MARKET GARDENERS LIMITED v MCMILLAN & LOCKWOOD AUCKLAND LIMITED[2023] NZHC 2011

MARKET GARDENERS LIMITED v MCMILLAN & LOCKWOOD AUCKLAND LIMITED[2023] NZHC 2011 [31 July 2023]IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYI TE KŌTI MATUA O AOTEAROATE PAPAIOEA ROHECIV-2023-454-12[2023] NZHC 2011BETWEEN MARKET GARDENERS LIMITEDApplicantAND MCMILLAN & LOCKWOODAUCKLAND LIMITEDRespondentHearing: On the papersAppearances: G N Gallaway and W J Hamilton for ApplicantA J B Holmes and N Gillies for RespondentJudgment: 31 July 2023JUDGMENT OF ASSOCIATE JUDGE SKELTON[Costs][1] On 17 May 2023, the applicant's application to set aside the statutory demandissued by the respondent was discontinued as a result of payment of the debt, subjectto the issue of costs.[2] The parties have been unable to agree on costs and memoranda have been filed.The respondent seeks indemnity costs, or alternatively increased costs, or alternativelyincreased scale costs. The applicant says that costs should lie where they fall.Background[3] The matter involves a construction contract between the applicant (asprincipal) and the respondent (as builder).[4] The respondent served a payment claim (payment claim 18) on the applicanton 31 May 2022.[5] A payment schedule was issued in response on 12 June 2022. An invoice wasraised, and the scheduled amount was paid.[6] Subsequently, on 20 February 2023, the respondent contended that the paymentschedule had been served one day late and was, in any event, non-compliant. Therespondent contended that this gave rise to a debt due under the Construction ContractsAct 2002.[7] On 21 February 2023, the respondent issued a statutory demand.[8] The applicant filed its application to set aside the statutory demand on 6 March2023. The applicant contended that payment claim 18 was invalid, and that it hadserved a valid payment schedule in response.[9] Prior to filing its opposition, the respondent commenced adjudicationproceedings under the Construction Contracts Act, seeking determination of the issueswith regard to payment claim 18 and the payment schedule in response.[10] The respondent also filed a notice of opposition to the application to set asidethe statutory demand on 20 March 2023.[11] The adjudicator's determination was issued a few days before the first call ofthis matter on 17 May 2023. The adjudicator determined that:(a) payment claim 18 was valid;(b) the payment schedule served in response was not valid;(c) $1,671,089.42 plus GST was a debt due and payable by the applicantto the respondent.[12] The applicant then paid the amount owing to the respondent in accordance withthe adjudicator's determination.[13] At the first call of this proceeding, the applicant sought leave to discontinuethe application to set aside the statutory demand. Leave was granted and theapplication to set aside the statutory demand was discontinued, subject to the issue ofcosts which has not been agreed between the parties.Legal principles[14] Costs are ultimately a matter of the Court's discretion, the overall objectivebeing to achieve an outcome that best meets the interest of justice.1 That discretion isqualified by the applicable costs rules, contained in pt 14 of the High Court Rules2016. The primary principle applying to the determination of costs is that costs followthe event – meaning that a party who is unsuccessful pays costs to a party who issuccessful.2[15] The Court may order a party to pay increased costs where that party hascontributed unnecessarily to the time or expense of the proceeding or a step in it.3Increased costs may be awarded where there is a failure by the paying party to actreasonably.4 An example is failing, without reasonable justification, to accept an offerof settlement whether in the form of an offer under r 14.10 or some other offer to settleor dispose of the proceeding.5[16] The Court may also award the actual costs reasonably incurred by a party(indemnity costs).6 Indemnity costs may be awarded where a party has behaved eitherbadly or very unreasonably.7 For example, indemnity costs may be ordered if the party1 High Court Rules 2016, r 14.1; Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109,[2013] 1 NZLR 305 at [7] and [16]; Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606(CA) at [21]–[24] and [28]; and Mansfield Drycleaners Ltd v Quinny's Drycleaning(Dentice Drycleaning Upper Hutt Ltd) (2002) 16 PRNZ 662 (CA) at [27].2 High Court Rules, r 14.2(1)(a).3 Rule 14.6(3)(b).4 See Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].5 High Court Rules, r 14.6(3)(b)(v).6 Rule 14.6(1)(b).7 Bradbury v Westpac Banking Corp, above n 4, at [27]–[28]; and Prebble v Awatere Huata (No. 2)[2005] NZSC 18, [2005] 2 NZLR 467 at [6].has acted vexatiously, frivolously, improperly, or unnecessarily in commencing,continuing, or defending a proceeding or step in a proceeding.8 Indemnity costs mayalso be awarded if the party claiming costs is entitled to indemnity costs under acontract or deed.9Who is the successful party?[17] The respondent relies on r 15.23 of the High Court Rules, which provides thatunless the defendant otherwise agrees or the Court otherwise orders, a plaintiff whodiscontinues a proceeding against a defendant must pay costs to the defendant up tothe discontinuance. However, it seems that the presumption in r 15.23 does not applyto an application to set aside a statutory demand.10[18] The applicant does not accept that the adjudication determination vindicatesthe respondent's decision to issue the statutory demand. The applicant submits that themerits of the respondent's underlying claims have not been determined and are still tobe litigated.[19] In the circumstances, I consider that respondent has been successful for thepurposes of costs on this proceeding. The applicant accepted the adjudicationdetermination that the payment claim was valid, the payment schedule in response wasnot valid, and therefore there was a debt due under s 23 of the Construction ContractsAct. That debt was the subject of the statutory demand. The applicant paid the debtand then discontinued the application to set aside the statutory demand. In my view,the fact that the merits of the respondent's underlying claims have not yet beendetermined and are still to be litigated is not relevant to the issue of costs on thisproceeding.[20] As stated by Associate Judge Bell in Greys Avenue Investments Ltd vNew Zealand Mint Ltd:118 High Court Rules, r 14.6(4)(a).9 Rule 14.6(4)(f).10 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at[HR15.23.08]; and Greys Avenue Investments Ltd v New Zealand Mint Ltd [2015] NZHC 2633 at[25]-[27], [30], [32].11 Greys Avenue Investments Ltd v New Zealand Mint Ltd, above n 10, at [33].[33] Even if a company does not comply with a demand, it may avoida liquidation application by paying the debt or making other arrangementswith the creditor after the time for complying with the demand has expired.Such arrangements may be made in the context of a setting aside application.If the outcome is that the creditor is paid or arrangements are made forpayment, the creditor will be vindicated. If the creditor agrees to withdrawthe demand as part of those arrangements, that does not make the creditor theloser. There is no reason to require the creditor to pay costs. The situation islittle different from those of creditors who withdraw bankruptcy or liquidationapplications on being paid or accepting arrangements for payment. They areinvariably entitled to costs.[21] The applicant contends that costs should lie where they fall in this case on twogrounds:(a) the respondent did not act responsibly in issuing the statutory demand;and(b) the respondent elected to engage in duplicate proceedings and thereforechose to incur the costs it now claims.[22] With regard to the first ground, the applicant refers to the principles set out inMitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd withregard to determining costs relating to the withdrawal of a statutory demand:12[21] The following principles are relevant to determining costs relating tothe withdrawal of a statutory demand:(a) The party who issues a statutory demand needs to have adegree of assurance that there is no reasonable argumentagainst the debt demanded.(b) The use of a statutory demand for debt collection purposesrather than proving the insolvency of a company is improper.(c) The issuing of a statutory demand is a very serious matter. Therecipient of a statutory demand must act quickly in order toavoid the statutory consequences of failing to comply with thedemand.(d) A company wishing to issue a statutory demand should do sothrough a solicitor. As an officer of the court, a solicitor hasan overriding obligation to evaluate whether in law a demandis sustainable before issuing such a demand.12 Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd [2013]NZHC 3077 at [21] (footnotes omitted).[23] However, as noted above, the adjudication determination established that thedebt was due under 23 of the Construction Contracts Act. The applicant accepted thatdecision and paid the amount due. Further, with respect to the use of a statutorydemand for debt collection purposes, the Court of Appeal has emphasised that thepurposes of a statutory demand are not limited to being used to prove the insolvencyof a company in anticipation of liquidation but can legitimately be used to recover adebt even where liquidation is not in prospect.13 Even though it seems that thestatutory demand was not issued through a solicitor, and was issued promptly afterthe letter of demand, I do not consider that the respondent failed to act responsibly inissuing the demand.[24] With regard to the second ground raised by the applicant, again I do notconsider that the approach taken by the respondent in this case disentitles it to costs.I agree with counsel for the respondent that the situation is similar to the situation inGreys Avenue Investments Ltd v New Zealand Mint Ltd. In that case,Associate Judge Bell stated:14[54] In general there is no objection to pursuing more than one remedy atthe same time (as opposed to asserting inconsistent rights). By way ofexample, in guarantee law it is well established that a creditor may pursueseveral remedies at once: the debtor, securities and the guarantor. In anapplication to set aside a statutory demand, an argument as to alternativeremedies being available would have to be run under the "other grounds" limbunder s 290(4)(c). Liability for the debt would not be disputed and there is nobasis for a counterclaim or set off. The best shot in an "other grounds"argument might be to allege that the use of the demand is oppressive, but thatis an optimistic submission.[55] In this case, New Zealand Mint Ltd has used more than one remedy.When it tried the statutory demand, it ran into opposition. On the other hand,the right of deduction in the amended lease worked. It no longer continuedwith the statutory demand. But that abandonment does not mean that it hasgiven away its position as creditor for the amount in the demand. Its electionto continue with a more efficient alternative remedy does not count against it.[25] The applicant relies on the decision in Country Land Ltd v White Pine HoldingsLtd.15 In that case, the creditor served statutory demands and issued summary13 Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at[33]-[34].14 Greys Avenue Investments Limited v New Zealand Mint Limited, above n 10, at [54]–[55](footnotes omitted).15 Country Land Ltd v White Pine Holdings Ltd [2012] NZHC 2903 at [26] and [30].judgment applications, requiring the company to deal with contested liability induplicate proceedings. The Court held that such double recovery action wasoppressive. However, in Greys Avenue Investments Ltd, the Court distinguishedCountry Land Ltd on the basis that the "double vexation element is absent here".16[26] It is well established that a claimant has a choice as to the manner in which itseeks recovery of a debt under the Construction Contracts Act including the issue of astatutory demand, summary judgment proceedings and adjudication. In RedhillDevelopment (NZ) Ltd v Green, in the context of enforcement of a debt due under theConstruction Contracts Act, Lang J held that:17[49] Finally, I accept HEB's submission that the plaintiffs' interpretationdoes not adequately recognise that s 23(2) provides, as a consequence of anyfailure by the developer to issue a payment schedule within time, that theclaimant may enforce payment of the claim as a debt due in court proceedings.The use of the permissive word "may" rather than the mandatory word "must"is important. It demonstrates that the claimant may select the manner in whichit wishes to enforce the debt. That is consistent with the scheme of the Act,which permits the parties to a construction contract to have disputes betweenthem determined in the forum of their choice. It also permits them to use morethan one forum simultaneously in respect of the same dispute: s 26.[27] In the present case, I do not consider that the use of the statutory demand,followed by the commencement of adjudication, was oppressive, or an abuse ofprocess, or gave rise to a "double vexation element". Rather, as in Greys AvenueInvestments Ltd,18 the respondent tried the statutory demand first and ran intoopposition when the applicant applied to set aside the statutory demand. Therespondent then also made use of the adjudication procedure under the ConstructionContracts Act, which ultimately resulted in a determination against the applicant, andthe applicant accepted that determination and paid the debt.[28] I do not consider that, having commenced the adjudication proceedings, therespondent should necessarily have withdrawn the statutory demand as contended bythe applicant. As noted in the submissions on behalf of the applicant, one outcome of16 Greys Avenue Investments Limited v New Zealand Mint Limited, above n 10, at [54] fn 20.17 Redhill Development (NZ) Ltd v Green HC Auckland CIV-2009-404-3784, 5 August 2009 at [49];and see also ss 26 and 27 of the Construction Contracts Act 2002.18 Greys Avenue Investments Limited v New Zealand Mint Limited, above n 10, at [55].that approach could have been that the respondent was liable for costs in respect of theapplication to set aside the statutory demand. Instead, it seems that the respondentwished to preserve its position regarding the statutory demand pending the outcomeof the adjudication proceedings. I consider this was a reasonable approach in thecircumstances.[29] In summary, I consider that the respondent is entitled to costs.Indemnity costs[30] The respondent bases its claim for indemnity costs on s 23(2)(a)(ii) of theConstruction Contracts Act. The provision provides as follows:23 Consequences of not paying claimed amount where no paymentschedule provided(2) The consequences are that the payee—(a) may recover from the payer, as a debt due to the payee, in anycourt,—(ii) the actual and reasonable costs of recovery awardedagainst the payer by that court; and[31] The applicant submits that section 23 does not mandate an award of indemnitycosts, and refers to Cubo Projects Ltd v S & S Import Solutions Ltd.19 In that case,Associate Judge Johnston considered s 23(2)(a)(ii) in the context of a case where theplaintiff had commenced liquidation proceedings after the defendant had ignored astatutory demand, but the matter was ultimately settled without the need for a hearing.Associate Judge Johnston found that:20[6] The principles contained in the High Court Rules are uncomplicatedand well known. Whilst costs are always a matter for the Court's discretion,the successful party is generally entitled to a costs award unless there is19 Cubo Projects Ltd v S & S Import Solutions Ltd [2020] NZHC 3234.20 At [6]-[7].disentitling behaviour of some sort. That is not suggested here. As to quantum,invariably costs are awarded according to scale.[7] On its face, s 23(2)(a)(ii) of the Construction Contracts Act cuts acrossthose principles, but the entitlement, if that is the correct term, is to "actualand reasonable costs," and the requirement of reasonableness engages thepoints made by Mr Manktelow as to the scale of the proceeding and the wayin which it was ultimately disposed of.[32] The applicant also submits that the cases relied on by the respondent assupporting awards of costs under s 23(2)(a)(ii) are distinguishable. That is becausethey involve applications to set aside statutory demands or defended applications forsummary judgment that proceeded to a hearing and were dealt with on the merits.21[33] Some consideration of proportionality is always required in assessing whethercosts claimed under s 23(2)(a)(ii) are reasonable and not excessively high, and theCourt must be satisfied that the costs have been properly incurred.22 The size andnature of the claim are important factors in assessing reasonableness.23[34] In my view, the fact that the application to set aside the statutory demand didnot proceed to a hearing should not bar recovery of costs under s 23(2)(a)(ii).However, I consider that the way in which a proceeding has been disposed of is afactor that should be taken into account.24[35] I have reviewed the respondent's claim for actual costs of recovery includingthe invoices submitted. I am satisfied that the rates and hours worked are reasonableand that the costs have been properly incurred.[36] I do not consider that the size and nature of the claim warrants any reductionin the costs claimed as the amount claimed by the respondent as a debt due wassubstantial, being $1,671,089.42 plus GST.[37] However, I accept the submission on behalf of the applicant that it actedresponsibly and promptly in paying the debt due and seeking leave to discontinue the21 For example, Watts & Hughes Construction Ltd v Complete Siteworks Company Ltd [2014]NZHC 2600 at [13].22 Above n 21 and Demasol Limited v South Pacific Industrial Limited [2022] NZCA 480 at [63].23 Watts & Hughes Construction Ltd v Complete Siteworks Company Ltd, above n 21, at [13].24 Cubo Projects Ltd v S & S Import Solutions Ltd, above n 19, at [7].application to set aside the statutory demand at the first opportunity following theadjudication determination being issued. In the circumstances, I propose to recognisethis by reducing the respondent's claim for costs by 20 per cent.[38] With this deduction, the respondent is entitled to costs in the sum of $9,705.60and disbursements of $315.65.[39] In the circumstances, it is not necessary for me to determine the respondent'sclaim for increased or scale costs. I note that any award of increased costs in this casewould not have exceeded the amount that has been awarded under s 23(2)(a)(ii).Result[40] The respondents are entitled to costs in the sum of $9,705.60 anddisbursements of $315.65.Associate Judge SkeltonSolicitors:Chapman Tripp, Christchurch for applicantHesketh Henry, Auckland for respondent