LITTLE REPUBLIC NEW ZEALAND LTD v KUM FU STAINLESS KITCHEN EQUIPMENT LTD [2021] NZHC 1836

LITTLE REPUBLIC NEW ZEALAND LTD v KUM FU STAINLESS KITCHEN EQUIPMENT LTD [2021]NZHC 1836 [20 July 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-1517[2021] NZHC 1836UNDER s 290 of the Companies Act 1993IN THE MATTER of an application to set aside a StatutoryDemandBETWEEN LITTLE REPUBLIC NEW ZEALANDLIMITEDApplicantAND KUM FU STAINLESS KITCHENEQUIPMENT LIMITEDRespondentHearing: On the papersCounsel: T Herbert for the ApplicantAM Swan for the RespondentJudgment: 20 July 2021COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCKThis judgment was delivered by me on 20 July 2021 at 4pmpursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors/Counsel:Forest Harrison Lawyers, AucklandTJ Herbert, Barrister, AucklandAuckland Property Legal Service, AucklandAM Swan, Barrister, AucklandIntroduction[1] Little Republic NZ Ltd has applied for indemnity costs following judgment toset aside a statutory demand for $13,828.50 issued to Little Republic by Kum FuStainless Kitchen Equipment Ltd ("Kum Fu").1 Kum Fu's position on costs is thatthey ought to be awarded on a 2B basis plus usual disbursements.[2] The statutory demand related to a contract Little Republic entered into withKum Fu for the installation of kitchen equipment at restaurant premises leased andoperated by Little Republic in Rosedale. Kum Fu claimed $13,828.50 was due andowing under an overdue invoice.[3] As set out in my judgment, I granted the application to set aside because Ifound that there was a substantial dispute as to whether a debt was in fact owing. Thiswas because of unresolved defects in the work performed by Kum Fu. Even if KumFu was correct to say – as it did over Little Republic's denials – that at the time thedemand was issued Kum Fu had no knowledge of outstanding defects, the demandought to have been withdrawn promptly once that subsequently became clear.2 As itwas, I was satisfied there was a substantial dispute between the parties even before thestatutory demand was served, such that the statutory demand ought not to have beenissued.3[4] In arriving at this conclusion, I considered the possibility of allowing thedemand to stand in reduced figures, so as to represent only the 30 per cent of theinvoice payable "before delivery" by Kum Fu.4 In the circumstances of the contract,however, I did not consider the meaning of "before delivery" to be so clear as to allowme to be satisfied there was no dispute as to whether that amount was owing. Inaddition, Little Republic disputed whether all equipment described in the contract hadin fact been delivered.1 Little Republic NZ Ltd v Kum Fu Stainless Kitchen Equipment Ltd [2020] NZHC 3478.2 At [40].3 At [41].4 At [43], referring to United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [46].[5] Having arrived at these conclusions, it was unnecessary to go on to assesswhether Little Republic had an arguable counterclaim for damages for breach ofcontract against Kum Fu which would provide them with an offset exceeding theamount demanded.[6] At the conclusion of my judgment, I held that Little Republic is entitled to costson its application.5 I recorded that Little Republic had submitted that it was an abuseof process for Kum Fu to have issued the statutory demand and to have not withdrawnit when, at numerous times prior to the hearing, it was clear that there was a disputeand that Little Republic was therefore seeking indemnity costs.[7] I recorded my view that a statutory demand should not have been issued butdeclined to make an order as to indemnity or increased costs at that time, not havingheard from counsel for Kum Fu on costs and because of the small size of the allegeddebt.6 I directed the parties instead to confer, reserving leave to file memoranda if theparties were unable to agree.[8] The parties have not agreed, and so it is necessary to determine whetherindemnity costs should be awarded.Application for Indemnity Costs[9] Counsel for Little Republic, Mr Herbert, for the reasons set out above,maintains that Little Republic is entitled to indemnity costs and disbursements in thetotal amount of $21,995.50. This claim is supported by copies of invoices. LittleRepublic also claims costs on this costs application on a 2B basis in the further amountof $956.[10] In response, counsel for Kum Fu, Mr Swan, submits that Little Republic oughtto be awarded costs only on a 2B basis. This is because, in his submission:[e]ssentially the judgment of the Court came down to the fact that the applicanthad a counterclaim for its losses (unquantified). With respect, there was nomaterial proof to support any counterclaim and the first time it was raised wasat the hearing by Counsel for [Little Republic]. The only dispute related to5 At [48].6 At [52]."speed controls". In those circumstances and without the knowledge of anycounterclaim and with only a minor dispute over speed controls it wasreasonable for the respondent to pursue its opposition.[11] For the above reasons, counsel for the respondent submits that the respondenthas not acted in a manner as set out in Rule 14.6(4)(a) justifying an award of indemnitycosts.[12] The difficulty with this submission is that the judgment did not rely on therebeing a counterclaim. The conclusion I reached was:[47] There is no question that there was a substantial dispute as to whether adebt was owing and so the statutory demand must be set aside. There is noneed to go on to consider whether there is an arguable counterclaim, but thefailure to provide speed controls and the number of other issues arising withthe works supports a conclusion that Little Republic has an arguablecounterclaim.[13] The result would therefore have been the same, counterclaim or not. I clearlydisposed of the matter on the basis that there was a substantial dispute as to whether adebt was due and owing and there had been from even before the demand was issued.7[14] Pursuant to r 14.6(4)(a) of the High Court Rules 2016, indemnity costs can beordered where:the party has acted vexatiously, frivolously, improperly, or unnecessarily incommencing, continuing, or defending a proceeding or a step in a proceeding;[15] The issuing of a statutory demand is not itself the bringing of a "proceeding"for the purposes of the Rules.8 An award of indemnity costs pursuant to r 14.6(4)(a)can only be made therefore if Kum Fu has acted improperly in opposing theapplication to set aside the statutory demand.[16] Kum Fu was on notice of the fact that the debt was disputed from before thedate on which Little Republic issued its application to have the demand set aside.Furthermore, after the statutory demand was issued but prior to the application to setaside, Little Republic engaged a third party to inspect the works, who concluded that7 At [41].8 High Court Rules 2016, r 1.3 definition of "proceeding".they were defective. Little Republic's lawyers then wrote to Kum Fu's lawyersadvising them that there were still non-compliant works that needed rectifying,confirming that the full amount Kum Fu said was owing had been deposited into LittleRepublic's lawyers' trust account and again asking Kum Fu to withdraw the demand.Kum Fu did not withdraw the demand and so Little Republic filed its application toset aside the demand.[17] The Minute issued by Associate Judge Bell on 24 September 2020 suggested amore efficient way of dealing with the dispute may be for the respondent to bring aclaim in the Disputes Tribunal but still Kum Fu persisted in its opposition.[18] Prior to the hearing, Kum Fu had its own expert inspect the works, whoconfirmed that two matters required rectifying: the distance between the fans did notcomply with the Building Consent; and there were no speed controls. Despite this,and being aware that the money outstanding was being held on trust, Kum Fu still didnot withdraw the demand.[19] In an affidavit filed with Kum Fu's submissions for the hearing it was assertedthat Kum Fu had fixed the distance between the fans so that it now complied with thebuilding consent and a $300 credit was offered for the lack of speed controls.[20] The speed controls assist in controlling the noise of the fans. At the hearing,counsel for Little Republic advised that it was not yet known whether speed controlscould be installed retrospectively or what the cost of remedying their omission wouldbe.[21] In my view Kum Fu acted improperly and unnecessarily in filing a notice ofopposition in these circumstances and so I am prepared to consider awardingindemnity costs.Quantum of Indemnity Costs[22] The next question is as to the quantum of costs sought.[23] An order for indemnity costs under r 14.6(4)(a) is defined, in r 14.6(1)(b), asan order that "the costs payable are the actual costs, disbursements, and witnessexpenses reasonably incurred by a party". As follows, it is not an order necessarilyfor the full indemnification of the party to whom costs are payable, but only anindemnity in respect of that party's reasonable costs. The Court must determine thatthe costs claimed were "reasonably incurred"; not by comparison to the sum at stake,9but by an assessment of how long ought to have been taken, the significance andcomplexity of the work, and a reasonable median hourly rate for that work.10 Wherean item of expenditure is found to have been unreasonable, it is excluded from theaward of indemnity costs, or the award in respect of that item is reduced. Similarprinciples apply to the award of disbursements.11[24] Mr Swan submits the amount claimed by Little Republic is unreasonable. Inparticular, he challenges the following claims:(a) $9,372.75 in solicitor's fees which he submits equates at a "usual"hourly rate of $300 to 27 hours' work, a number he submits is"incredible"; and(b) $4,588.50 in experts' fees, which he observes appears to relate to 20hours work for a site meeting and inspection and attendances, at acharge-out rate he considers questionable.[25] Counsel submits the Court ought to order Little Republic to provide furtherinformation and evidence regarding the breakdown of these claims, reserving leave tocounsel to file further memoranda addressing the reasonableness of these claims onceKum Fu has had an opportunity to assess the amounts claimed.[26] As noted in Mr Herbert's correspondence to Mr Swan in February 2021, andannexed to Mr Herbert's cost submissions, scale costs in this matter would be likelyto be in the region of $12,000 (closer to $13,000 in my calculation). This can be9 Edel Metals Group Ltd v Geier Ltd [2018] NZCA 494 at [62]. See also at [64].10 Bradbury v Westpac Banking Corp (2009) 18 PRNZ 859 (HC) at [204] and [209].11 High Court Rules 2016, r 14.12(2).compared with the actual costs claimed of $16,373.05 plus disbursements. That isonly approximately one-third more than the likely scale award on a 2B basis.[27] The Rules Committee fixes the daily recovery rates applicable where scalecosts are awarded to achieve, in theory, two-thirds recovery. The fact that LittleRepublic's overall claim is for less than 150 per cent or so of the likely applicable scalerate suggests the amounts claimed in respect of solicitor's and counsel's fees isreasonable.[28] As to the claim for experts' fees, it is true, as Mr Swan has stated, that theconsultants have simply described the number of hours of consultancy and otherservices provided – some 20 in total, as Mr Swan notes – and the applicable hourlyrates, as relating to a site meeting and inspection and attendances. However, justbelow that statement, it is noted that visits and attendances took place on 16 occasionsacross five months, adequately explaining the use of 20 hours. Prima facie, the feescharged appear reasonable when one considers that there were that many visits. Irecord that it is difficult for Kum Fu to complain about the number of visits when evenits experts said that the works were not compliant and required rectification.[29] Ordinarily it is expected that when indemnity costs are claimed, further detailwill be provided, with hourly rates and amount of time taken for particular tasks setout. In this case that has not happened. In the circumstances of such a small amountbeing the subject of the statutory demand so further memorandum cannot be justified,I adopt a pragmatic approach and reduce the costs awarded to $15,470 so that the totalincluding disbursements amounts to $20,000. Little Republic has recorded that it isGST registered so GST is not payable on costs for disbursements. The disbursementspayable are therefore $540 for the filing fee plus $3,990 for experts' fees, for a total of$4,530.Costs on costs memorandum[30] Finally, with the amount of $956 sought for preparing the costs memorandum,I observe that the Courts are generally reluctant to award "costs on costs", that is, anaward of costs for making submissions on the award of costs.12 Generally speaking,an award of costs on costs will be appropriate where some complexity or genuinedispute arises in relation to the availability of costs or their quantum, and the successfulparty has gone to considerable time and expense addressing that ambiguity over theunsuccessful party's reasonable opposition. The position here is quite different. WhileKum Fu ought not to have opposed the award of costs, Little Republic has been put tolittle effort and cost in successfully outlining its position.[31] For all of the above reasons, I decline to award costs for the preparation of thecosts memorandum.Result[32] I award Little Republic costs in the amount of $15,470 plus disbursements of$4,530, all GST exclusive.______________________________Associate Judge Sussock12 See Nisha v LSG Sky Chefs New Zealand Ltd (No 2) [2018] NZEmpC 33, [2018] ERNZ 108 at[11] - [18]. Strata Title Administration Ltd v Body Corporate Administration Ltd [2014] NZCA96 at [10] - [14]. For a recent example, see Combined Property Maintenance v Singh [2021]NZHC 621 at [19] fn 12.