Watts & Hughes Construction Limited v Complete Siteworks Company Limited [2014] NZHC 2600 (22 October 2014)

Last Updated: 7 November 2014

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2014-485-5124 [2014] NZHC 2600

IN THE MATTER OF	The Companies Act 1993
BETWEEN	WATTS & HUGHES CONSTRUCTION LIMITED Applicant
AND	COMPLETE SITEWORKS COMPANY LIMITED Respondent

Hearing:	On the papers
Counsel:	R Kettelwell for Applicant G J Luen for Respondent
Judgment:	22 October 2014

JUDGMENT OF ASSOCIATE JUDGE SMITH ON RESPONDENT'S CLAIMS FOR INTEREST AND COSTS

[1] In a judgment delivered on 31 July 2014, I declined to set aside a statutory demand issued by the respondent (CSC). I ordered the applicant (Watts & Hughes) to pay CSC the sum of $306,077.23 within seven days, and I invited counsel to file memoranda on CSC’s claim for interest on the amount set out in its statutory demand, and costs. Memoranda from counsel have now been received.

The claim for interest

[2] The statutory demand issued by CSC did not include any claim for interest. CSC nevertheless invites the court to award interest on the amount claimed at the rate of 5 per cent per annum from the date the principal sum became due to CSC (27 March 2014) down to the date the principal sum is paid to CSC. CSC relies on

_{s 87 of the Judicature Act 1908, which provides as follows:}

WATTS & HUGHES CONSTRUCTION LIMITED v COMPLETE SITEWORKS COMPANY LIMITED [2014] NZHC 2600 [22 October 2014]

87 Power of Courts to award interest on debts and damages

(1) In any proceedings in the High Court, the Court of Appeal, or the Supreme Court for the recovery of any debt or damages, the Court may, if it thinks fit, order that there shall be included in the sum for which judgment is given interest at such rate, not exceeding the prescribed rate, as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment:

Provided that nothing in this subsection shall—

(a) Authorise the giving of interest upon interest; or

(b) Apply in relation to any debt upon which interest is payable as of right, whether by virtue of any agreement, enactment, or rule of law, or otherwise; or

(c) Affect the damages recoverable for the dishonour of a bill of exchange.

...

[3] Counsel were unable to point to any case in which interest has been awarded (on the hearing of an unsuccessful application to set aside a statutory demand) on the principal sum claimed in the statutory demand, where the demand did not include any claim for interest. The one case to which counsel referred is against CSC on the point. The case is Fenton Projects Ltd v Carlton Gore Holdings Ltd, in which Associate Judge Sargisson declined to award interest on the amount in the statutory

demand, noting:¹

The claim for statutory interest is not a debt that is owing and due and is not the subject matter of the debt claimed in the demand. Accordingly, I decline to make such an order. If there is an entitlement to interest under the contractual arrangements between the parties, then Carlton is free to take appropriate steps to seek payment of that interest.

[4] CSC does not rely on any contractual right to interest in this case. Ms Luen for CSC submits that the issue was not fully argued in Fenton Projects Ltd, and that, notwithstanding that decision, s 87 of the Judicature Act 1908 empowers the Court to award interest on the basis that the issue of the statutory demand can be considered a “proceeding” for the recovery of a debt. She also submits that the principles of the

_{Construction Contracts Act 2002 point in favour of an interpretation under which}

¹ Fenton Projects Ltd v Carlton Gore Holdings Ltd [2013] NZHC 2872 at [24].

CSC should be reimbursed for the cost of being out of the money it should have received on 27 March 2014.

[5] In support of her submission that the issue of the statutory demand constitutes a “proceedings for recovery of a debt”, Ms Luen referred to the Court of Appeal decision in Laywood v Holmes Construction Wellington Ltd, in which the Court confirmed that the words “proceedings for a recovery of debt” as used in s 79 of the Construction Contracts Act include the issue of a statutory demand and the

institution of a winding up proceeding.² In the same context, counsel referred to the

decision of Wylie J in Greys Avenue Investments Ltd v Harbour Construction Ltd, in which the High Court followed the reasoning of the Court of Appeal in Laywood.³

[6] For Watts & Hughes, Mr Kettelwell submits that there is no basis for an award of interest. He relies on Fenton Projects Ltd, submitting that the same principles applied by Associate Judge Sargisson in that case ought to apply here: interest which was not claimed in the statutory demand cannot be awarded by the court on the discretionary basis proposed by CSC.

[7] I agree with the view of Associate Judge Sargisson in Fenton Projects Ltd, and conclude that interest cannot be awarded in these circumstances. Under s 289(1) of the Companies Act 1993, a statutory demand is defined as a demand by a creditor in respect of a debt owing by a company made in accordance with the section.

Specifically, the statutory demand must be in respect of a debt that is due.⁴ An

essential feature of any award of interest made under s 87 of the Judicature Act is that nothing is “due” unless and until the Court exercises its discretion to make an award under the section. So a claim for interest under s 87 cannot be included in a statutory demand.

[8] Can the Court nevertheless award interest under the section if it refuses to set

aside the statutory demand? I think the answer is “no”. An application to set aside a statutory demand is not a “proceeding...for the recovery of any debt or damages”,

2. Laywood v Holmes Construction Wellington Ltd [2009] NZHC 243, [2009] 2 NZLR 243 at [57]- [61].

³ Greys Avenue Investments Ltd v Harbour Construction Ltd HC Auckland CIV-2009-404-2026,

_{12 June 2009.}

⁴ Companies Act 1993, s 289(2)(a).

under s 87. It is true that the issue of a statutory demand and the commencement of a liquidation proceeding are both regarded as “proceedings for recovery of a debt” for the purposes of s 79 of the Construction Contracts Act, but the issue of a statutory demand is not “a proceeding in the High Court” within the meaning of s 87. A statutory demand is issued without reference to the Court at all. And the context and purpose of s 79 is different altogether from the Court’s discretion to award interest on claims for recovery of debts or damages in High Court proceedings. In essence, s 79 of the Construction Contracts Act is intended to ensure that the “pay now argue later” policy of the Act is not undermined by permitting those who have failed to make a timely response to a payment claim to delay payment by setting up counterclaims or cross-claims.

[9] Section 291 of the Companies Act does give the Court a discretion to order an unsuccessful applicant for a setting aside order to pay the debt within a specified period (in default of which the creditor may make an application to put the company into liquidation). But in my view the existence of that discretion cannot convert the originating application to set aside (the only relevant proceedings in the High Court) into proceedings “for the recovery of any debt or damages” within the meaning of s

87.

[10] I reject CSC’s claim for interest.

CSC’s claim for costs

[11] CSC claims solicitor/client costs in the sum of $45,357.91 (including GST and disbursements). It relies on s 23 of the Construction Contracts Act 2002, which provides as follows:

23 Consequences of not paying claimed amount where no payment schedule provided

(1) The consequences specified in subsection (2) apply if the payer—

(a) becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section

22(b); and

(b) fails to pay the whole, or any part, of the claimed amount on or before the due date for the progress payment to which the payment claim relates.

(2) The consequences are that the payee—

(a) may recover from the payer, as a debt due to the payee, in any court,—

...

(ii) the actual and reasonable costs of recovery awarded against the payer by that court; and

...

(4) In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.

[12] In Auckland Waterproofing Ltd v TPS Consulting Ltd, Duffy J expressed the view that, in enacting s 23, Parliament intended that payees should be able to recover their actual costs of pursuing recovery under s 23.⁵ Her Honour stated

[69] When I take into account the Act’s policy and purpose, I am driven to conclude that Parliament intended all payees to be able to pursue recovery of s 23 debts through Court process and, provided the quantum of those costs was reasonable and not excessively high, to obtain the actual cost of doing so. It follows that “reasonable” in s 23 can only relate to an assessment of the quantum of the legal fees incurred in obtaining summary judgment for the purpose of seeing if they are within the range of fees that are reasonably charged for work of that type.

[13] Some proportionality is always required in assessing whether costs claimed are reasonable and not excessively high, and of course the Court must be satisfied that the costs have been properly incurred.⁶ The size and nature of the claim in question will be important matters to take into account in assessing whether cost claims are reasonable.⁷

[14] In this case, Ms Luen submits that the costs claimed represent only approximately 15 per cent of the principal amount set out in the statutory demand, as

_{opposed to costs awarded at 37.5 per cent in Herbert.}

⁵ _{Auckland Waterproofing Ltd v TPS Consulting Ltd [2007] NZHC 1419; (2007) 18 PRNZ 797 (HC).}

⁶ Herbert Construction Company Ltd v Alexander HC Napier, CIV-2011-441-500, 29 February

_2012.

⁷ Westpac Banking Corporation v Topless (1992) 6 PRNZ 424 (HC) at 429.

[15] Mr Kettelwell submits that CSC’s costs claim is excessive and unreasonable. He points by way of comparison to the amount CSC would be entitled to recover if it were awarded costs in accordance with Category 2, Band B in the High Court Rules

– $8,538 – a figure approximately $35,000 lower than the amount now claimed by

CSC. He submits that what is “reasonable” depends on:

(a) Consideration of the steps taken by the party, and whether the legal fees charged for those steps were within the amounts usually charged; and

(b) The degree of proportionality between the costs sought and the sum awarded in the substantive judgment.⁸

[16] I accept that CSC is entitled to reimbursement of reasonable solicitor/client costs for steps reasonably taken in opposing Watts & Hughes’ application. Those steps appear to have been:

(a) reading and considering the originating application and supporting affidavits;

(b) filing and serving a notice of opposition and one affidavit in opposition;

(c) attending a first call of the application in the High Court at Wellington on 26 May 2014, when directions were given for the substantive hearing;

(d) reviewing Watts & Hughes’ submissions and the common bundles prepared for the hearing;

_{(e) preparing, filing, and serving written submissions for the hearing;}

⁸ Citing Herbert Construction Co Ltd v Alexander, above n 6.

(f) preparing for the oral argument on 16 July 2014, and attending the hearing on that day;

(g) filing a memorandum on CSC’s claims for costs and interest (CSC also filed a reply memorandum, but there was no direction or leave given to file the reply memorandum);

(h) incidental attendances and correspondence, including advice to CSC.

[17] Under s 23(2)(a)(ii) of the Construction Contracts Act, CSC is entitled to its actual and reasonable costs of recovery awarded against Watts & Hughes “by that court.” The expression “by that court” refers to any court in which the payee (in this case CSC) has attempted to recover from the payer (Watts & Hughes) “the unpaid portion of the claimed amount”.

[18] The subsection is concerned with the actual and reasonable costs of “recovery”, and the relevant “recovery” is the recovery of the debt “in any court”. It seems to me that the intention of the section was to provide for actual costs of recovery only in respect of relevant court action taken by the payee, and not to provide for additional attempted recovery steps taken outside of the court process.

[19] In this case, CSC elected not to apply to the Court for judgment for the debt and costs. Instead, it issued a statutory demand under the Companies Act. If that demand had been paid by Watts & Hughes within the 15 working day period allowed for payment, there would not, to that point, have been any attempt to recover from Watts & Hughes “in any court”. CSC did not in fact claim its actual and reasonable costs of recovery until it filed its notice of opposition on or about 23 May 2014.

[20] In those circumstances, I propose to award “actual and reasonable” costs only for the work commencing with the review of Watts & Hughes’ originating application and supporting affidavits.

[21] Approaching the matter on that basis, I make no award of costs in respect of

the $166.14 claimed in respect of attendances by CSC’s solicitors in March 2014.

[22] A total of $10,090.60 plus GST is claimed for actual and reasonable costs incurred in April 2014. That figure includes a service fee of $100 incurred on the service of the statutory demand. CSC’s solicitors have provided a print out of individual authors’ times and hourly rate charged for attendances in April, together with a brief narrative for each attendance. It appears that they did not begin to review Watts & Hughes originating application and supporting evidence until

23 April 2014. Their time records show that Ms Luen spend 4.74 hours in April working on the matter after 23 April, at an hourly charge-out rate of $335. I do not understand that there is any suggestion from Watts & Hughes that that is not a proper charge-out rate for a solicitor of Ms Luen’s experience and capabilities, and it seems to me that Ms Luen’s attendances at this time, and the amount charged for them, were within the range which can be regarded as reasonable. In addition to Ms Luen’s time, there was a modest amount of time spent between 23 April 2014 and 30

April 2014 by a partner in the firm acting for CSC, and a smaller amount of time spent by a solicitor at a more junior level (or possibly a clerk). Allowing for those additional attendances, I assess reasonable and actual costs incurred to 30 April

2014, at $2,000.

[23] The amount sought in respect of CSC’s solicitors’ attendances in May 2014, is $14,950 plus GST. The bulk of this time has been spent by Ms Luen, and the time spent in this period generally reflects the work done completing a review of Watts & Hughes’ application and evidence (including necessary legal research), liaison with CSC, and preparation of the notice of opposition and Mr Te Amo’s affidavit in opposition. By my reckoning, Ms Luen has recorded a little under 30 hours of time spent on the matter in this period, and there is approximately two hours of time recorded by her supervising partner. It does seem to me that a period of over four days to review Watts & Hughes’ application and affidavits, take instruction from CSC and prepare a notice of opposition and one affidavit in opposition is rather more than one would have expected for a case of this size. Certainly there was some complexity in the interpretation argument, but it seems likely that there was also some non-productive time spent reviewing the impact and/or relevance of the Campbell Live programme, which on the view to which I came, had no significance to the issues in the case. Weighing the matter as best I can, I allow $9,000 for legal costs actually and reasonably incurred in May 2014. That sum allows for three days’

work by Ms Luen, with some junior assistance and a modest allowance for partner supervision.

[24] The amount claimed for attendances in June 2014, is $950 plus GST. The attendances appear to comprise general telephone attendances, correspondence, and discussion between Ms Luen and supervising partner. In my view these costs appear to have been reasonably incurred. I allow $950 for the June attendances.

[25] The amount claimed for attendances in July 2014 is $11,000 plus GST. The principal attendances comprised reviewing Watts & Hughes reply affidavits and written submissions, preparing submissions in opposition, and attending at the hearing in Wellington on 16 July 2014. A total of approximately 16 hours appears to have been spent by Ms Luen on preparing the written submissions and bundle of documents for the hearing. In addition, a total of 10.7 hours of Ms Luen’s time was spent on the hearing with return travel from Auckland to Wellington. The hearing itself occupied less than a half day. Again, the total time spent appears to be rather more than one would have expected for a case of this size. I assess reasonable costs for July 2014 at $8,500.

[26] The final elements in CSC’s costs claim are a claim for $1,600 plus GST for filing the memorandum on costs and interest, and a claim for disbursements. The application for interest has been unsuccessful, and it seems to me that CSC’s entitlement to reasonable costs for preparing the costs memorandum should be offset by its failure on the interest argument (on which Watts & Hughes as the successful party would ordinarily have been entitled to an award of costs). In the circumstances, I decline to award costs on the costs memorandum.

[27] The disbursements claimed by CSC total $1,500.53, made up as follows: (a) Fee on serving statutory demand $100 (b) Courier charges $24

(c) Agency filing costs $318.61

(d) High Court filing fee $95.65 (e) Travel Auckland – Wellington, including taxi fares $962.27

$1,500.53

[28] I do not propose to make any award in respect of the service fee on the statutory demand, but otherwise the disbursements claim appear to be reasonable, and it has not been challenged by Watts & Hughes. There will accordingly be an order for disbursements in the sum of $1,400.53.

[29] For completeness, I mention that I have not included any component of GST in the costs awarded. The GST component of the Hesketh Henry invoices will have been deductable as input tax by CSC, and on that basis cannot be regarded as an actual “cost” of its recovery action for the purposes of s 23(2)(a)(ii) of the Construction Contracts Act.

Result

(a) I assess CSC’s reasonable and actual costs at $20,450, and disbursements at $1,400.53. I order that Watts & Hughes pay the total sum of $21,850.53 for costs and disbursements

(b) CSC’s application for an award of interest on the debt is dismissed.

Associate Judge Smith

Solicitors:

Sharp Tudhope Lawyers, Tauranga for Applicant

Hesketh Henry, Auckland for Respondent