NZ NATURAL JUICE COMPANY LIMITED V HEARTLAND BANK LIMITED HC AK CIV-2012-404-7669

NZ NATURAL JUICE COMPANY LIMITED V HEARTLAND BANK LIMITED HC AK CIV-2012-404-7669 [9 May 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-7669[2013] NZHC 1030UNDER the Companies Act 1993IN THE MATTER OF an application for costsBETWEEN NZ NATURAL JUICE COMPANYLIMITEDPlaintiffAND HEARTLAND BANK LIMITEDDefendantHearing: On the papersCounsel: N T Gray for ApplicantJ E M Lethbridge for RespondentJudgment: 9 May 2013COSTS JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 9 May 2013 at 4:00pmpursuant to Rule 11.5 of the High Court Rules....................................Registrar/Deputy Registrar___________________________________________________________________Solicitors:Sainsbury Logan & Williams (Nathan T Gray) P O Box 41 Napier, for ApplicantEmail: ntg@slw.co.nzGrove Darlow & Partners (JEL Lethbridge) P O Box 2882 Auckland 1140 for RespondentEmail: jacqueL@grovedarlow.co.nz / tima@grovedarlow.co.nz[1] In my judgment of 22 April 2013 I ordered Heartland Bank Ltd to pay NZ Natural Juice Company Ltd costs on the application to set aside the statutory demand on a category 2 basis. I directed the parties to file memoranda if they were not able to agree costs. The parties have not been able to agree. Memoranda have been filed.[2] Mr Gray's memorandum refers to an email from Grove Darlow. That emailis not attached to his memorandum. However, the memorandum filed by Heartland Bank Ltd makes the respondent's position clear. Accordingly, I am giving this decision without having read Grove Darlow's email referred to in Mr Gray'saffidavit.[3] There is a single issue on costs. That is whether the court should make any reduction to the costs claimed by the applicant on a category 2 basis.[4] NZ Natural Juice Company Ltd has claimed costs on a category 2 band B basis for an opposed originating application. It has claimed for steps 37, 40, 41 and 42 in the third schedule to the High Court Rules. The time allowance for those steps is 4.6 days. At a category 2 rate of $1,990.00 per day, its claim is for $9,154.00. It has also claimed disbursements of $1,158.60.[5] Heartland Bank Ltd does not take issue with the calculations of costs, or with the disbursements claimed. However, it says that NZ Natural Juice Company Ltd ought not to have costs for any step taken before Heartland received the affidavit in reply from Mr Burr, sworn on behalf of NZ Natural Juice Company Ltd. In other words, it wants costs limited to steps 40, 41 and 42 – that is, preparing submissions, filing the bundle of documents, and the costs of the hearing. It contends that NZ Natural Juice Co Ltd ought not to have costs for step 37, filing and serving the originating application.[6] The costs sought by NZ Natural Juice Company Ltd are costs that are usually awarded on a successful application to set aside a statutory demand. In asking the court not to award NZ Natural Juice Company Ltd costs for filing and service of theapplication, Heartland Bank Ltd is asking the court to exercise the power to reduce or refuse costs under r 14.7 of the High Court Rules:14.7 Refusal of, or reduction in, costsDespite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—(a) the nature of the proceeding or the step in a proceeding is such that the time required by the party claiming costs would be substantially less than the time allocated under band A; or(b) the property or interests at stake in the proceeding were of exceptionally low value; or(c) the issues at stake were of little significance; or(d) although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or(e) the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding; or(f) the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—(i) failing to comply with these rules or a direction of the court; or(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or(iii) failing, without reasonable justification, to admit facts, evidence, or documents, or accept a legal argument; or(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or(g) some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.[7] Heartland's case is that it was reasonable for it to issue the statutory demand.It had satisfied itself that there was a reasonable basis for the demand. Its lawyershad written on its behalf to the applicant's lawyers seeking payment. The applicanthad not responded to those letters.[8] Further, once the statutory demand had been served, NZ Natural Juice Company had responded by filing its application to set aside, instead of engaging in constructive dialogue with Heartland Bank Ltd as to the merits of the demand. It refers to further correspondence it sent querying the basis for the setting aside application.[9] Heartland says that its liability for costs should only run from the time when Mr Burr's reply affidavit was served in February 2013, because that is the time that itcan be taken as being fixed with knowledge of the basis for the application by NZ Natural Juice Company Ltd. It refers to ACP Media Ltd v Ram Commercials Ltd.1 There Associate Judge Gendall had to decide where costs should lie, after a creditor sought leave to discontinue a liquidation application, once it became aware of the grounds of defence. Associate Judge Gendall awarded the creditor costs upuntil the time when the plaintiff had an opportunity to consider the defendant'sstatement of defence and affidavits. Costs after that time were to lie where they fell.[10] I do not regard that decision as directly relevant to this case. That was an opposed liquidation application, whereas this case involved an application to set aside a statutory demand. There, the proceeding was discontinued whereas this case went to a hearing on the merits. Moreover, I do not regard Associate JudgeGendall's finding in that case that the creditor had good grounds to issue a statutorydemand and to issue a proceeding as applicable in this case.[11] Heartland's statutory demand was for $23,699.00 plus GST for wet stock supplied by Wemore Holdings Ltd to NZ Natural Juice Company Ltd. It was claiming payment as security-holder of an account receivable. To be able to issue a statutory demand for that debt, it had to be satisfied of at least two things:1 ACP Media Ltd v Ram Commercials Ltd HC Wellington CIV-2008-485-2512 18 February 2009.(a) That Wemore Holdings Ltd had supplied wet stock to that value to NZ Natural Juice Company Ltd and NZ Natural Juice Company Ltd had not paid for it; and(b) That NZ Natural Juice Company Ltd did not have any grounds to abate the price.[12] Heartland Bank Ltd could not have been reasonably satisfied of those matters when it issued the statutory demand. The foundation for its claim for the debt was an exchange of emails on 8 February 2012. It took those emails out of context. When those emails are read in context, they do not refer to an existing indebtedness but are directed at a possible future supply. That future supply was for remaining stocks held by Wemore Holdings Ltd. When it issued the statutory demand, Heartland knew that wet stock belonging to NZ Natural Juice Company Ltd continued to be held by the cool stores. Its correspondence with the cool stores shows its knowledge of this. It had no evidence that the stock the subject of the demand had actually been delivered. Further it was aware from the reconciliations it had received from NZ Natural Juice Company Ltd that NZ Natural Juice Company Ltd had been paying storage charge and setting off those charges against the price payable for wet stock that it had already received. It could not reasonably regard that set off as unarguable.[13] Heartland refers to its correspondence before the statutory demand and the absence of reply from NZ Natural Juice Company Ltd. That misses the point. A creditor intending to issue a statutory demand must satisfy itself that it has proper grounds for issuing the statutory demand by reference to the evidence it holds. It cannot build up its case by using silence from the debtor to fill the gaps in its evidence.[14] NZ Natural Juice Company Ltd cannot be faulted for having responded to the service of the statutory demand by filing its application to set aside. That was obviously the correct and safest course it could take to protect its position. It is not a ground for reducing costs.[15] Likewise the correspondence by Heartland's lawyers after the application wasfiled does not change the position. Having been served with a statutory demand, NZ Natural Juice Company Ltd decided to do its talking through its application and its evidence. Having issued a statutory demand, Heartland cannot complain at such a response.[16] I now address r 14.7. Clauses (a) and (e) clearly do not apply. I do not regard the property or interests at stake as of exceptionally low value or the issues as being of little significance under (b) and (c). The service of a statutory demand had to be taken seriously. Unless it was effectively countered, it would give rise to a presumption of insolvency, a matter of a serious consequence for NZ Natural Juice Company Ltd.[17] Clause (d) does not apply. I note that I found for NZ Natural Juice Company Ltd only on the first ground of its application – that there was a substantial dispute under s 299(4)(a). It was therefore not necessary for me to consider its grounds under s 290(4)(b) and (c). The fact that I did not consider those aspects does not mean that it has failed under those grounds under (d). There was, in any event, a significant overlap on those issues and addressing them did not have significantly increase the costs of Heartland.[18] As to (f) I find that NZ Natural Juice Company Ltd did not:(i) fail to comply with any rules;(ii) take or pursue any unnecessary step or argument lacking merit;(iii) fail without reasonable justification to admit facts, evidence or documents, or accepted legal argument;(iv) fail without reasonable justification to comply with any order for discovery (there was none), notice of particulars (there was none), notice of interrogatories or similar requirement under the rules; and(v) fail without justification to accept an offer of settlement.[19] On the last point, I note that Heartland's settlement proposal was for NZNatural Juice Company Ltd to pay the amount of the demand. It has been vindicated in not taking that offer up.[20] As to (g), I do not find that any other reason exists for refusing or reducing costs despite the principle that the determination of costs should be predictable and expeditious.[21] Not all litigation is conducted perfectly. Parties may recognise with hindsight that they could have managed matters better. NZ Natural Juice Company Ltd might have avoided this proceeding, if it had engaged in constructive dialogue with Heartland at an early stage, before the statutory demand was issued. Its position that it did not have to take the demand for payment seriously was foolhardly.[22] On Heartland's side, its basis for claiming that there was an incontestabledebt was tenuous. It took a high risk strategy when it served the statutory demand. It was also unnecessarily aggressive in the timing of the demand. It served the notice on 13 December 2012. For practical purposes, NZ Natural Juice Company Ltd had to file its setting aside application before the courts closed for Christmas. NZ Natural Juice Company Ltd was required to scramble to file and serve its application within a shortened time, rather than the normal 10 working days. I regard the timing of the service of the notice as having placed undue pressure on NZ Natural Juice Company Ltd.[23] These are imperfections. They do not require a departure from applying costs according to scale.[24] In summary, there are no grounds for refusing costs or reducing costs under r 14.7. I award NZ Natural Juice Company Ltd costs against Heartland Bank Ltd in the sum of $9,154.00 and disbursements of $1,158.70, a total of $10,312.70...................................................Associate Judge R M Bell