Vietnew Corporation Limited v Shand [2023] NZHC 1991 (28 July 2023)

Last Updated: 16 August 2023

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2022-454-102 [2023] NZHC 1991

BETWEEN	VIETNEW CORPORATION LIMITED Applicant
AND	JASON SHAND Respondent

Hearing:	On the papers
Appearances:	J J McGuire for Applicant P J Drummond for Respondent
Judgment:	28 July 2023

JUDGMENT OF ASSOCIATE JUDGE SKELTON

[Costs]

[1] In a judgment dated 28 June 2023 I made an order by consent setting aside the statutory demand issued by the respondent against the applicant dated 6 December 2022.¹

[2] Costs on the application to set aside the statutory demand were reserved. The parties have been unable to agree on costs and have filed memoranda. The applicant seeks costs on a category 3C basis, and the respondent submits that costs should lie where they fall.

Background

[3] The circumstances are that the respondent had determinations made in his favour by the Employment Relations Authority which required the applicant to pay

¹ Vietnew Corporation Ltd v Shand [2023] NZHC 1630.

VIETNEW CORPORATION LIMITED v SHAND [2023] NZHC 1991 [28 July 2023]

the respondent the total sum of $26,396.53. On 12 August 2022, the applicant filed a challenge (appeal) in the Employment Court seeking a de novo hearing.

[4] The respondent issued a statutory demand in respect of the $26,396.53 dated 6 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 that the Authority’s determinations be stayed. On 28 April 2023 the application for a stay was granted by the Employment Court on the condition that the sum of $26,396.53 was paid into Court within 14 days (that is, by 12 May 2023). The Employment Court stated that if this sum was not paid, the respondent would be entitled to pursue the debt due to him.² This amount was paid into Court by the applicant within the required period.

[7] Following an adjournment, the application to set aside the statutory demand came on for hearing on 28 June 2023.

[8] Counsel for the applicant objected to the late filing of counsel for the respondent’s memorandum on costs. An extension of time to 15 July 2023 was consented to by the applicant, and the memorandum was ultimately filed early on the morning of 18 July 2023. There is no obvious prejudice to the applicant, and, in the circumstances, I consider it appropriate to take the respondent’s memorandum into account in determining costs. Counsel for the applicant filed submissions in reply on 26 July 2023.

Legal principles

[9] Costs are ultimately a matter of the court’s discretion, the overall objective being to achieve an outcome that best meets the interests of justice.³ That discretion

² 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] NZCA 10; [2004] 2 NZLR 606

is qualified by the applicable costs rules, contained in pt 14 of the High Court Rules 2016. The primary principle applying to the determination of costs is that costs follow the event – meaning that a party who is unsuccessful pays costs to a party who is successful.⁴

[10] The Court may order a party to pay increased costs where that party has contributed unnecessarily to the time or expense of the proceeding or a step in it.⁵ Increased costs may be awarded where there is a failure by the paying party to act reasonably.⁶ An example is failing, without reasonable justification, to accept an offer of settlement, whether in the form of an offer under r 14.10 or some other offer to settle 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 either badly or very unreasonably.⁹ For example, indemnity costs may be ordered if the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or step in a proceeding.¹⁰

Which party was the successful party?

[12] The applicant submits that costs on a successful application to set aside a statutory demand would usually attract a 2B costs order against the respondent. However, the position is not straightforward in this case because the respondent consented to the setting aside of the statutory demand only after the applicant had obtained a stay of the Authority’s determinations on 12 May 2023, and after agreement was reached at the hearing on 28 June 2023 that it was not necessary to hear and determine the application to set aside the statutory demand (with the parties’ respective positions on costs reserved).

(CA) at [21]–[24] and [28]; and Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt Ltd) [2002] NZCA 277; (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 requires consideration of whether it was appropriate for the respondent to issue the statutory demand 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 the proceeding.

The first interval

[15] The first interval is between the date the statutory demand was issued on or about 6 December 2022 and the date the Employment Relations Authority determinations were stayed on 12 May 2023.

[16] The applicant submits that it should be awarded “uplifted costs” on a 3C basis for this period because the issue of the statutory demand was an abuse of process. The applicant says that the demand was issued the day after the parties attended a judicial settlement conference involving the employment dispute, and that the demand was used to threaten the applicant into paying the amounts ordered by the Authority before those determinations could be reconsidered by the Employment Court.

[17] The applicant also says that it was an abuse of process because the respondent failed to provide any authorities supporting the use of unstayed Employment Relations Authority determinations as the basis for issuing a statutory demand against an employer company, without first registering the determination in the District Court.¹¹

[18] The respondent contends that prior to the stay being granted the statutory demand was properly issued based on the determinations made by the Employment Relations 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 Relations Authority Regulations 2000.

[19] In the circumstances, I do not consider that the issue of the statutory demand on or about 6 December 2022 was inappropriate or an abuse of process for the following reasons.

[20] First, s 289 of the Companies Act 1993 provides that a creditor in respect of a debt owing by a company can make demand “in respect of a debt that is due”. The Employment Relations Authority made determinations resulting in orders that the applicant pay the respondent certain amounts. There has been no authority put forward by either party to suggest that an unstayed Employment Relations Authority determination cannot be used as the basis for issuing a statutory demand against an employer 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 be obtained before the service of a statutory demand.¹²

[21] I do not accept the applicant’s argument (put forward in reply) that, because the applicant had sought a de novo hearing in the Employment Court, there was a genuine dispute and no debt due.

[22] Secondly, the Court of Appeal has emphasised that the purposes of a statutory demand are not limited to being used to prove the insolvency of a company in anticipation of liquidation, but can legitimately be used to recover a debt even when liquidation is not in prospect.¹³

The second interval

[23] The second interval raised by the applicant is the period from the date of stay of the Employment Relations Authority determinations to the date of the judgment by consent on 28 June 2023.

[24] The applicant submits that the statutory demand should have been withdrawn after the two determinations were stayed, but instead, counsel for the respondent did

12. 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 demand was not intended to be used as the basis for liquidation proceedings. Counsel for the applicant submits there were no grounds or justification for the applicant not withdrawing the statutory demand from 12 May 2023 and continuing to pursue a hopeless opposition to the application to set aside.

[25] Counsel for the applicant also refers to two settlement offers made on behalf of the applicant on 15 May 2023 and 19 May 2023, in which the applicant proposed that the statutory demand should be withdrawn, and the application to set aside the demand would then be discontinued, but on the basis that the respondent pay the applicant’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 sensible course for the parties to take was to agree that the statutory demand would be withdrawn, 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 the applicant to require the respondent to pay its costs on a 2B basis because, as I have found above, it was not inappropriate or an abuse of process for the respondent to issue the 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 aside the statutory demand, the respondent would withdraw the statutory demand and each party would bear their own costs.

[29] In the circumstances, this seems to me to have been a reasonable settlement proposal. However, the parties were unable to agree on this basis. In subsequent correspondence, the applicant continued to propose a settlement which required the respondent to pay costs on a 2B basis. Meanwhile, the respondent did not clearly reiterate its earlier offer that he would withdraw the statutory demand on the basis that the application to set aside be discontinued and that costs lie where they fall. As a result, 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 statutory demand to be issued by the respondent on or about 6 December 2022 and prior to the stay of the Employment Relations Authority determinations being obtained. After the determinations were stayed, the parties were unable to reach agreement on withdrawal of the demand and discontinuance of the application to set aside the demand. This was because the applicant continued to require payment of its costs on a 2B basis, and the respondent did not clearly reiterate its initial offer of 15 May 2023 that the statutory demand would be withdrawn if the application to set aside was discontinued with costs to lie where they fall.

[31] Overall, I am satisfied that the appropriate outcome is for costs to lie where they fall.

Result

[32] There is no order as to costs. Costs are to lie where they fall.

Associate Judge Skelton

Solicitors:

Jeremy McGuire, Palmerston North for applicant Flint Law Ltd, Wellington for respondent