NEW ZEALAND SUPERFOOD AND COMPANY LIMITED v AD INTERNATIONAL CO. LIMITED [2023] NZHC 3114

NEW ZEALAND SUPERFOOD AND COMPANY LIMITED v AD INTERNATIONAL CO. LIMITED [2023]NZHC 3114 [8 November 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2023-404-429[2023] NZHC 3114BETWEEN NEW ZEALAND SUPERFOOD ANDCOMPANY LIMITEDApplicantAND AD INTERNATIONAL CO. LIMITEDRespondentHearing: On the papersAppearances: Michael J Robinson/Catherine Pendleton for the ApplicantSeungmin Kang for the RespondentJudgment: 8 November 2023COSTS JUDGMENT OF ASSOCIATE JUDGE C B TAYLORThis judgment was delivered by me on 8 November 2023 at 3:00pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Turner Hopkins Solicitors (M J Robinson/C J Pendleton), Takapuna, for the ApplicantFairbrother Family Law (Seungmin Kang), Napier, for the RespondentIntroduction[1] On 22 February 2023 NZ Superfood and Company Limited (NZ Superfood)received a statutory demand from AD International Co. Ltd (AD International). On8 March 2023, NZ Superfood made an application to set aside the statutory demand.On 4 August 2023, the Court gave judgment in favour of NZ Superfood, grantingNZ Superfood's application to set aside AD International's statutory demand(the Judgment).[2] At [69] of the Judgment, counsel were directed to endeavour to agree costs,failing which counsel were to file memoranda as to costs. Counsel for NZ Superfoodfiled a memorandum dated 1 September 2023, counsel for AD International filed aresponse dated 8 September 2023, and counsel for NZ Superfood filed a reply dated14 September 2023.NZ Superfood's submissions[3] NZ Superfood submits that as the successful party it is entitled to costs which,under r 14.2(1)(a) of the High Court Rules 2016, should follow the event. Counselsubmits that NZ Superfood was entirely successful in this proceeding because:(a) the Court found there are substantial and genuine disputes between theparties;(b) NZ Superfood did not need to rely on the argument regarding theagency/contractual parties because, in any event, there were clearlysubstantial and genuine disputes between the parties;(c) therefore NZ Superfood was successful in its application to set asidethe statutory demand.[4] NZ Superfood submits it is entitled to full-scale costs and disbursements in thisproceeding which, calculated on a 2B basis, amount to $13,870.66.Costs on an indemnity/increased costs basis[5] NZ Superfood seeks legal fees on an indemnity or increased costs basis. Thegrounds on which counsel submits indemnity/increased costs are justified are asfollows:(a) Prior to the issuing of the statutory demand, the NZ Superfood raiseddisputes with AD International in respect of the amounts later claimedin the statutory demand and accordingly AD International was on priornotice that the amounts claimed were genuinely disputed and thereforethat the statutory demand process was inappropriate in thecircumstances.(b) On 3 March 2023, NZ Superfood sent a letter to AD Internationalrequesting the withdrawal of the statutory demand and in the letteradvised AD International that there as a genuine and substantial disputeas to the alleged debt and therefore, if the statutory demand was notwithdrawn, then NZ Superfood reserved the right to place the letterbefore the Court and seek an uplift in costs. AD International did notaccept the offer and failed to withdraw the statutory demand.(c) On 22 March 2023, NZ Superfood sent to AD International a lettersetting out details of the genuine and substantial dispute in detail. Theletter also contained a Calderbank offer for a full refund of the goods.AD International did not accept this offer and failed to withdraw thestatutory demand.[6] Counsel submits that subsequent to the judgment NZ Superfood sent thefollowing settlement offer in respect of costs, on a 'without prejudice save a to costs'basis:(a) Scale costs and disbursements: $13,870.66(b) Actual legal costs in responding to the statutory demand includingdisbursements: $20,005.00(c) Without prejudice save as to costs in thesettlement offer in respect of costs: $16,000.00[7] Counsel for NZ Superfood submits that it is appropriate that NZ Superfood beawarded indemnity costs, including the costs of preparing these submissions as tocosts (being $1,400.00 plus GST) in accordance with the principles in Calderbank vCalderbank.1 Indemnity costs total $21,300.00.AD International's submissionsIndemnity or increased costs[8] Counsel for AD International submits that neither of NZ Superfood's lettersdate 3 March 2023 nor dated 22 March 2023 warrants indemnity or increased costs inthe light of r 14.6 of the High Court Rules and the principles of Calderbank, for thefollowing reasons:(a) In the letter of 3 March 2023 NZ Superfood's main claim was the denialof the contractual relationship between the parties, which was rejectedby the Court, and while it further stated that "the alleged debt isdisputed" there were no particulars provided in support;(b) In the letter of 22 March 2023 NZ Superfood advanced two mainclaims:(i) the denial of the contractual relationship between the parties,which was rejected by the Court, and(ii) AD International's alleged reaffirmation of the contract inNovember 2021 and February 2022. However the latter was1 Calderbank v Calderbank [1975] 3 All ER 333.not the issue discussed during the hearing and upheld by theCourt in NZ Superfood's favour.[9] Counsel for AD International submits that AD International equally respondedto the letters dated 3 March 2023 (and made Calderbank offers) on 13 March 2023,and 24 March 2023 respectively. Counsel submits that because AD Internationalreasonably attempted to settle the matter and has been partially successful inestablishing there was a contractual relationship between the parties, it is notappropriate to award costs on an indemnity or increased basis.Scale costs[10] Counsel for AD International makes the following submissions in response toNZ Superfood's application for scale costs on a 2B basis:(a) 1A scale costs are more appropriate in the light of rr 14.3 and 14.5(2)as this proceeding could by junior counsel in the High Court where:(i) setting aside a statutory demand in general is relativelystraightforward in nature;(ii) in particular, this case involved a small amount(about $51,750.00) falling far short of the normal High Courtjurisdiction.(b) Item 42 - the court appearance should be based on "the actual time"occupied by the hearing measured in quarter days rather than how longit was initially allocated for. The hearing continued from 10:05am until11:15am and therefore counsel submits the time should be reducedfrom 0.5 days to 0.25 days.(c) Awarding costs for preparation of a memorandum of costs is not as ofright and is inappropriate in this case. As it shown, letters sharedbetween the parties as to costs, with genuine disputes as to costs(including the items for scale costs) and therefore AD Internationalcannot be seen as having unreasonably declined NZ Superfood'sproposal of costs.[11] Counsel submits scale costs on a 1A basis are $3,736.50.Reduction in costs[12] Counsel for AD International submits there should be a reduction from scalecosts under r 14.7 due to NZ Superfood's unsuccessful claims as follows:(a) removing item 11 for filing another joint memorandum on 13 April2023 at the initiative of and for the benefit of NZ Superfood seeking tovacate the hearing allocated on 27 June 2023, which was unsuccessful;and(b) a 40 per cent further reduction from items 37, 40, 41 and 42 for NZSuperfood's unsuccessful pursuit of the claim that the parties had nocontractual relationship, despite AD International having put it on clearnotice by its letters of 13 March 2023 and 24 March 2023.Disbursements[13] Counsel for AD International also disputes the service fee of $262.66 forengaging a process-server which counsel submits was unnecessary where emailservice to counsel, as stated in the statutory demand on 8 March 2023 at 3:22pm werealready sufficient under r 19.12A(2).[14] In conclusion, counsel for AD International submit an award of costs of$2,051.10 and disbursements of $1,180.00.Legal principles[15] It is clear from the authorities that a high threshold must be passed before anorder for indemnity costs is to be made. In Bradbury v Westpac Banking Corp theCourt of Appeal summarised the distinction between the three broad approaches tocosts as follows:2(a) a standard scale applies by default where cause is not shown to departfrom it;(b) increased costs may be ordered where there is a failure by the payingparty to act reasonably; and(c) indemnity costs may be ordered where that party has behaved eitherbadly or very unreasonably.[16] In Bradbury, the Court of Appeal endorsed Goddard J's remarks as to some ofthe categories in which indemnity costs have been ordered:3(a) The making of allegations of fraud, knowing them to be false and themaking of irrelevant allegations of fraud;(b) particular misconduct that causes loss of time to the court and to otherparties;(c) commencing or continuing proceedings with some ulterior motive;(d) doing so in wilful disregard of known facts or clearly established law;or(e) making allegations which ought never to have been made or undulyprolonging a case by groundless contentions summarised in French J's"hopeless case" test.2 Bradbury v Westpac Banking Corp [2009] NZCA 234; [2009] 3 NZLR 400; (2009) 19 PRNZ 385at [27].3 Bradbury, above n 10, at [29].Result[17] In my view NZ Superfood is awarded costs on a 2B basis, adjusted as set outat [18] below. The reasons for this are:(a) As has been noted above at [15] in relation to the decision in Bradburyv Westpac Banking Corp,4 indemnity costs are appropriate where theparty has behaved either badly or very unreasonably. In my view,AD International has not reached this standard of behaviour andtherefore indemnity costs are not justified.(b) Increased costs are not justified. NZ Superfood has pursued theargument relating to the contractual party as its principal argument orreaffirmation of the contract in November 2021 and February 2022 anddid not enunciate clearly the issues in dispute as early as could havebeen done.(c) Various offers were traded back and forth between the parties and theseshould be taken into account in balancing the issue of costs between theparties.(d) As NZ Superfood was the successful party and the issue of NZSuperfood pursuing the agency/contractual parties issue has alreadybeen taken into account at [17](b), the 40 per cent reduction in 2B costssought by AD International is not justified.[18] The 2B costs should be adjusted by removing Item 11 as counsel forAD International is correct that the application by NZ Superfood to vacate the fixtureon 27 June 2023 was unsuccessful. As to the proposal that the time allocated for thehearing should be reduced from 0.5 days to 0.25 days, in my view, this is contrary tor 14.5(2) which provides that determination of what is a reasonable time for a stepmust be made by reference to the stated bands and no authority has been cited bycounsel for AD International for this adjustment. As to the disbursements relating to4 Bradbury v Westpac Banking Corporation [2009] NZCA 334; [2009] 3 NZLR 400.the service fee, I will allow this, as although an address for service was specified inthe statutory demand, I am not convinced r 19.12A(2) permitted service by emailwithout confirmation that that mode of service would be accepted by the recipient.[19] Accordingly, 2B costs are adjusted from $12,428.00 to $11,472.00.Orders[20] I order that AD International is to pay NZ Superfood the sum of $11,472.00 in2B costs, together with disbursements of $1,442.66, totalling $12,914.66..Associate Judge Taylor