand procedure.
Analysis
[14]In Kinney v Pardington the Court of Appeal said:4
[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. ...
[15] The relevant rules for present purposes are contained in rr 14.6(3) and (4) of the High Court Rules:
14.6 Increased costs and indemnity costs
...
(3)The court may order a party to pay increased costs if—
3 AAI Ltd v 92 Lichfield Street (in rec and in liq) [2016] NZHC 90; THP Long Bay Ltd v Sahara Waterproofing Ltd [2023] NZHC 3623; Zenscape Ltd v Collective Contractors Ltd [2023] NZHC 2993.
4 Kinney v Pardington [2021] NZCA 174.
(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—
...
(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
...
(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.
(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
...
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[16]In Bradbury v Westpac Banking Corporation the Court of Appeal held:5
Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant” ...
[17] Billion referred to the decision of the Supreme Court in Prebble v Awatere Huata (No 2):6
[6] In New Zealand, costs have not been awarded to indemnify successful litigants for their actual solicitor and client costs, except in rare cases generally entailing breach of confidence or flagrant misconduct. Except in such cases, in both the Court of Appeal and the High Court orders for party and party costs have been limited to a reasonable contribution to the costs of the successful party. ...
5 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [28].
6 Prebble v Awatere Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467.
(footnote omitted)
[18] I accept that in a costs context a party’s conduct prior to the commencement of proceedings is generally not a relevant consideration. However, there is clear authority that where a party has successfully obtained an order setting aside a statutory demand it may be appropriate to take into account the propriety of the other party in issuing the statutory demand in the first place.7
[19] I am not prepared to award Zixin indemnity costs. The costs claimed do appear high, given what was a straightforward issue as to the nature of the sums in issue. It is well established that indemnity costs must be objectively reasonable and in a case like this I would expect Zixin to provide a breakdown of its lawyers’ time and attendance records as well as details of hourly charge-out rates applied to make such an assessment.
[20] However, there is ample justification to award increased costs for several reasons. The correspondence between the parties’ lawyers prior to the issue of the statutory demand is instructive. As noted, that correspondence shows that Zixin’s lawyers raised disputes concerning unauthorised alterations to Companies Office records to allow Billion and its sole director to raise a large sum secured against Billion’s land. These dealings were the subject of the counterclaims raised by Zixin in support of the application to set aside the statutory demand. To my mind, no satisfactory explanation has ever been provided for these matters. Billion was on notice of a dispute, the existence of which meant that a statutory demand should not have been issued.
[21] The correspondence also shows that Billion’s solicitors accepted in May 2024 and well prior to the issue of the statutory demand that a “negotiated outcome” of the dispute was desirable, and there were efforts to resolve that dispute on the basis of the purchase of Zixin’s shares in Billion. The issue of the statutory demand appears to have been an ill-considered response to the parties’ failure to reach a settlement agreement. If Billion was unhappy about the lack of progress in the settlement
7 National Advanced Drivers School Ltd v Black Sheep Ent Ltd [2017] NZHC 2804; Nags Head Horse Hotel Ltd v Epsom Woods Ltd [2020] NZHC 2973; Wimpex Ltd v Open Country Dairy Ltd [2023] NZHC 1476.
negotiations there were other more suitable options available to it. I note, for instance, that Billion’s lawyers advised that the company intended to issue proceedings in the District Court against Zixin’s director in respect of personal loans it was said had been made to him.
[22] Once the statutory demand was issued Zixin’s lawyers clearly disputed the payments Billion claimed were on-demand loans and set out in some detail why there were no loans to repay. Billion was also put on notice of Zixin’s intention to claim indemnity costs if the statutory demand was not withdrawn. At that stage Billion had an obligation to carefully assess its position and satisfy itself that Zixin could not show an arguable basis that it was not liable for the amount claimed in the demand. Given that there were no loan agreements to support its position and, at best, the WeChat messages relied upon were ambiguous, Billion should not have refused to withdraw the demand, forcing Zixin to make its application. This is not a case, as Billion suggests, of punishing a party for speaking another language, it is simply that Billion did not have sufficient evidence to justify its demand and should have realised that.
[23] Further, Billion’s refusal to provide its financial accounts to a 50 per cent shareholder is troubling. The inference can reasonably be drawn that it was considered that disclosure would assist Zixin in the pursuit of its counterclaims against Billion and/or would not support Billion’s position that it was a creditor of Zixin.
[24] Having decided that Zixin is entitled to an uplift on scale costs, the issue becomes what the uplift should be. This is not capable of precise calculation and must be a matter of impression. It is not uncommon for the Court to order a 50 per cent uplift on scale costs when a statutory demand has been issued in circumstances where it was known, or ought to have been known, the sum demanded was disputed.8 In AAI Ltd v 92 Lichfield Street (in rec and liq), Dunningham J awarded a 100 per cent uplift on scale costs when a demand was issued knowing the sum was disputed and the issuer of the notice was repeatedly warned that if the demand was not withdrawn increased or indemnity costs would be sought.9 On balance, however, I take the view that an uplift of 75 per cent on scale costs is appropriate in this case.
8 The New India Assurance Company Limited v Ziwi Ltd [2024] NZHC 3817 at [15].
9 AAI Ltd v 92 Lichfield Street (in rec and in liq), above n 3.
Result
[25] The applicant is awarded costs on a 2B basis with a 75 per cent uplift in the amount of $23,840.25 plus disbursements of $1,104.00.
O G Paulsen Associate Judge
Solicitors:
Parry Field, Christchurch Saunders & Co, Christchurch
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