VIETNEW CORPORATION LIMITED v SHAND [2023] NZHC 1991

VIETNEW CORPORATION LIMITED v SHAND [2023] NZHC 1991 [28 July 2023]IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYI TE KŌTI MATUA O AOTEAROATE PAPAIOEA ROHECIV-2022-454-102[2023] NZHC 1991BETWEEN VIETNEW CORPORATION LIMITEDApplicantAND JASON SHANDRespondentHearing: On the papersAppearances: J J McGuire for ApplicantP J Drummond for RespondentJudgment: 28 July 2023JUDGMENT OF ASSOCIATE JUDGE SKELTON[Costs][1] In a judgment dated 28 June 2023 I made an order by consent setting aside thestatutory demand issued by the respondent against the applicant dated 6 December2022.1[2] Costs on the application to set aside the statutory demand were reserved. Theparties have been unable to agree on costs and have filed memoranda. The applicantseeks costs on a category 3C basis, and the respondent submits that costs should liewhere they fall.Background[3] The circumstances are that the respondent had determinations made in hisfavour by the Employment Relations Authority which required the applicant to pay1 Vietnew Corporation Ltd v Shand [2023] NZHC 1630.the respondent the total sum of $26,396.53. On 12 August 2022, the applicant filed achallenge (appeal) in the Employment Court seeking a de novo hearing.[4] The respondent issued a statutory demand in respect of the $26,396.53 dated6 December 2022 and served on 7 December 2022.[5] The applicant applied to set aside the statutory demand on 16 December 2022.The respondent filed a notice of opposition dated 21 December 2022.[6] On 10 February 2013, the applicant filed an application seeking an order thatthe Authority's determinations be stayed. On 28 April 2023 the application for a staywas granted by the Employment Court on the condition that the sum of $26,396.53was paid into Court within 14 days (that is, by 12 May 2023). The Employment Courtstated that if this sum was not paid, the respondent would be entitled to pursue the debtdue to him.2 This amount was paid into Court by the applicant within the requiredperiod.[7] Following an adjournment, the application to set aside the statutory demandcame on for hearing on 28 June 2023.[8] Counsel for the applicant objected to the late filing of counsel for therespondent's memorandum on costs. An extension of time to 15 July 2023 wasconsented to by the applicant, and the memorandum was ultimately filed early on themorning of 18 July 2023. There is no obvious prejudice to the applicant, and, in thecircumstances, I consider it appropriate to take the respondent's memorandum intoaccount in determining costs. Counsel for the applicant filed submissions in reply on26 July 2023.Legal principles[9] Costs are ultimately a matter of the court's discretion, the overall objectivebeing to achieve an outcome that best meets the interests of justice.3 That discretion2 Vietnew Corporation Ltd v Shand [2023] NZEmpC 68/2023 and NZEmpC 69/2023.3 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 606is qualified 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.4[10] 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.5Increased costs may be awarded where there is a failure by the paying party to actreasonably.6 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 tosettle or dispose of the proceeding.7[11] The Court may also award the actual costs reasonably incurred by a party(indemnity costs).8 Indemnity costs may be awarded where a party has behaved eitherbadly or very unreasonably.9 For example, indemnity costs may be ordered if the partyhas acted vexatiously, frivolously, improperly, or unnecessarily in commencing,continuing, or defending a proceeding or step in a proceeding.10Which party was the successful party?[12] The applicant submits that costs on a successful application to set aside astatutory demand would usually attract a 2B costs order against the respondent.However, the position is not straightforward in this case because the respondentconsented to the setting aside of the statutory demand only after the applicant hadobtained a stay of the Authority's determinations on 12 May 2023, and after agreementwas reached at the hearing on 28 June 2023 that it was not necessary to hear anddetermine the application to set aside the statutory demand (with the parties' respectivepositions on costs reserved).(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].4 High Court Rules, r 14.2(1)(a).5 Rule 14.6(3)(b).6 See Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].7 High Court Rules, r 14.6(3)(b)(v).8 Rule 14.6(1)(b).9 Bradbury v Westpac Banking Corp, above n 6, at [27]–[28]; and Prebble v Awatere Huata (No 2)[2005] NZSC 18, [2005] 2 NZLR 467 at [6].10 High Court Rules, r 14.6(4)(a).[13] In the circumstances, I consider that the issue of costs in this case requiresconsideration of whether it was appropriate for the respondent to issue the statutorydemand prior to the stay, and the conduct of the parties after the stay was obtained.The applicant's claim for costs[14] The applicant's claim for costs is based on two distinct time intervals in theproceeding.The first interval[15] The first interval is between the date the statutory demand was issued on orabout 6 December 2022 and the date the Employment Relations Authoritydeterminations were stayed on 12 May 2023.[16] The applicant submits that it should be awarded "uplifted costs" on a 3C basisfor this period because the issue of the statutory demand was an abuse of process. Theapplicant says that the demand was issued the day after the parties attended a judicialsettlement conference involving the employment dispute, and that the demand wasused to threaten the applicant into paying the amounts ordered by the Authority beforethose determinations could be reconsidered by the Employment Court.[17] The applicant also says that it was an abuse of process because the respondentfailed to provide any authorities supporting the use of unstayed Employment RelationsAuthority determinations as the basis for issuing a statutory demand against anemployer company, without first registering the determination in the District Court.11[18] The respondent contends that prior to the stay being granted the statutorydemand was properly issued based on the determinations made by the EmploymentRelations Authority, and that there was a debt due and owing by the applicant.11 See s 141 of the Employment Relations Act 2000 and regulation 26 of the Employment RelationsAuthority Regulations 2000.[19] In the circumstances, I do not consider that the issue of the statutory demandon or about 6 December 2022 was inappropriate or an abuse of process for thefollowing reasons.[20] First, s 289 of the Companies Act 1993 provides that a creditor in respect of adebt owing by a company can make demand "in respect of a debt that is due". TheEmployment Relations Authority made determinations resulting in orders that theapplicant pay the respondent certain amounts. There has been no authority put forwardby either party to suggest that an unstayed Employment Relations Authoritydetermination cannot be used as the basis for issuing a statutory demand against anemployer company, without first registering that determination in the District Court.In my view, there was a debt due. It is not necessary for a court judgment to beobtained before the service of a statutory demand.12[21] I do not accept the applicant's argument (put forward in reply) that, becausethe applicant had sought a de novo hearing in the Employment Court, there was agenuine dispute and no debt due.[22] Secondly, the Court of Appeal has emphasised that the purposes of a statutorydemand are not limited to being used to prove the insolvency of a company inanticipation of liquidation, but can legitimately be used to recover a debt even whenliquidation is not in prospect.13The second interval[23] The second interval raised by the applicant is the period from the date of stayof the Employment Relations Authority determinations to the date of the judgment byconsent on 28 June 2023.[24] The applicant submits that the statutory demand should have been withdrawnafter the two determinations were stayed, but instead, counsel for the respondent did12 Robyn Merrett and Stephen Revill Insolvency Law & Practice (looseleaf ed, Thomson Reuters,New Zealand) at [CA289.02(1)].13 Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at[33]-[34].not withdraw the statutory demand and raised an argument that the statutory demandwas not intended to be used as the basis for liquidation proceedings. Counsel for theapplicant submits there were no grounds or justification for the applicant notwithdrawing the statutory demand from 12 May 2023 and continuing to pursue ahopeless opposition to the application to set aside.[25] Counsel for the applicant also refers to two settlement offers made on behalfof the applicant on 15 May 2023 and 19 May 2023, in which the applicant proposedthat the statutory demand should be withdrawn, and the application to set aside thedemand would then be discontinued, but on the basis that the respondent pay theapplicant's costs on a 2B basis.[26] The applicant also seeks "uplifted costs" on a 3C basis for the second interval.[27] In my view, following the stay of the Authority's determinations, the sensiblecourse for the parties to take was to agree that the statutory demand would bewithdrawn, the application to set aside the statutory demand would be discontinued,and costs would lie where they fall. I do not consider that it was reasonable for theapplicant to require the respondent to pay its costs on a 2B basis because, as I havefound above, it was not inappropriate or an abuse of process for the respondent to issuethe statutory demand prior to the stay of the Authority's determinations.[28] On 15 May 2023, counsel for the respondent put forward a settlement proposal(subject to instructions) that the applicant would withdraw the application to set asidethe statutory demand, the respondent would withdraw the statutory demand and eachparty would bear their own costs.[29] In the circumstances, this seems to me to have been a reasonable settlementproposal. However, the parties were unable to agree on this basis. In subsequentcorrespondence, the applicant continued to propose a settlement which required therespondent to pay costs on a 2B basis. Meanwhile, the respondent did not clearlyreiterate its earlier offer that he would withdraw the statutory demand on the basis thatthe application to set aside be discontinued and that costs lie where they fall. As aresult, both parties continued to incur costs up to the hearing on 28 June 2023.Conclusion[30] In summary, it was not inappropriate or an abuse of process for the statutorydemand to be issued by the respondent on or about 6 December 2022 and prior to thestay of the Employment Relations Authority determinations being obtained. After thedeterminations were stayed, the parties were unable to reach agreement on withdrawalof the demand and discontinuance of the application to set aside the demand. Thiswas because the applicant continued to require payment of its costs on a 2B basis, andthe respondent did not clearly reiterate its initial offer of 15 May 2023 that the statutorydemand would be withdrawn if the application to set aside was discontinued with coststo lie where they fall.[31] Overall, I am satisfied that the appropriate outcome is for costs to lie wherethey fall.Result[32] There is no order as to costs. Costs are to lie where they fall.Associate Judge SkeltonSolicitors:Jeremy McGuire, Palmerston North for applicantFlint Law Ltd, Wellington for respondent