HRW INVESTMENTS LIMITED V GDP LIMITED HC AK CIV 2011-404-3964

HRW INVESTMENTS LIMITED V GDP LIMITED HC AK CIV 2011-404-3964 22 July 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2011-404-3964BETWEEN HRW INVESTMENTS LIMITEDApplicantAND GDP LIMITEDRespondentHearing: 20 July 2011(Heard at Auckland)Appearances: R B Hucker for ApplicantM L Broad for RespondentJudgment: 22 July 2011JUDGMENT OF ASSOCIATE JUDGE OSBORNEas to costs and other mattersThis judgment was delivered by me at 3:00pm on 22 July 2011 pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy Registrar[1] The fact that this judgment has to be delivered suggests that there has been, at least on the part of some participants, a loss of perspective. A statutory demand was issued for $2,308.08. Following application by HRW, there is no opposition to the setting aside of the demand. But at that point, counsel are instructed to appear before me to make competing submissions as to costs, and in one case, to prepare and file an affidavit and written submissions in relation to costs.[2] It is not a happy day when parties have counsel before this Court arguing the toss over costs in relation to a claim of $2,308.08. The parties may have proved themselves unable to deal with these matters economically, but the Court must deal with them judicially.The respondent's claim[3] The respondent seeks costs on a 2B basis.[4] This would mean –CostsItem 25 (originating application supporting affidavits) 1.6 daysItem 28 (appearance at conference) 0.3 daysSubtotal 1.9 daysCategory 2 being $1,880.00 per day x 1.9 equals $3,572.00Plus disbursementsFiling fee $400.00Service (not specified)[5] The applicant (opposing costs) says in the alternative that if costs are allowed, they should be preferably on a 1A basis, but if not that, on a 2A basis.[6] A 2A award would mean:CostsItem 25 0.8 daysItem 28 0.3 daysSubtotal 1.1 daysCategory 2 being $1,880.00 per day x 1.1 equals $1,375.00Plus disbursementsAlternatively, a 1A calculation would mean:Costs(a) Item 25 0.8 days(b) Item 28 0.3 daysSubtotal 1.1 daysCategory 1 being $1,250.00 per day x 1.1 equals $1,375.00Plus disbursementsPrinciples[7] The paramount principle is that costs are at the discretion of the Court (r14.1) but there needs to be good reason for departing from the "primary principle" asto costs following the event: International Airline Trading (NZ) Ltd v Rohlig NZ LtdHC Auckland CIV-2003-404-3464, 23 February 2004 per Master Faire at [15].[8] The primary principle in relation to this interlocutory application, as in relation to any other civil proceeding, is that the unsuccessful party should pay costs: r 14.2(a) High Court Rules.[9] Costs are generally awarded against the unsuccessful party on a Category 2B basis: see the commentary in Brookers Insolvency Law & Practice at CA 290.08.The subject matter of the respondent's demand[10] The respondent's demand of $2,308.08 was stated to be for "services performed". Mr Russell and Mr Whitley had, with another, come together as shareholders of the applicant company which was then registered in October 2010. The background to the demand is put in this way by Mr Russell in his affidavit:Kevin Whitley and Stuart Herron had agreed at our last board meeting of HRW Investments Limited in late March 2011 to pay the account as per the payments that had been made since November 2010. The original contract was until end of December 2010. Messrs Herron and Whitley agreed tocontinue the payment structure as it was for a following three months in January 2011. The unpaid amount is for the month of March 2011.[11] Mr Whitley has produced the deed of arrangement between the parties (and others) dated 4 October 2010 which provided that Mr Russell would be paid (by HRW) $400.00 per week for the first three months. The deed provided that any future salary was to be paid by demonstrated profits and to be agreed by the shareholders by a 75 percent majority.[12] For his part, under the deed, Mr Russell had obligations to perform in terms of payments to other parties.[13] It is common ground between the parties that although the deed provided for payments to Mr Russell he, on occasions asked that the monies be paid to the respondent (GDP Limited). Mr Whitley deposes that (notwithstanding those requests) there has never been any agreement by the other parties to the deed to assign any entitlement which Mr Russell has to GDP.[14] It is common ground that the payments to which Mr Russell was entitled under the deed were made as required for the first three months. No evidence has been produced by Mr Russell as to the agreement of shareholders subsequent to that period, nor as to demonstrated profits after that period.[15] It is apparent from the evidence of Mr Whitley that issues must have arisen between the parties. Mr Whitley refers to Mr Russell as having failed to make certain payments which were required by the deed to have been made to other parties. Mr Whitley deposes that HRW never achieved a profit let alone a demonstrated profit. He deposes that the weekly repayments were stopped and that Mr Russell was informed of that.[16] Although Mr Russell has filed an affidavit, he has not taken issue with anumber of Mr Whitley's statements.[17] In the event GDP agreed, one week after this application was filed by HRW, to withdraw its demand. GDP says it should nevertheless not be required to pay the costs of the application.GDP's submissions on costs[18] Mr Broad, for GDP, submitted that the usual approach should not apply in this case and that costs should be left to lie where they fall for two reasons.[19] The first reason was that HRW had not replied to a letter of demand sent by GDP. Paul Russell, a director of the respondent company, exhibited a letter of demand sent by Waterstone Recovery Limited, a debt recovery firm, to HRW on 14 June 2011. The letter identified the debt subsequently demanded in the statutorydemand ($2,308.08), added to it "collection costs" of $575.70, creating a "Total Owing" of $2,883.73 and indicated that a failure to settle the debt might result in alegal proceeding against the applicant. The letter also said that "we will be listing this default with Veda Advantage in seven days".[20] I am not prepared to attach any weight to the letter of demand sent by Waterstone. I am personally unfamiliar with the practice apparently adopted by this company, or indeed the practice within the region in which it operates. The Waterstone letter is not simply a letter requesting payment of the debt. It is a letter which purports to state that the debt ("the Total Owing") now is $2,883.73, a sumrepresenting 25 percent more than the debt claimed by GDP. The letter states thatHRW's credit rating will be impacted if the full $2,883.73 is not paid. TheWaterstone letter of demand does not indicate that as a matter of law the applicant would be entitled to settle its debt (if indeed it is a debt) by paying the amount of the debt itself.[21] I am not prepared to treat a letter of the nature sent by Waterstone as, in any sense, a matter which is to the credit of GDP in this proceeding. As a prelude to the issue of a statutory demand for $2,308.08, the Waterstone letter of 14 June 2011 was not a helpful or constructive step.[22] The second reason advanced by Mr Broad for the proposition that costs should lie where they fall was that Waterstone, on 1 July 2011, asked counsel forHRW to provide particulars or details of HRW's dispute, on 1 July 2011 but counseldid not do so.[23] An exchange of emails on 1 July 2011 is in evidence. The email exchange discloses that Mr Hucker for HRW had contacted Waterstone in the morning of 1 July 2011 to advise that an application to set aside the statutory demand would be prepared and filed if Waterstone did not confirm by 2.00 pm that day that the statutory demand would be withdrawn. A "Debt Recovery Officer" at Waterstoneresponded at 3.00 pm to the effect that she had been unable to contact GDP. Mr Hucker responded that he had had to start drafting the necessary documents to apply to set aside the statutory demand. His email indicated that GDP was agreeable to the statutory demand being withdrawn without any costs without prejudice to the statutory demand being reissued later (so that Waterstone could obtain instructions in the meantime).[24] Waterstone responded by email referring to the history of accounts and demands, noting that Mr Hucker had declined to advise Waterstone of the disputeand asking whether he would like to advise them in writing of what the applicant'sdispute is in relation to the debt.[25] Mr Hucker then went ahead and finalised the proceedings on behalf of the applicant, filing the application on the next working day (Monday, 4 July 2011). Mr Broad submitted that if Mr Hucker had provided to Waterstone particulars of the matters in dispute, then GDP could have considered HRW's grounds for disputingthe debt and would have had an opportunity to withdraw the statutory demand upon the provision of particulars.HRW's submissions on costs[26] Mr Hucker submitted that the exchange relied upon by GDP (the exchange between Waterstone and himself) should not affect the appropriate costs order in this case. As a general proposition, he noted the tightness of the statutory demandregime (10 working days within which to apply to set the demand aside) and suggested that there is therefore no general requirement that a debtor put in writing the basis of its dispute. The onus is on the creditor to have satisfied itself that the debt is indisputable.[27] As a general approach, I favour Mr Hucker's submission, so far as it applies to the consideration of costs. There may very occasionally be cases where the nature of the dispute which leads to the withdrawal of a statutory demand was not reasonably able to be contemplated. Such cases might constitute an exception to the approach to what I consider the correct general approach. In most cases, including this, the general nature of background facts which give rise to a dispute are likely to have been within the common knowledge of both parties. That is the case here where there is a background of issues between shareholders, inter-company transactions, a contract of retainer, and a cessation of arrangements.Conclusion – costs against GDP[28] Against the background I have outlined, and in the light of the absence of any argument as to whether a genuine dispute existed or not, it is appropriate to treat this as a case where the statutory demand has been withdrawn because of the merits of the application.[29] The applicant, having been content in its application for costs to pursue costs on a 2B basis, I adjudge it appropriate that costs be on a 2B basis.Costs against Waterstone Recovery Limited[30] When HRW's solicitors were seeking to have the statutory demandwithdrawn before the application was filed, warning was given that a claim for costs would be made against Waterstone Recovery Limited as the entity which had issued the demand.[31] Similarly, when Waterstone on 11 July 2011 told Mr Hucker that the statutory demand had been withdrawn, Mr Hucker had advised Waterstone that costs would be sought against Waterstone itself (in addition to costs against the respondent).[32] At the hearing of HRW's application, Mr Hucker indicated that HRW wascontent, for now, to focus on costs recovery as against GDP and that HRW seeks instead a reservation of costs issues as between HRW and Waterstone as a non-party.I record Mr Hucker's indication that costs would be pursued against Waterstone onlyin the event that GDP fails to promptly pay any costs order.[33] While Mr Broad indicated that any application for recovery against Waterstone would be opposed, upon the basis that the only information available to Waterstone was through the email exchanges of 1 July 2011, he appropriately did not oppose the matter being dealt with, for the time being, upon the basis of a reservation of this costs issue.[34] In the circumstances, I will be making an order reserving costs as between HRW and Waterstone. It is unlikely, if any costs award were to be made against Waterstone Recovery Limited, that it would be for any sum in excess of that awarded against GDP itself. Any award would also have to avoid the prospect of any duplication of payment of costs. On the other hand, there is clearly room for HRW to argue in this case that the non-party does have a responsibility for which it should be held accountable in a costs context. This is arguably not a case of mere agency in issuing a demand. I refer, in particular, to the direct part which Waterstone played in the wording and threats of the letter of demand dated 14 June 2011. In the event, I am not called upon at this point to reach a concluded view in this regard.Orders[35] I order –(a) The statutory demand issued by the respondent to the applicant on 21 June 2011 is hereby set aside.(b) The respondent is to pay to the applicant the costs of this application in the sum of $3,572.00, together with disbursements to be fixed by the Registrar.(c) I reserve the question as to whether there should be a costs order against Waterstone Recovery Limited as a non-party in this case. (In these circumstances, I request counsel for the respondent forthwith to bring to the attention of Waterstone Recovery Limited a copy of this judgment).____________________Associate Judge OsborneSolicitors:Hucker & Associates, PO Box 3843, Shortland Street, Auckland 1140Kensington Swann, Private Bag 92101, Auckland 1142