FAIRBAIRN MANUKAU HOLDINGS LTD v JENHASH CONTRACTING AND CONSULTANTS LTD [2023] NZHC 1890

FAIRBAIRN MANUKAU HOLDINGS LTD v JENHASH CONTRACTING AND CONSULTANTS LTD[2023] NZHC 1890 [20 July 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2023-404-616[2023] NZHC 1890BETWEEN FAIRBAIRN MANUKAU HOLDINGSLIMITEDPlaintiffAND JENHASH CONTRACTING ANDCONSULTANTS LIMITEDDefendantHearing: On the papersAppearances: T J G Allan and K M Wakelin for the PlaintiffJudgment: 20 July 2023JUDGMENT OF ASSOCIATE JUDGE SUSSOCK[Costs]This judgment was delivered by me on 20 July 2023 at 4 pmpursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Grove Darlow & Partners Solicitors, AucklandIntroduction[1] I appointed liquidators to the defendant, Jenhash Contracting and ConsultantsLimited (Jenhash), on 17 May 2023.1 The plaintiff, Fairbairn Manukau HoldingsLimited (trading as Mitre 10 Mega Manukau) (Fairbairn), now seeks indemnity costsof $11,650 together with disbursements of $1,682.36 (excluding GST).[2] The plaintiff submits there is a contractual right to indemnity costs in clauses7.1(c) and (d) of its terms of trade which the defendant agreed to when it opened atrading account with the plaintiff. A copy of these signed terms is annexed as anexhibit to the affidavit of Almay van Biljon filed together with the plaintiff's costsmemorandum.[3] I set out the relevant legal principles below before considering the appropriateaward.Relevant legal principles[4] The starting point in any costs decision is r 14.1 of the High Court Rules 2016which confirms that all matters relating to costs are at the Court's discretion. Thediscretion vested by r 14.1 is wide but must be exercised subject to the generalprinciples in r 14.2 and the remaining costs provisions.[5] Rule 14.6 provides for when increased or indemnity costs may be ordered andrelevantly includes:14.6 Increased costs and indemnity costs(1) Despite rules 14.2 to 14.5, the court may make an order—(b) that the costs payable are the actual costs, disbursements, andwitness expenses reasonably incurred by a party (indemnitycosts).(4) The court may order a party to pay indemnity costs if—1 Fairbairn Manukau Holdings Ltd v Jenhash Contracting and Consultants Ltd HC Auckland CIV-2023-404-616, 17 May 2023 (Orders of Associate Judge Sussock).(e) the party claiming costs is entitled to indemnity costs under acontract ordered;(f) some other reason exists which justifies the court making anorder for indemnity costs despite the principle that thedetermination of costs should be predictable and expeditious.[6] The plaintiff refers to ANZ Banking Group (NZ) Ltd v Gibson in which theCourt held a contractual obligation to pay costs on a full solicitor and client basis willbe enforceable unless contrary to public policy.2[7] In Arjang v NF Global Associate Judge Bell held that sch 7, cl 1(1)(c) of theCompanies Act 1993 provided a basis for awarding indemnity costs for the plaintiff ina liquidation application:3[5] Schedule 7 cl 1(1)(c) of the Companies Act 1993 provides in the orderof priorities for payments by liquidators:The reasonable costs of a person applying to the court for an order thatthe company be put into liquidation including the reasonable costsincurred between lawyer and client in procuring the order.Given that reasonable costs can be part of the distribution, Parliamentobviously intended the Court to have the power to order costs to that extent.That is an independent power. It is unnecessary to rely on the costs rules inthe High Court Rules 2016. Fankhauser v Strongline Buildings Ltd isauthority for awarding full solicitor/client costs to a successful plaintiff on aliquidation application.4[8] I agree that sch 7, cl 1(1)(c) provides a basis for ordering indemnity costs butconsider that awarding costs on this basis still falls within the costs rules in theHigh Court Rules 2016, as the award falls within r 14.6(1)(f) "some other reason"justifying an indemnity costs award.[9] Any award of indemnity costs under r 14.6(4) is required by r 14.6(1)(b) to bean order that "the costs payable are the actual costs, disbursements, and witnessexpenses reasonably incurred by a party". It is not therefore an order necessarily forthe full indemnification of the party to whom costs are payable, but only an indemnity2 ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556.3 Arjang v NF Global Limited [2021] NZHC 903.4 Fankhauser v Strongline Buildings Ltd [2014] NZHC 2629.in respect of that party's reasonably incurred costs. Clause 1(1)(c) of Schedule 7 refersto "reasonable costs" as well.Is there a basis for indemnity costs?[10] The plaintiff's terms of trade attached to the affidavit filed in support have beensigned on behalf of the defendant company, by Mr Mubashir Hussain Shah, and recordthat the defendant company agrees to be bound by the standard terms, that the termshad been read and understood and with the date of acceptance recorded as19 July 2022.[11] Clauses 7.1(c) and (d) of the terms of trade provide for recovery of:(a) "all amounts for any damage, losses, costs, or expenses (includingactual legal costs and expenses) arising from the default ornon-performance by the [defendant]": (cl 7.1(c)); and(b) "all actual legal costs and other costs and expenses incurred by or onbehalf of Mitre 10 in enforcing or defending all or any of its rights":(cl 7.1(d)).[12] The statutory demand served on the defendant company demanded payment of$289,715.53 and attached copies of the invoices for which payment was demanded.[13] It is clear that the debt owed to the plaintiff has arisen from the trade accountto which the terms of trade apply as the dates of the invoices attached to the statutorydemand postdate the acceptance of the terms of trade on 19 July 2022.[14] In my view, the plaintiff has established that there is a right to indemnity costspursuant to its terms of trade. In addition, even if there was not a contractual right,indemnity costs could have been awarded pursuant to r 14.6(f) and sch 7, cl 1(1)(c) ofthe Companies Act.[15] Finally in terms of the right to indemnity costs, I note that the latest invoiceincludes work preparing the costs memorandum. Costs on costs are not alwaysawarded5 but in my view such costs fall within both the contractual indemnity andcosts claimable pursuant to sch 7, cl 1(1)(c) of the Companies Act.[16] In all cases however, only indemnity costs "reasonably incurred" can beawarded. So I now consider whether the costs claimed have been reasonably incurred.Have the costs been reasonably incurred?[17] Assessing whether indemnity costs claimed under a contract have beenreasonably incurred involves the court assessing (among other things) whether thetasks undertaken were reasonably necessary and were covered by the contract, whetherthe charge-out rates were reasonable and whether any other general contract lawprinciples deny the claimant's prima facie right to judgment.6 This approach wasendorsed by the Court of Appeal in Black v ASB Bank Ltd.7[18] Copies of the relevant invoices are annexed to Ms van Biljon's affidavittogether with a schedule setting out the details of the billing reports, including detailednarrations and time spent.[19] Most of the work on the file appears to have been completed at an hourlycharge out rate of $400 but the hourly charge-out rates ranges between $300 per hourand $550.[20] A summary of the work completed for each of the invoices is also set out inthe plaintiff's memorandum.[21] The plaintiff's memorandum records that following service of the statutorydemand, a part payment of the debt was received. At that point, the plaintiff sought(and received) legal advice as to whether to proceed with liquidation or allow moretime for the defendant to pay.5 See for example DKMK Ltd v Skibo Ltd [2020] NZHC 3293 at [12].6 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].7 Black v ASB Bank Ltd [2012] NZCA 384 at [80].[22] When the liquidation proceeding was filed, the plaintiff says it discovered thatthe defendant had numerous other creditors, that legal proceedings were already onfoot, that two other creditors had obtained freezing orders over the defendant's assets(bank accounts), and that the defendant's director had fled the jurisdiction.8 Theplaintiff sought (and received) advice as to whether to seek the appointment of interimliquidators to the defendant.[23] The plaintiff submits that these circumstances have contributed to the level offees charged but nevertheless says that the fees are reasonable.[24] Finally the plaintiff's memorandum records that the following items have beenexcluded from the indemnity costs figure set out above:(a) GST;(b) bureau fees (an administrative charge intended to cover the cost of tollsand other office expenses); and(c) a small amount of work done has not yet been invoiced and has beenredacted from the billing report schedule.[25] In my view the fees charged in this case appear to have been reasonablyincurred, having regard to the work carried out. Consideration of the appropriate stepsfollowing part payment and whether an application for interim liquidators ought to bemade are steps that would fall within both the contractual indemnity and sch 7,cl 1(1)(c) and so are appropriately claimed.[26] In addition to the legal fees set out above, the plaintiff seeks recovery ofdisbursements totalling $1,682.36 (excluding GST), comprising:(a) High Court filing fee of $469.57 excl GST;8 MZ Ventures Ltd v Shah [2023] NZHC 864; Eco-Smart Homes Northwest Ltd v JenhashContracting and Consultants Ltd HC Auckland CIV 2022-404-2287, 15 December 2022; andEco-Smart Homes Northwest Ltd v Jenhash Contracting and Consultants Ltd [2023] NZHC 1183.(b) Process server fee for service of the statutory demand of $320 exclGST;(c) Process server fee for service of the liquidation application of $280 exclGST;(d) Advertising fee for the NZ Gazette of $123.20 excl GST;(e) Advertising fee for the NZ Herald of $468.89 excl GST;(f) Photocopying charges of $16.70 excl GST; and(g) PPSR search fees of $4.00 excl GST.8[27] The disbursements are all appropriate and so I make the orders as sought.Result[28] The defendant is to pay indemnity costs to the plaintiff in the amount of$11,650 in costs plus disbursements of $1,682.36 (excluding GST).______________________________Associate Judge Sussock