CONSUMER CREDIT MANAGEMENT LIMITED V JODEN FINANCE LIMITED HC AK CIV 2009-404-001860

CONSUMER CREDIT MANAGEMENT LIMITED V JODEN FINANCE LIMITED HC AK CIV 2009-404- 001860 1 April 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2009-404-001860BETWEEN CONSUMER CREDIT MANAGEMENT LIMITED Applicant AND JODEN FINANCE LIMITED Respondent Hearing: by memoranda Judgment: 1 April 2010 at 9:30amCOSTS JUDGMENT OF ASSOCIATE JUDGE ABBOTTThis judgment was delivered by me on 1 April 2010 at 9:30am, pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy RegistrarSolicitors: Buddle Findlay, PO Box 1433, Auckland 1140 for applicant D G Law, PO Box 14801, Panmure, Auckland 1741 for respondent[1] The applicant, Consumer Credit Management Limited (CCML), seeks indemnity costs following a successful application to set aside a statutory demand. It says that the respondent, Joden Finance Limited (Joden) had no basis for issuing the demand and was warned that indemnity costs would be sought if CCML had to apply to have it set aside. [2] Joden did not oppose the application, but opposes an award of indemnity costs. It says that it had a proper basis to issue the demand, and that the warning in respect of costs applied to a prior demand that was withdrawn, and was not repeated when a second demand was made. [3] The issue for the Court is whether CCML has established a case for indemnity costs, and whether the Court should exercise its discretion to award them.Relevant background[4] This dispute arises out of steps taken to repossess a motorcar. A dealer wished to repossess the car after the purchaser defaulted and the dealer was required to honour a recourse agreement with the purchaser's financier. The dealer approached a repossession agent and subsequently issued an authority (called a warrant to repossess) to First Step Collections. [5] A director of CCML, Mr Carpenter, says that he received a telephone call from a repossession agent, Mr Sullivan, acting for First Step Collections asking for referral to a repossession agent in the Napier/Hastings area. Mr Carpenter says that he (as distinct from CCML) agreed to instruct a contact in the Napier/Hastings area, and subsequently did so. [6] Subsequently Joden's director, a Mr Murphy, travelled to Napier/Hastings and attempted to repossess the vehicle, also relying on the authority given to First Step Collections. It seems Joden uses First Step Collections as a trading name, butthis was not evident from the authority. On learning of Mr Murphy's involvement Mr Carpenter contacted the dealer and was asked to continue acting. [7] A short time later, Mr Carpenter's agent repossessed the vehicle and placed it into safe storage. Mr Carpenter personally invoiced the dealer on 2 March 2009 for $1,000 for the work. He says that he was paid by Mr Sullivan, and that he in turn paid part of the money to First Step Collections and to the Napier agent. [8] On or about 3 March 2009, Joden sent CCML an invoice for $5,001.75, purportedly for work undertaken in tracing the vehicle in Napier, including travelling to Napier. Mr Carpenter says that he called Mr Sullivan to ask him what this invoice was about. He says that Mr Sullivan said he would look into the matter, and that Mr Sullivan later called him back and told him to disregard the invoice. [9] On 20 March 2009 Joden sent CCML a statutory demand by fax, claiming the sum previously invoiced. It was signed by Mr Murphy for Joden, and was sent by fax. [10] CCML had its solicitors write to Joden seeking immediate withdrawal of the demand. In their letter dated 24 March 2009, CCML's solicitors pointed out that CCML had not instructed Mr Murphy or Joden, and referred to the instructions Mr Carpenter had received to carry out the repossession work. The solicitors said if the demand was not immediately withdrawn they had instructions to apply to set the demand aside and seek costs on an indemnity basis. The solicitors also noted a statement in the demand that a copy of the demand had been or would be forwarded to CCML's bank and said that, as there was no basis for any allegation of debt, any such action would be misleading and defamatory. [11] There was a typographical error in the postal address of Joden (a post office box) given on the statutory demand. CCML's letter went to that incorrect address, and was returned. It was then posted to the Joden's physical address on 30 March 2009 under cover of a further letter explaining that it had already been sent to an incorrect postal address. In the cover letter CCML sought withdrawal of the demand by 2:00pm on 31 March 2009.[12] On 1 April 2009 CCML filed and served an application to set aside the demand. That same day, Joden wrote to CCML's solicitors acknowledging receipt of their letter of 24 March 2009 and the advice that the demand was defective, and said that a further demand would be issued "with the correct details". [13] On 8 April 2009 a second statutory demand was issued in virtually identical terms to the first demand (the post office box number was corrected and the demand was said to be replacing the demand of 20 March 2009). [14] CCML's application to set aside was listed for first call on 29 April 2009. On 24 April 2009 CCML filed an amended application, to include the demand served on 8 April 2009 as well as the earlier demand. It was served at Joden's street address that day. [15] When CCML's application was heard on 29 April 2009, counsel appeared for Joden and advised it was not opposed, but that CCML's application for indemnity costs was. The demands were set aside and directions were given for filing memoranda as to costs. CCML has applied for indemnity costs of $6,320.19 and disbursements of $625.00. Joden contends that if costs are to be awarded they should be no more than scale costs of $3,680 plus disbursements of $467.50 (in respect of the amended application only) and that, in any event, the indemnity costs sought were unreasonable.The cases for and against indemnity costs[16] CCML contends that it ought to have been apparent to Joden from the outset that it had no basis for serving a demand on it because there was no conceivable basis for a contractual relationship between them to give rise to the alleged debt. It says that Joden compounded its errors by persisting with its demands after CCML had raised the fact that there was no contractual relationship, and ignored CCML's warning that it would be seeking indemnity costs if it was put to the unnecessary step of having to apply to set aside.[17] For its part, Joden contends that there was a contractual basis for the debt, that it did withdraw its first demand, and properly decided not to pursue opposition to the amended application (which it did not receive until 3 working days before the first call).Principles for indemnity costs[18] CCML relies on r 14.6(4)(a) of the High Court Rules which reads:14.6 Increased costs and indemnity costs(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;[19] Awards of indemnity costs are exceptional, and require exceptionally bad behaviour: Bradbury v Westpac Banking Corporation. 1 The Supreme Court has said that misconduct must be "flagrant": Prebble v Awatere Huata (No 2)2 . New Zealand courts have adopted, as a guide, a categorisation of types of conduct which has been found to have caused the threshold has been crossed (summarised in the judgment of the Federal Court of Australia in Colgate-Palmolive Co v Cussons Pty Ltd,3 adopted in Hedley v Kiwi Cooperative Dairies Ltd,4 and endorsed in Bradbury v Westpac Banking Corporation). The categories of particular relevance to the present case are: a) Commencing or continuing proceedings for some ulterior motive; b) Doing so in wilful disregard of known facts or clearly established law; and c) Making allegations which ought never to have been made (the "hopeless case" test).1 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA).at [28].2 Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SC) at para [6].3 Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225.4 Hedley v Kiwi Cooperative Dairies Ltd (2002) 16 PRNZ 694 (HC).Has the threshold for indemnity costs been crossed?[20] Joden's view of this claim has clearly been coloured by a dispute as to the chain of instructions from the dealer principal, through First Step Collections, to Mr Carpenter (or CCML) and hence to the agent whom Mr Carpenter says he instructed in the Napier/Hastings area. It appears to have formed the view that CCML or Mr Carpenter acted improperly in the collection process. It is not possible to resolve that dispute in a summary way, but it is not necessary to do so to determine this application for costs. The alleged debt cannot arise out of that chain of instruction. [21] Joden's demand has to be advanced on the basis that CCML undertook responsibility for the costs incurred by Joden. That presupposes some form of instruction from CCML (or even Mr Carpenter) back to Joden. Mr Carpenter says that neither he nor CCML had any contact with Joden (or its director, Mr Murphy) before Joden issued its invoice of 3 March 2009. Joden does not dispute that. Mr Sullivan was the point of contact between Mr Carpenter (or CCML) and First Step Collections. He has given an affidavit in which he contends that Mr Carpenter knew that Joden was trading as First Step Collections, but also confirms the arrangement made for Mr Carpenter to engage his Napier/Hastings contact to repossess the vehicle. There is no suggestion that CCML (or Mr Carpenter) in turn instructed Joden or Mr Murphy to undertake any part of that work. [22] Joden must have known before it issued its demand that there was no basis for contending that CCML (or Mr Carpenter) had incurred a debt to it. Joden knew enough to issue the demand (apparently without legal advice) but chose to ignore the prerequisites for doing so. It worsened the matter by including a statement that the demand "has been or will be served" upon CCML's bank and would prevent the bank from advancing any further money until the debt was satisfied. This was a crass "scare tactic" which forms no part of a conventional statutory demand. Additionally, it was faxed to CCML rather than served in accordance with s 387 of the Companies Act 1993.[23] Joden had an opportunity to withdraw after CCML's solicitors' letters of 24 and 30 March 2009. However, rather than checking its ground it chose to turn a blind eye to the facts, and issued a second demand, correcting its postal address but ignoring the substantive aspects raised by CCML's solicitors. It also served the further demand properly. It seems that only after this did Joden obtain legal advice. Even then it did not withdraw the demand, or even advise CCML that it would not be opposing the application until just before the hearing, by which time CCML had filed its amended application in response to the second demand. [24] This is a clear case of a demand being issued without any legal justification. It should not have been necessary for CCML to have applied to set the demand aside. Joden compounded the matter by ignoring the warning given by CCML's solicitors and re-serving its demand, apparently without taking legal advice. It is a reasonable inference that the legal advice it subsequently took was the reason that it did not oppose the application. By that time, however, CCML had already incurred the costs it is seeking. [25] I find that Joden issued and persisted with its demand, knowing that there was no proper basis in fact for the claimed debt. It chose not to get legal advice initially despite the warning that there was no legal basis for its position. There is merit in the argument of counsel for CCML that this was a vexatious and opportunistic attempt to compel CCML to pay money that it did not owe (by way of the threat to send the document to CCML's bank). Joden clearly felt that Mr Carpenter had some responsibility for its wasted expenses, and let that view dictate its steps. Further, even after obtaining advice, it did not withdraw ahead of the hearing. This was a hopeless case. It is a proper case for indemnity costs.QuantumCounsel acting for Joden on the claim for costs has submitted that the costs incurred are excessive, and were not reasonably incurred. She submitted that the warning about the inadequacy of its case applied to the first demand, and that the costs of the first application should be ignored as Joden withdrew that demand before the application to set aside was filed. She submitted that this was a relativelystraightforward matter (exemplified by the relatively modest costs of $807 incurred in filing and service of the initial application to set aside) that did not warrant the work being undertaken by a partner. She pointed out that the total amount sought ($6,320.29) represented a substantial uplift of 70% on scale fees, largely attributable to the work undertaken at partner level. [26] There is no merit to the contention that Joden heeded the warning by withdrawing its first demand. Firstly, it did not withdraw the demand as such but merely re-served it after correcting its address and arranging proper service. The substantive objection was ignored. Secondly, it did not advise CCML that it was doing so before CCML filed its application (Joden's advice to this effect was after the timeframe stipulated by CCML for withdrawing the demand). [27] There is some merit to the contention that the time charged was more than was reasonable for the work involved, and that the matter did not warrant over four hours of partner time. CCML sought to justify the partner involvement by reference to an unpleasant incident at the time of service of the amended application. I can accept that that was of some momentary concern, but not that it should reflect on the future conduct of a straightforward matter. As to excessive time charged, I accept that CCML was required to do more than just file a second application (and that more time is justified than the three to four hours apparently taken to issue the first application). There were attendances on Joden's solicitor and the issue over service. It was also reasonable for Joden's counsel to prepare for argument at the hearing, and to address the dispute over costs. However, it is difficult to see why that this should have taken the sixteen hours that were charged. [28] Weighing these matters I consider that it is reasonable to allow indemnity costs of $5,000. CCML is also entitled to disbursements as claimed in counsel's memorandum.Decision[29] Joden is to pay CCML indemnity costs of $5,000.00 together with disbursements of $625.00. ____________________Associate Judge Abbott