RADFORDS LTD V ADVERTISING WORKS NZ LTD T/A OGILVY ADVERTISING WORKS HC AK CIV 2006-404-325

RADFORDS LTD V ADVERTISING WORKS NZ LTD T/A OGILVY ADVERTISING WORKS HC AK CIV 2006-404-325 26 April 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-325UNDER the Companies Act 1993 BETWEEN RADFORDS LIMITED Applicant AND ADVERTISING WORKS NEW ZEALAND LIMITED, T/A OGILVY ADVERTISING WORKS Respondent Hearing: 26 April 2006 (on the papers) Counsel: S Dalzell for applicant C Patterson for respondent Judgment: 26 April 2006 at 15:00JUDGMENT OF ASSOCIATE JUDGE FAIRE [on costs]Solicitors: Chapman Tripp, PO Box 993, Wellington for applicant Holmden Horricks, PO Box 1108, Auckland for respondentThe application[1] The applicant applied to set aside a statutory demand. [2] The application was called first on 23 February 2006. On that day, orders were made extending time for compliance until further order of the Court and directing that opposition affidavits be filed and served by 27 February 2006 and that reply affidavits be filed and served by 6 March 2006 and that the application be adjourned to a list at 11.45am on 30 March 2006. [3] On or about 10 March 2006 a joint memorandum was completed which advised that the statutory demand had been withdrawn by the respondent and set a timetable for the filing and service of memoranda in relation to costs. It sought that counsel's attendance be excused at the next mention of the application on 30 March 2006. A minute was issued by myself on 29 March 2006 withdrawing the application and excusing attendances on 30 March 2006 and directing the filing of memoranda on costs in terms of the joint memorandum. [4] Memoranda have now been filed in support, opposition and reply on the question of costs.The costs sought by the applicant[5] The applicant seeks, and I quote applicant's counsel's memorandum as follows:Radfords seeks an indemnity for costs and disbursements of $26,346 (including GST) in urgently responding to the demand then issuing its application with supporting and reply affidavits. It also seeks an indemnity for costs of $2,500 (including GST) in preparing and filing this memorandum.[6] The respondent opposes the applicant's application and submits that costs should either lie where they fall or, alternatively, be assessed pursuant to Category 2 Band B of the High Court Rules.Background[7] The respondent issued a statutory demand which is dated 12 January 2005. Pursuant to that demand it sought from the applicant:Payment in the sum of $368,920.54 (including GST), being a sum in excess of the prescribed amount of $1,000, being the amount owing to Advertising Works Ogilvy Limited pursuant to a statement of account dated 31 December 2005, payment for which is now overdue. Advertising Works Ogilvy Limited further claims the costs of $260 for the preparation and issuing of the statutory demand pursuant to Item 22 of the Third Schedule of the High Court Rules.[8] The statutory demand was served on 12 January 2006. [9] The applicant acknowledged that it had a liability to the respondent for $223,569 (including GST), on the basis of an agreement between the parties for the respondent's provision to the applicant of an advertising campaign. The applicant, however, disputed that any further amount was owing. The applicant's solicitors wrote to the respondent on 20 January 2006 setting out this position and tendering a cheque of $223,569 (GST inclusive). The letter advised that, in respect of the balance, the applicant denies it has any liability to the respondent. It went on to say that there is a genuine and substantial dispute as to the balance of the demand. It claimed that the issue of the demand was inappropriate and concluded by advising that unless notification in writing was given that the demand was withdrawn by 4pm on 25 January 2006, an application would be made to set it aside and that this letter would be relied upon as a basis for seeking indemnity costs.The Court's approach to applications for costs[10] It is appropriate that I refer briefly to the approach which the Court must take on applications for costs. Rule 46 provides that costs are to be in the discretion ofthe Court. In Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd CA 296/01 29 September 2002 the Court of Appeal, in noting the Court's over-riding discretion pursuant to r46 said:there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary: Body Corporate 97010 v Auckland City Council. We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct. If no reason is given it will expose the award to close appellate scrutiny.[11] The general principles to be applied in the exercise of that discretion are those contained r47. The first general principle there stated is that the party who fails with respect to a proceeding should pay the costs to the party who succeeds. [12] In Glaister & Ors v Amalgamated Dairies Ltd & Anor [2004] 2 NZLR 606 the Court of Appeal endorsed the proposition it made in the earlier decision inMansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd. It noted that if there was any departure from the costs regime as set out by the High Court Rules, that could only be done on a particularised and principled way. [13] The judgments of Heath J in Keystone Ridge Ltd v City Sales Ltd (High Court, Auckland, M549-im02, 19 July 2002) and Master Lang, as he then was, inInsolar Investments Ltd v Fetherston (High Court, Auckland, M1042-im02, 17 October 2002) emphasise the need for creditors to take care before issuing statutory demands that there is in fact no dispute as to the debt. Service of the statutory demand on a company requires it to work within a very tight timetable imposed by s290 of the Companies Act 1993. If it fails to so act, then the presumption created by 287 applies. [14] In Curly Ltd v Harvey Norman Stores (NZ) Pty Ltd HC AK M29/02 24 May 2002 Chambers J made the obvious comments in relation to a relatively straightforward originating application to set aside a statutory demand, namely that:Band A is appropriate because a comparatively small amount is required to commence a s 290 proceeding[15] That comment is made particularly in relation to Item 1 of the Third Schedule. [16] The applicant bases a claim for indemnity costs, pursuant to r 48C. The relevant parts of that Rule provide:48C Increased costs and indemnity costs(1) Despite rules 47 to 48B, the Court may make an order (b) That the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs). (4) The Court may order a party to pay indemnity costs if— (a) The party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding;[17] The applicant submits that the respondent:plainly did defend this proceeding. Had it either withdrawn the demand or simply taken no step in opposition, Radford's application could have been finally determined when it was first called.[18] Counsel helpfully drew attention to the decision of Goddard J in Hedley & Ors v Kiwi Co-operative Dairies Ltd & Ors(2002) 16 PRNZ 694. Her Honour, at 697, dealing with an application for indemnity costs, said:[8] Such authorities as there are indicate that indemnity costs are awarded where truly exceptional circumstances exist. In Hawkins Construction Ltd v Chan (2002) NZTC 17,669, Williams J ordered indemnity costs pursuant to r 48C(4)(a) on the basis that although Hawkins Construction and its advisors had not acted frivolously in commencing and continuing a proceeding after the Court of Appeal had determined a strike out order in their favour, the proceedings they had commenced and continued up to the point of the Court of Appeal's judgment were vexatious and frivolous. Although the fact situation in Hawkins Construction is different to the present case it has some similarities, in that a number of warning shots had been fired over the bow of Hawkins Construction and its advisors in relation to the basis of their deceit allegations and their pleadings in relation to these. The two statements of claim issued by HawkinsConstruction prior to the Court of Appeal's decision were based in fraud but had no evidential foundation. Nevertheless they were persisted in. The whole proceeding had put the defendants to significant wasted cost. [9] Another rare and exceptional case in which solicitor and client costs were found to be justified was that of Toronto-Dominion Bank v Leigh Instruments Ltd (trustee of) 178 DLR (4th) 634. That case had been advanced on the basis of numerous allegations of fraud and deceit on the part of the defendants. The trial Judge awarding indemnity costs noted that these allegations had been "pursued unrelentingly through to the conclusion of trial". He found that "All of these allegations of fraud and deceit were wholly unsupported by the evidence". His decision to award indemnity costs was upheld on appeal. [10] Another decision concerning the award of indemnity costs arising from unsuccessful fraud allegations was White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169. In that decision Goldberg J, delivering the judgment of the Federal Court of Australia, referred to "the significance and seriousness attached by the law to the making of the allegation of fraud" (Oldfield v Keogh (1941) 41 SR (NSW) 206). Although no distinct similarity between the fact situation in White Industries and the present case exists, the judgment is instructive for its collection of the principles relating to the obligations involved in pleading fraud, including the obligations on counsel and advisors. [11] The most instructive exposition of the principles relating to the award of indemnity costs is found in Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248. In the judgment of Sheppard J on behalf of the Federal Court of Australia, the following principles (summarised in the headnote) are applicable: "(iv) The power of the court to order costs . . . on one or other of the bases . . . than the party and party basis is not circumscribed in any way. . . . . . "(vi) The ordinary rule is that, where the court orders the costs of one party to litigation to be paid by another, the order is for payment of those costs on a party and party basis. "(vii) The court ought not usually make an order for the payment of costs on some basis other than the party and party basis unless the circumstances of the case warrant the court in departing from the usual course. "(viii) The tests for such departure include: "(a) "as and when the justice of the case might so require"; Andrews v Barnes (1887) 39 Ch D 133, followed. "(b) "some special or unusual feature in the case to justify the court in departing from the ordinarypractice"; Preston v Preston [1982] 1 All ER 41, followed. . . . . . "(ix) The categories in which the discretion may be exercised are not closed. "(x) Judges are not necessarily obliged to exercise their discretion to make an order for indemnity costs. . . . . . "(xii) The question must always be whether the particular facts and circumstances of the case warrant the making of an order for payment of costs other than on party and party basis. Circumstances warranting the exercise of the discretion to award indemnity costs include: "(a) the making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud; "(b) evidence of particular misconduct that causes loss of time to the court and other parties; "(c) the fact that the proceedings were commenced for some ulterior motive; "(d) the fact that the proceedings were commenced in wilful disregard of known facts or clearly established law; "(e) the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions; "(f) an imprudent refusal of an offer to compromise;"[19] The file reveals that the statutory demand for $368,920.54 (including GST) was served on the applicant on 12 January 2006. On 19 January 2006 the applicant paid $223,569 (including GST). The respondent's position is that the precise nature of the dispute was not identified until an affidavit in reply by Christopher Sean Barrett on behalf of the applicant was served. In short, it was only when that occurred, that the respondent realised that the applicant would be able to satisfactory the Court that there was a fairly arguable basis upon which it was not liable to pay the balance demanded in the statutory demand.[20] I see nothing in the way this case has developed that would suggest the circumstances of this case are of the exceptional circumstances which justify departing from the normal position and applying r48C(4)(a) of the High Court Rules. [21] There is yet another aspect which, although not necessary for me to rule on, requires comment. A substantial sum is sought by way of indemnity costs. No breakdown is provided. There is no basis put before the Court on which the Court could make any proper assessment of what indemnity costs might have been appropriate in the circumstances of this case. If parties seek such orders, then the claims should be properly particularised and broken down. A similar comment was made by Chambers J in The Beach Road Preservation Society Inc v Whangarei District Council 16 PRNZ 13 at [9]. His Honour was there dealing with a question of whether Band C for certain steps were justified. To so justify Band C requires a finding that a comparatively large amount of time for the step is appropriate. His Honour makes the point that if the parties wish to advance such a case, and there is no agreement on the matter, the party seeking the more advanced Band must explain why that is justified. [22] As I have said, the same is necessary where indemnity costs are sought. Without it the Court simply has an insufficient basis upon which to rule whether, in terms of r48C, the costs are:reasonably incurred by a partyseeking them.Conclusion[23] I conclude that the appropriate order for costs, in this case, is the alternative advanced by the respondent's counsel, namely, that costs be assessed on a 2B basis. Mr Patterson analysed these in paragraph 6 of his memorandum as follows:Item Description Time Amount $1 Commencement of proceedings by plaintiff 3.0 4,350.004.12 Preparing and filing supporting affidavits 0.6 870.00 9 Appearance at mentions hearing or call over 0.2 290.00Total 3.8 $5,510.00To that figure there can properly be added the costs of the joint memorandum which, again, based on Band B under Item 4.10 of the Third Schedule indicate that an allowance of $580 should be made. [24] That, then, results in an appropriate award for costs being $6,090.00Order[25] I order that the respondent pay $6,090.00 costs to the applicant together with disbursements as fixed by the Registrar. I make no separate allowance for the preparation of memoranda on the application for costs having regard to the result I have ordered. _____________________ JA Faire Associate Judge