Stella Hire Limited v Bob Howden Engineering Limited [2015] NZHC 2819 (12 November 2015)

Last Updated: 19 November 2015

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2015-409-000668 [2015] NZHC 2819

UNDER	Section 290 of the Companies Act 1993
IN THE MATTER	of an application to set aside a statutory demand
BETWEEN	STELLA HIRE LIMITED Applicant
AND	BOB HOWDEN ENGINEERING LIMITED Respondent

Hearing:	12 November 2015
Appearances:	S A Brookes for Applicant No appearance for Respondent
Judgment:	12 November 2015

_{COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] In this proceeding the applicant sought an order setting aside a statutory demand issued against it by the respondent, dated 29 September 2015.

[2] The application was served and an affidavit of service produced to the Court. The respondent did not oppose the application, nor appear at the first call on

12 November. The Court made an order in terms of the application, setting aside the statutory demand. Costs were reserved; this judgment determines the applicant’s claim for indemnity costs.

[3] By way of affidavit from a secretary employed with the firm of solicitors engaged by the applicant, correspondence between that firm and a debt collection

_{company engaged by the respondent was produced in evidence. It is quite clear from}

Stella Hire Ltd v Bob Howden Engineering Ltd (Costs Judgment) [2015] NZHC 2819 [12 November 2015]

this correspondence that there was a dispute between the applicant and the respondent over liability for the debt. Each side took a completely different position in relation to the plans and related requirements for the engineering work in respect of which the debt is claimed.

[4] Statutory demands are issued under s 289 of the Companies Act 1993 to determine whether a statutory presumption of insolvency can be established, this presumption being one of the grounds on which an application may then be made to this Court to wind up the company against which the demand is made. All proceedings relating to these demands, and indeed any subsequent application for liquidation, are dealt with by this Court in its Companies Act jurisdiction. It is clear established law that it is not the role of this Court, on an application to set aside a statutory demand, to determine any dispute that may be raised. Rather, the role of the Court is to determine whether there is a dispute, or not. Resolution of any dispute, if the Court finds there is one, lies in another jurisdiction and possibly, where the sum involved is relatively modest as in this case, in another court.

[5] It follows that issuing a statutory demand in the face of clear evidence that the parties involved are in dispute with each other is an inappropriate use of a procedure, the sole purpose of which is as I have outlined. It amounts to the use of the procedure as an inappropriate method of putting pressure on a debtor to pay, failing which its credit rating will be adversely affected, and to salvage the position it will have to bring a proceeding in the High Court (as in this case). The law on the use of statutory demands in this way is clear. It is inappropriate and unacceptable.

[6] For these reasons I am satisfied that the applicant is entitled to costs and disbursements against the respondent. Further, the applicant has made out that the respondent has acted improperly, in terms of r 14.6(4) of the High Court Rules, in issuing the statutory demand, the first step in a process provided for by statute in order to liquidate companies which are insolvent. An order for indemnity costs may therefore be appropriate.

[7] However, I express some surprise at the level of the costs claimed. Legal fees amount to $22,566.25, plus disbursements. I am not satisfied that an award of

costs at this level is justified. The documents filed comprise the original notice of application and an affidavit running to just 13 paragraphs, though with a number of exhibits. Certainly it was necessary for the applicant’s solicitors to be fully briefed on the nature of the dispute, and there was a modest amount of correspondence prior to it being necessary for this proceeding to be issued. However, without any details as to the number of hours involved or the charge-out rates applied by the solicitors, I am not prepared to award indemnity costs in the sum claimed.

[8] By way of comparison, costs on a scale 2B basis would be awarded on the basis of two days, for issuing the proceeding, and one appearance at a callover. I have not been provided with a calculation of the exact fee which might be awarded, nor calculated a fee myself, but it would be in the order of $5,000 to $6,000.

[9] I weigh that figure against the fact that the respondent’s irresponsible use of the procedure provided for by s 289 has caused the applicant to incur fees well in excess of this figure, and the fact that the respondent was advised by a debt collection company, including a solicitor, who would have been, or most certainly should have been, aware of the issue before the Court on an application to set aside – namely, that it is only necessary to show that there is a genuine dispute. The fact of a genuine dispute was manifestly obvious on the information provided by both sides in pre-issue correspondence.

[10] I award to the applicant costs in the sum of $12,000 plus disbursements as listed in the schedule to the affidavit of Ms C S McCrostie.

_{J G Matthews}

Associate Judge

Solicitors:

Buddle Findlay, Christchurch.