Creative Organism Limited v Blink Interactive Limited [2012] NZHC 196 (16 February 2012)

Last Updated: 20 March 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-007545 [2012] NZHC 196

BETWEEN CREATIVE ORGANISM LIMITED Applicant

AND BLINK INTERACTIVE LIMITED Respondent

Hearing: 16 February 2012

Counsel: S J Ropati for applicant

B McCarthy/N Faulkner for respondent

Judgment: 16 February 2012

_{ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTT}

Solicitors:

S J Ropati, Barrister & Solicitor, PO Box 90 232, Auckland Mail Centre

B McCarthy/N Faulkner, PO Box 2068, Auckland

CREATIVE ORGANISM LIMITED V BLINK INTERACTIVE LIMITED HC AK CIV 2011-404-007545 [16

February 2012]

[1] This application to set aside a statutory demand arises out of a trading relationship between the parties in which the respondent undertook work for the applicant for a period of time.

[2] This hearing was allocated to determine whether the demand should be set aside. Shortly before the hearing the respondent agreed that the matter should be resolved by the Disputes Tribunal. The remaining issue for the hearing is whether costs should be awarded and, if so, in what amount.

Background

[3] At the start of 2011 the parties met to discuss the state of the accounts between them. At that stage the respondent had issued invoices for approximately

$36,000 which were still outstanding.

[4] The parties appear to have come to some form of agreement in a meeting in February 2011 following which the respondent issued some credits and the applicant made some payments. The respondent believed that there had been agreement on the applicant meeting a sum in the order of $22,000. It is not clear what the applicant’s position was at that point. This apparent or possible difference of views as to the outcome of the February meeting was expanded on by email communication in April in which the applicant (apparently in response to a communication from the respondent’s solicitors) referred to overcharges on a number of the jobs that the respondent had undertaken for it.

[5] The matter developed to the point that in June 2011 the respondent issued a statutory demand for a balance of $17,000 that it said was then outstanding. This led to further correspondence in which the applicant contended that there was a dispute over the balance. The statutory demand was not pursued. Shortly afterwards, the applicant made a further payment towards the outstanding sums and advised that the balance of $12,277.93 remained in dispute. At that point the solicitor acting for the applicant informed the respondent’s solicitors that the applicant was disputing invoices in relation to two jobs in particular. These jobs were included in a schedule

of jobs (and associated invoices) that had been discussed in the February meeting. Correspondence continued into August when the applicant invited the respondent to respond “to the issues surrounding the invoices relating to Showcase and Wearing Jack” (being the jobs that had been identified in the July correspondence as raising particular disputes).

[6] It appears that nothing further was done to discuss the debt (certainly there is no evidence before the Court) until November 2011 at which time the respondent issued a second demand for the sum of $12,277.93 which the applicant had advised in July 2011 was in dispute.

[7] The applicant responded promptly through its solicitor, again contending that the matter was in dispute and inviting withdrawal of the application. The respondent was advised that an application to set aside the demand would be made if it was not withdrawn and, in that event, the applicant would be seeking costs on a solicitor/client basis.

[8] Both demands were issued by Blink Interactive Limited. It is common ground that that company does not exist (or at least it is not the company claiming the invoices); the correct company is the respondent which is agreed to be Explosion Limited, trading as Blink Interactive Limited.

[9] The applicant issued the present application to set aside the second demand on 24 November 2011. The grounds were that the applicant owed nothing to Blink Interactive Limited. In her affidavit in support, the director of the applicant gave evidence that there was no such company as Blink Interactive Limited.

[10] The respondent (who for the purpose of this judgment I will treat as Explosion Limited trading as Blink Interactive Limited) filed a notice of opposition stating that the issue of the demand being in the name of Blink Interactive Limited, instead of Blink Explosion Limited trading as Blink Interactive, was an error and should be treated as a misnomer only. In an affidavit in support of the notice of opposition, the respondent’s director gave evidence of the history of dealings between the parties as recounted above. He pointed out that the applicant had not

been confused in terms of who to pay (the various payments made since February

2011 had been to the respondent), and contended that the parties had settled any dispute in the meeting in February 2011 and that the sum for which the demand was issued was the balance of the sum that was agreed to be payable at that time. He contended that there was no substantial and genuine dispute.

[11] In affidavits in reply filed on behalf of the applicant on 21 December 2011, the applicant’s director and one of its employees (who had had the relevant dealings with the respondent on the various projects) gave evidence challenging that there had been an agreement reached in February 2011 and contending that there were issues concerning overcharging which had never been resolved.

[12] A synopsis of argument was due to be filed by the applicant, ahead of this hearing, by 2 February 2012. In an exchange of emails occurring between 1

February 2012 and 3 February 2012, the applicant again invited the respondent to withdraw its demand on the basis that there was clearly a dispute between the parties, and invited the respondent to issue proceedings in the Disputes Tribunal or District Court. In response to this, the respondent’s solicitors indicated (without prejudice save as to costs) that the respondent would agree to the demand being set aside on the understanding that the matter would be transferred to the Disputes Tribunal and that the parties would bear their own costs incurred to date.

[13] The last step in that exchange of correspondence appears to be a response from the applicant’s solicitor stating that costs would remain an issue and asking whether the respondent was prepared to consent to the demand being set aside with costs to be dealt with by memoranda. There was no response (or at least there was no response in evidence) to the applicant’s final position. The applicant’s counsel prepared a synopsis of argument which was filed and served on 7 February 2012.

[14] Two days ago, counsel for the respondent filed a memorandum advising that the respondent considered it appropriate for the matter to be dealt with in the Disputes Tribunal (having regard to the value of the claim and the parties’ inability to resolve the matter) and asked that the proceeding be transferred to the Disputes

Tribunal for determination of the dispute and for this hearing to be vacated, leaving costs to be determined separately.

[15] The present hearing was retained because it was unclear from the respondent’s memorandum whether the respondent was contending that there was power for this Court to transfer the proceeding to the Disputes Tribunal and on the basis that costs would be determined at the hearing today.

[16] Both parties have filed memoranda in respect of costs and have appeared through counsel and presented arguments on the issue of costs.

Disposal of the application

[17] Counsel for the respondent confirmed at the hearing today that the respondent consented to an order that the statutory demand be set aside. She also accepted that this Court does not have power to transfer this proceeding to the Disputes Tribunal (the Disputes Tribunal clearly does not have any jurisdiction in respect of applications under the Companies Act 1993). That aspect of the respondent’s position pre-hearing was not pursued.

Costs

[18] The applicant has sought indemnity costs on the basis that there was clearly a dispute over this debt and that the issuing of the statutory demand was an abuse of process. The applicant went further, contending that costs should be made payable by the respondent’s solicitors on the grounds that the demand should never have been issued: it was in breach of the solicitors’ ethical obligations and was issued on behalf of a company that did not exist.

[19] The respondent contended that, in light of the history of the matter and the applicant’s failure at any stage of the process to identify clearly which invoices were in dispute and what that dispute was, costs should lie where they fall. It says that its decision to withdraw was a pragmatic commercial decision. In the event that the Court considered that some costs were payable, the respondent contended that those

costs should be simply on the usual scale 2B basis. The respondent argued that there was no basis for making an order against its solicitors.

[20] I did not understand counsel to have any different views as to the principles that apply to the setting aside of a statutory demand. The general rule is that costs generally follow the event.1 It is usual that the successful party to an application to set aside a statutory demand is entitled to costs.2 Although that is the general rule, costs are always at the discretion of the Court.

[21] The Court has power to award or to order a party to pay either increased or indemnity costs under r 14.6 of the High Court Rules:

14.6 Increased costs and indemnity costs

(1) Despite rules 14.2 to 14.5, the court may make an order—

(a) increasing costs otherwise payable under those rules (increased costs); or

(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

...

(3) The court may order a party to pay increased costs if—

(a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b) the party opposing 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 with 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, documents, or accept a legal argument; or

1 _{High Court Rules, r 14.2(a).}

2 International Airline Training (NZ) Ltd v Rohlig New Zealand Ltd HC Auckland CIV-2003-404-

3464, 23 February 2004.

(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

(c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(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; or

(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or

(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or

(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or

(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or

(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[22] The Court also has power to award costs against a solicitor personally.3 This is not a step that is taken lightly and cogent reasons need to be present for doing so.

[23] Dealing first with the incidence of costs, I do not accept that this is a case where costs should lie where they fall as suggested by the respondent. However one

3 Harley v McDonald [2001] UKPC 18, [2001] 2 AC 678, [2002] 1 NZLR 1 at [49].

analyses it, the position is that the respondent issued a demand in respect of which it now accepts that there is a dispute to be determined by the Disputes Tribunal and, as a result of the issue of the demand, the applicant had little choice but to bring this application. The applicant must be regarded as the successful party in that the demand has been set aside. I consider that the various factors that counsel have put before me today are more appropriately considered in relation to the nature of the costs to be awarded rather than the incidence of costs.

Nature of costs – scale or increased/indemnity

[24] The essence of the applicant’s claim for other than scale costs is that the respondent did not have reasonable grounds to issue the demand. Counsel for the applicant argued that it had raised disputes from an early date. The invoices were clearly “under discussion” by February 2011, and the applicant’s email to the respondent’s solicitor on 18 April 2011 referred expressly to overcharging. He argued that I should infer some recognition of this dispute by the respondent’s decision not to act on the first statutory demand and relied further on the email correspondence in July and August 2011 where the applicant identified that the disputes related to the Showcase and Wearing Jack invoices. He pointed out that this dispute had been reinforced by the request to the respondent in August 2011 to respond to “the issues surrounding” those invoices.

[25] There is no doubting the fact that the applicant was asserting a dispute or disputes. However, that assertion has to be considered in the context of the period from February 2011 until July 2011 when the invoices were reduced from approximately $36,000 to $12,277.93 without any real clarity as to which invoices were accepted as payable and which were disputed (or were disputed in part). I am unable to resolve the difference between the parties as to whether there was an agreement reached in February 2011, but I note that there is support for that view in an email written by the respondent immediately after the meeting and that the applicant did not reply to the suggestion in that email that an agreement had been reached. The applicant simply acknowledged an agreement to pay $22,000.

[26] Moreover, in the succeeding period the applicant made a number of payments. Those payments were not identified in relation to any particular invoices. In the April 2011 email on which the applicant places reliance, there was reference to disputes concerning invoices on the Showcase and Wearing Jack jobs (or projects as one of the witnesses calls them) but there has never been any clear advice given to the respondent as to the particular invoices that remained in dispute or how much was being disputed. A spreadsheet produced for the February 2011 meeting identifies three invoices issued for the Showcase work and six for the Wearing Jack work. There has been no attempt to identify the alleged overcharging in dollar terms or to reconcile that to the sum of $12,277.93 for which the demand was issued.

[27] In my view the respondent can be excused for believing, through most of this period at least, that there was not necessarily a substantial or genuine dispute and that the applicant was endeavouring to secure further time to make payments. I am not intending to indicate that that was necessarily its position, but just that the lack of detail given about the disputes must count against the applicant at least in respect of the present issue of whether it was improper to issue the statutory demand.

[28] I might have been persuaded to a different view had the applicant been specific about the accounts that were being paid by the payments made between February 2011 and July 2011, or had the applicant done more than simply assert generally that there was overcharging in relation to those projects. What was needed was something more like what was provided by the applicant in its affidavits in reply, where a specific basis for challenging the invoices for three jobs (interestingly, including Showcase, but not Wearing Jack) was given. However, even in that respect there has not been an attempt to reconcile the disputes to the specific balance of $12,277.93 in issue in this case.

[29] It follows from the view I have taken of the matter that I do not regard this as a matter for increased or indemnity costs. The same reasoning applies to my rejection of the applicant’s request for an order for costs against the respondent’s solicitors.

Quantum

[30] This leads me to the last issue - namely the aspects of work for which costs should be awarded.

[31] I am satisfied that this is an appropriate case for an award of 2B costs in favour of the applicant. Counsel for the respondent has raised issues over the justification for costs that she anticipates might be sought (because no schedule has been produced). These are:

(a) Whether 2B costs should be awarded for a joint memorandum filed on

7 December 2011 (either ahead of or at the first call of the application);

(b) Whether costs should be payable for preparation of the applicant’s synopsis filed on 7 February 2012 (this relates to the email offer to withdraw the statutory demand if agreement could be reached on the transferral of the dispute to the Disputes Tribunal and costs left to lie where they fall);

(c) Costs for preparation of the memoranda as to costs and for today’s

hearing.

[32] I accept that the memorandum prepared ahead of the first call was very brief. I accept that some attendances are warranted in that respect, but not at the scheduled rate of 0.4 of a day. I allow 0.1 day for that.

[33] The Court can take into account offers to settle when determining costs. However, in this case the respondent’s offer of 2 February 2011 was predicated on an agreement that each party would bear its own costs. The applicant was unwilling to accept that proposal and has proved to be justified in taking that approach. When advised of that position, the respondent could have advised that that condition was withdrawn and there might have been some cost-saving that could have been achieved (given that the applicant’s synopsis was not filed until 7 February 2012).

However, as it did not withdraw its condition, I do not consider that it can take any advantage from its proposal. I consider that the applicant should be entitled to the cost of preparation for today’s hearing in the usual way.

[34] The last issue is that of costs for preparing memoranda for today and attending today’s hearing. Part of the need for today’s hearing was to address the respondent’s request for a transfer to the Disputes Tribunal. That was not withdrawn until the hearing. That may be because counsel was aware that an appearance would be required to address costs. On that basis I will not treat that as a factor to be taken into account. That leaves the question of whether costs should be awarded for preparation of memoranda and for today’s hearing. In that respect, I consider both parties to have had some success (or, conversely, that neither achieved what they wanted). In the circumstances, I consider that there should be no allowance for costs for preparation of memoranda for today or for the costs of today’s hearing.

[35] The applicant is entitled to its disbursements in relation to filing and service of the application.

Associate Judge Abbott