Independent Liquor (NZ) Limited v Hanssen [2013] NZHC 211 (15 February 2013)

High Court of New Zealand

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Independent Liquor (NZ) Limited v Hanssen [2013] NZHC 211 (15 February 2013)

Last Updated: 21 February 2013

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2012-404-004376 [2013] NZHC 211

UNDER Section 290 of the Companies Act 1993

BETWEEN INDEPENDENT LIQUOR (NZ) LIMITED Applicant

AND BENJAMIN CHARLES HANSSEN First Respondent

AND GLOBE HOTELS LIMITED Second Respondent

Hearing: Memoranda filed 19 December 2012 and 17 January 2013

Appearances: M C Sumpter and J Marcetic for Applicant

G A Hair for Respondents

Judgment: 15 February 2013

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to costs]

[1] The applicant applied to set aside a statutory demand issued by the respondents. The respondents subsequently withdrew the statutory demand, with costs reserved. I am now called upon to make orders as to costs.

Costs – the general principles

[2] The primary principle is that costs follow the event: r 14.2(a) High Court

Rules. This applies in relation to applications to set aside statutory demands (or bankruptcy notices). Where a statutory demand is withdrawn before a hearing, that

INDEPENDENT LIQUOR (NZ) LIMITED V HANSSEN HC DUN CIV-2012-404-004376 [15 February 2013]

is generally regarded as akin to a discontinuance.[1] (Discontinuances, through the provisions of r 15.23, expressly attract the principle that costs follow the event).

[3] In such a situation the merits will generally not be examined. I adopt the observations of Tompkins J in North Shore City Council v Local Government Commission in which his Honour said:[2]

To the extent that ... submissions involve an examination of the respective merits of the claims of the parties as bearing on the costs issue, I do not accept them. It is now well established that as a general rule, in considering costs on discontinuance, the Court will not consider the merits of the competing contentions. I state this as a general rule because I accept that there will be some circumstances where the merits, one way or the other, are so obvious that they should influence the costs issue. But save in those circumstances, the Court should not embark on a consideration of the merits.

Application of the general principle in this case

[4] For the respondents, Mr Hair submitted that the general principle (costs following the event) should not apply in this case. Alternatively, he submits that if there are to be costs, they should be on a 2B basis, but excluding any allowance for certain interlocutory attendances.

[5] Mr Hair’s submission requires some discussion of the background to the demand and of the application itself.

The background to the demand

[6] The “debt” of $120,000 demanded in the statutory demand was of an unusual nature. It did not relate to services rendered or goods supplied by the respondents. Rather, the respondents asserted that they had entered into a contract of loan. Mr Hair’s submission was that the applicant’s alleged agreement to make the loan

_{created a debt. Mr Hair included in his submissions reference to numerous}

authorities establishing that debts may arise through a contractual obligation to pay a particular sum.

[7] The issuing of the statutory demand was immediately met by the applicant’s solicitors with a letter before action, in which they insisted upon the withdrawal of the statutory demand, failing which this application would be filed. They asserted that the loan agreement was not signed by Independent Liquor (NZ) Limited and never came into force. They also asserted that the respondents (as potential borrowers) had misled the applicant as to the first respondent’s credit-worthiness.

[8] The respondents, through their solicitors, refused to withdraw the demand. They stated that they had taken advice from one of Her Majesty’s counsel before issuing the demand (although they did not and have not provided a copy of the advice).

[9] The applicant then brought this application within the required statutory period. The respondents filed a notice of opposition. Both sides filed substantial affidavit evidence.

[10] There are plainly areas of dispute both as to fact and as to law. The parties are far apart as to the detail of the loan negotiations and as to the conclusion of the negotiations. In terms of the law, also, the respondents would have faced great difficulty in persuading a Court that it was beyond argument that the applicant had to proceed to lend $120,000 to them. Mr Sumpter, for the applicant, has correctly characterised the respondents’ claim as being in the nature of a claim for specific performance of a contract of loan. The payment of the $120,000 was never going to be the discharge of a debt. Rather, it was going to lead to a set of obligations of repayment on the part of the respondents. There is sufficient information in the evidence filed to indicate that the performance of the respondents’ obligations of repayment was uncertain. Specific performance is an equitable remedy. It would not have been possible for the Court on the evidence filed to be satisfied that the respondents, in equity, should obtain performance of a loan contract (even if such a contract were established).

[11] Accordingly, if the Court is to have regard to the merits in this particular case, they simply reinforce the appropriateness of applying the general principle that costs should follow the event. The fact that the respondents chose to withdraw their statutory demand a few days before the hearing of the application reinforces the impression that they, too, ultimately accepted that their alleged entitlement was open to at least reasonable argument. They do not even suggest that they have subsequently issued substantive proceedings to enforce their alleged right to the loan.

The interlocutory issue

[12] The applicant’s solicitors filed the originating application in the Auckland Registry of the Court. The respondents not only filed opposition to the application, but also filed an interlocutory application to the transfer of the proceeding to its proper Registry, namely Dunedin (where both respondents reside or have their business and where the material matters involved in the proceeding occurred). The applicant opposed transfer. There was a one-and-a-quarter hour interlocutory

hearing before Associate Judge Faire who granted the application for transfer.[3] His

Honour reserved costs and directed they be determined based on the outcome of the substantive proceeding.

[13] Mr Hair has submitted that the failure of the applicant on the transfer application effectively balances out the withdrawal of the statutory demand in a costs context and that costs of the proceeding should accordingly lie where they fall.

[14] I am not so persuaded. All that the respondents achieved through their successful transfer application was to have the proceeding transferred for a short time to another Registry only to then cut across any future need for the proceeding by withdrawing their statutory demand. In short, the interlocutory application proved otiose given the respondents’ subsequent withdrawal of the demand.

[15] I understand Associate Judge Faire’s direction in relation to costs as being in the nature of a direction that they be costs in the cause. In other words, whichever

party prevailed in the substantive issues should have also the interlocutory costs. Even had Associate Judge Faire not made that direction, I would have viewed that as the just outcome in this case in the circumstances.

Summary – the application of the general principles

[16] I find no reason in the circumstances of this case to depart from the general principle that costs should follow the event in relation to the entirety of this proceeding.

The level of costs – the general approach

[17] The applicant seeks indemnity costs (and tells me through counsel’s submissions, but not by evidence, that the applicant’s solicitor/client costs and disbursements have amounted to $43,768). Mr Hair submits that to the extent the costs are awarded, they should be on a 2B basis.

[18] I turn to categorisation. Rule 14.3(1) defines category 2 proceedings to be proceedings of average complexity requiring counsel of skill and experience considered average in the High Court. This is undoubtedly such a proceeding.

[19] I then turn to the determination of reasonable time. Rule 14.5 defines reasonable time for any particular step by reference to Schedule 3 of the High Court Rules, with reference to three bands (A, B, and C). Band B is appropriate where a normal amount of time is considered reasonable whereas Band C is appropriate where a comparatively large amount of time for a particular step is considered reasonable.

[20] Having regard to the evidence, which the applicant had to put together in circumstances of urgency, including the assembling and commenting upon of documentary evidence, there is an argument for considering Band C a more reasonable approach to time assessment. Under item 37 of Schedule 3, however, that would convert an allowance of two days (under Band B) to six days (under Band C). On a fine balance, I consider Band B a more realistic assessment of time.

[21] Mr Sumpter’s primary submission was that this was a case for awarding indemnity costs pursuant to r 14.6(2). His submission was that the respondent had proceeded vexatiously, frivolously or improperly as referred to in r 14.6(4)(a). He invoked the willingness expressed by the Court of Appeal in Bradbury v Westpac Banking Corporation to depart from an approach of strict predictability of costs, in

favour of indemnity costs, where a party was guilty of flagrant misconduct.[4] He

suggested that the pursuit of the respondents’ demands fell within the category of

“wilful disregard of known facts or clearly established law”.[5]

[22] While my consideration of the affidavit evidence leads to a conclusion that the applicant is likely to have succeeded in establishing an arguable defence to the demand, I do not find the element of wilful disregard attaches to the respondents in this case. The respondents’ solicitor’s reference to taking advice from senior counsel suggests otherwise.

[23] In the alternative, Mr Sumpter submitted that this is an appropriate case for increased costs. That is a submission which I accept.

[24] By r 14.6(3)(b)(ii) the Court may order a party to pay increased costs if that party contributed unnecessarily to the time or expense of a proceeding by pursuing an argument which lacks merit. Where the proceeding involves a statutory demand, that is not a simple case of weighing the competing merits of arguments on the balance of probabilities. The person issuing a statutory demand needs to have a degree of assurance that there is no reasonable argument against the debt demanded. The approach the respondents adopted in issuing the demand and then defending it through the proceeding lacked merit precisely because the applicant had a reasonable argument in response to the demand.

[25] This is a just case for increased costs. A reasonable increase would be a 50 per cent uplift on a 2B scale costs award.

[26] I order the respondents to pay the costs of this proceeding upon the basis of a

2B assessment with an uplift of 50 per cent on each item, together with disbursements to be fixed by the Registrar.

Associate Judge Osborne

Solicitors:

Chapman Tripp, PO Box 2206, Auckland 1140

Canterbury Legal Services Ltd, PO Box 22-115, Christchurch

Counsel: Malley & Co, PO Box 1202, Christchurch 8140

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[1] See North Shore City Council v Local Government Commission (1995) 9 PRNZ 182 (HC); Furnz Ltd v Goode Industries Ltd HC Auckland CIV-2008-404-001024, 13 October 2008 per Associate Judge Faire at [6].

[2] North Shore City Council v Local Government Commission (1995) 9 PRNZ 182 (HC) at 186, his Honour applying similar observations by Henry J in Chase Corporation Ltd v Rank Overseas Holdings Ltd (1988) 1 PRNZ 426 at 430 and by Barker J in Commerce Commission v Qantas Airways Ltd (No. 4) (1992) 5 PRNZ 457.

[3] Independent Liquor (NZ) Limited v Hanssen [2012] NZHC 2441.

[4] _{Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [27]-[29].}

[5] At [29](d).