IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2014-412-000181 [2015] NZHC 994

UNDER	the Companies Act 1993	

IN THE MATTER OF	
an application to set aside a statutory demand	

BETWEEN	
NORWICH PROPERTIES LIMITED Applicant	

AND	
MARK GRAY ARCHITECT Respondent	

Hearing:
(by telephone conference):	5 May 2015	

Appearances:	
B L Gray for Respondent (Applicant) for costs and other orders
N P D Percy for Applicant (Respondent on these applications)	

Judgment:	
12 May 2015	

JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to costs and disbursements

Introduction

[1]     Norwich Properties Ltd (Norwich) commenced this proceeding with an application to set aside a statutory demand issued by Mark Gray, trading as Mark Gray Architect (Mr Gray).   By this judgment, for reasons which follow, I will be granting leave to Norwich to withdraw its application but will first make costs orders and  deal  with  a  request  by  Mr  Gray  that  I  exercise  powers  under  s  291(1)(a)
Companies Act 1993.

NORWICH PROPERTIES LIMITED v MARK GRAY ARCHITECT [2015] NZHC 994 [12 May 2015]

Background

[2]       Mr  Gray’s  statutory  demand  was  for  $41,572.69,  claimed  pursuant  to  a contract  for professional  services  (the  contract).   The contract  adopted  standard conditions of the New Zealand Institute of Architects (NZIA).1

[3]       Timothy Manning,  a  director  of  Norwich,  deposed  that  the  demand  was incorrectly addressed to Norwich and was therefore defective.   He deposed that Norwich had not engaged Mr Gray to provide services nor had Mr Gray issued any statements or invoices to Norwich.  Mr Manning exhibited statements and invoices addressed by Mr Gray to Queenstown Resort Hotels Ltd (QRHL).

[4]       Mr Gray opposed the application.  He filed a detailed affidavit in opposition and subsequently a further affidavit.

[5]       Mr Gray referred to his provision of professional services commencing in September 2012  for a  hotel  development  at  Queenstown.    He deposed  that  his contract was with Norwich.  He first emailed the NZIA form of contract to Norwich in September 2012 for review and signature by the next week.  He deposes that he was advised by Lauren McCarthy of Norwich that the contract was accepted as proposed, although he did not receive a signed copy back from her.  Mr Gray’s work then continued over the following 12 months.  Mr Gray initially, from 30 September
2012, sent invoices to Norwich.  He deposes that he was then asked to reissue the invoices and address them to QRHL, a request which did not surprise him as many of his clients pay from different sources and contact details for QRHL were the same as for Norwich.   Mr Gray deposes that the process of piecemeal work and time- charged accounts was repeated until September 2013 when he began a substantial part of his work preparing three building consent applications.

[6]       On 4 September 2013, Mr Gray sent an email to Ms McCarthy at Norwich attaching an indicative fee estimate together with a copy of the 2013 NZIA contract
“for your action”.  Ms McCarthy replied by email the same day recording:

1	In particular the NZIA Agreement for Architects Services (AAS) 2011 and the NZIA AAS 2013 (2nd ed, short form).

Great Mark – Thanks	Can you start straight away?

[7]       Mr Gray deposes that there was a pattern of slow payment of his invoices through QRHL until the last payment occurred on 5 February 2014.  He deposes that in the meantime he had kept up the momentum of the project based on promises of funds soon to be released.  On 2 April 2014, he advised Norwich by email that he would not carry on.

[8]       Throughout  2014,  Mr  Gray  received  emails  from  both  Ms  McCarthy (Norwich’s Project Manager) and from Mr Manning.   They advised Mr Gray of progress with funders and of scheduled payments.  Mr Gray was repeatedly thanked for his patience.

[9]       Mr Gray deposes that following a number of promises of payment which were not kept, he instructed his solicitor to write to Norwich’s Financial General Manager to demand payment.  The letter demanded payment of $36,131.55 owing under the contract for fees for services and offered to cap the penalty interest at
$1,500 if the outstanding fees were paid by 10 October 2014.

[10]     Norwich did not make the required payment.   Mr Gray’s solicitors issued the

statutory demand.

[11]     After  Mr  Gray  was  served  with  the  setting  aside  application  and  Mr Manning’s affidavit, Mr Gray’s solicitors promptly wrote to Norwich’s solicitors. Reference was made to the evidence which Mr Gray would subsequently provide by affidavit.   Some of the supporting documents were attached.   The letter advised Norwich  that  full  penalty  interest  (accruing  to  the  date  of  payment)  would  be required  as  would  payment  of  costs  on  a  solicitor/client  basis  in  terms  of  the contract.

[12]     Mr Gray’s solicitors indicated they had been instructed to file a notice of opposition and supporting affidavit. They gave notice under r 9.74 High Court Rules requiring Mr Manning for cross-examination.   They stated that Mr Manning had misled the Court by asserting that Norwich did not engage Mr Gray.

[13]     Twelve days later, Mr Gray completed his second affidavit.  He referred to contact from and negotiations with Mr Manning from 11 November 2014.   His record of a phone call from Mr Manning on 13 November 2014 records Mr Manning as stating that if Mr Gray did not withdraw the statutory demand, Mr Manning would simply fold the company and proceed with the project using another company.  Mr Gray records that in a later discussion (18 November 2014), after continued negotiations, Mr Manning accepted the value of the debt at “$41k” without dispute. The parties were unable to agree terms of deferred payment.

[14]     The Norwich application was not withdrawn at that point.

[15]     At the first call on 20 November 2014, the Court accordingly made directions for a hearing on a date to be allocated.

Payment by Norwich

[16]     Mr Gray’s statutory demand was for $41,572.69.

[17]     On  29  April  2015,  Norwich  paid  to  Mr  Gray  the  $41,572.69  he  had demanded.

[18]     Norwich did not make any payment on account of costs or disbursements associated with this proceeding.  Nor did it make any payment in relation to penalty interest accruing in the period from 10 October 2014 to 29 April 2015.

Norwich’s “notice of discontinuance”

[19]     On 28 April 2015, the Court received for filing a notice dated 24 April 2015 in which Norwich notified the Court that it was discontinuing the application.

[20]     Mr Percy, for Norwich, subsequently accepted that the Court’s leave was required if the applicant is to withdraw its application.   Norwich now seeks such leave.

[21]     I will be granting Norwich leave to withdraw its application, but will first deal with costs issues.2

Costs and disbursements of the setting aside application

[22]     Mr Gray seeks an order that Norwich pay his costs and disbursements.

A 2B approach?

[23]     Norwich does not oppose an award of costs and disbursements.  It implicitly accepts that costs must follow the event.  Mr Percy submits that costs ought to be upon the basis of a 2B calculation.

[24]     Mr Percy also notes that Mr Gray, through his statutory demand, made a demand for $1,155 for collection costs including a service fee ($200) in relation to service of the demand itself.  Norwich by its April payment covered those costs and disbursements.  I accept Mr Percy’s submission that it would not be appropriate or just to make any order for a further payment in relation to the statutory demand itself.

[25]     On Mr Percy’s proffered calculations, a 2B approach would result in the

following calculations:

Item	Description		Time	$ amount allocation

38	Filing notice of opposition and affidavits	2.0	$3,980.00	
11	Filing memorandum for case management	0.4	$796.00	
conference
13	Appearance at case management conference
on 20 November 2014	0.3	$597.00
Total	2.7	$5,373.00

[26]     For Mr Gray, Mr Gray’s counsel (Mr Gray (counsel)) submits that, were there to be a 2B approach, an additional item should be allowed in relation to Mr Gray’s second affidavit.  I would not usually find it appropriate or just to add an additional
item where a deponent on an application to set aside a statutory demand files a

2           I am dealing with the request as an application for leave to withdraw the originating application rather than to “discontinue”. The latter term applies to discontinuance of an ordinary proceeding against defendants – ie r 15.18 High Court Rules.

second affidavit, particularly if the second affidavit is not of great length.   That applies here in that the second affidavit contains only two pages of narrative and deals with a few events which took place in a one-week period.  With a recovery for notice of opposition and affidavits based on a time allocation of two days I would not consider on a 2B approach applied to this case that there is any justification for an additional allowance for Mr Gray’s second affidavit.  (That is not to say that the filing of Mr Gray’s second affidavit was not justified – having regard to its contents and the timing of the events it described it plainly was).

An indemnity approach?

[27]     Mr  Gray  (counsel)  has  produced  an  invoice  addressed  to  Mr  Gray  for

$11,704 (fee content $9,815 plus GST).  The invoice is dated 9 December 2014 (the

December invoice).

[28]     Mr Gray seeks indemnity costs pursuant to r 14.6(4)(e) High Court Rules, the (NZIA) contract providing (in addition to a requirement for payment of interest on overdue accounts) that:

… the Client shall also pay any debt recovery costs.

[29]     Mr Gray (counsel) accepted that in relation to such a clause, the Court is engaged in a task of contractual interpretation.  In this case, Mr Gray asks the Court to construe the costs recovery clause as providing indemnity.   Mr Percy did not submit that the costs recovery clause in this case did not give Mr Gray a prima facie entitlement to indemnity costs.  Rather, Mr Percy relied upon the Court’s recognition that for a Court to award indemnity costs pursuant to a contract it must be satisfied that the costs are reasonable.

[30]     I adopt the considerations identified by the Court of Appeal in Black v ASB Bank  Ltd  in  relation  to  contractual  provisions  for  indemnity  costs,  including
significantly for this case:3

3	Black v ASB Bank Ltd [2012] NZCA 384 at [77]–[99].

(a)	The word “reasonable” in r 14.6(1)(b) does not import a discretion in

the usual sense.

(b)       It  is  for  the  Court,  when  assessing  whether  the  indemnity  costs claimed under a contract are reasonable, to make an objective assessment whether the tasks undertaken were reasonably necessary and  were  covered  by the  contract,  whether  the  charge  rates  were reasonable and whether any other general contract law principles should deny the claimant its prima facie right to judgment for the full amount of such costs.

(c)       There is room for robust judgment on the part of Associate Judges (and Judges) as to whether costs are reasonable in all the circumstances.

The indemnity costs sought in this case

[31]     It is not uncommon for this Court, when considering an uplift over scale costs, to order a 50 per cent uplift on a 2B calculation.  The Court views such an approach as fitting well with the intention of the Rules Committee, when the daily recovery rates of the High Court Rules are revised, to reflect approximately two- thirds of what might be considered a reasonable fee between solicitor and client.

The December invoice

[32]     Mr Gray (counsel) explains that he essentially adopted the 50 per cent uplift approach in setting the first fee charged to his client in the December by invoice.

[33]     Mr Gray (counsel) confirmed to me in the course of his submissions that he does not keep contemporaneous records of his time.  Mr Gray indicated that to the extent he has a charge out rate, it is $200 per hour.

[34]     By referring to items under Schedule 2 of the High Court Rules and applying a daily rate of $3,000 (in place of the $1,990 Scale B daily allowance), the December invoice identified the following components:

Collections costs up to 10 October 2014	$965.00	
Notice of opposition and supporting affidavit	$6,000.00	
Memorandum for the first call hearing	$1,200.00	
Appearance at first hearing	$750.00	
Second affidavit in opposition	  $900.00	
Subtotal	$9,815.00	
GST	$1,472.25	
Total	$11,287.25	

[35]	Additionally, the invoice includes two disbursements as follows:

Service fee on statutory demand	$200.00	
Filing fee on notice of opposition	$155.00	
Photocopying, tolls and unrelated charges	$61.79	
Subtotal	$416.79	

[36]	The December invoice accordingly was for a total of $11,704.04.

The post-November 2014 attendances

[37]	In addition to the December invoice, Mr Gray (counsel) has in his written submissions stated that Mr Gray (as client) has incurred fees of $8,250 since 19
November 2014, comprising:

(a)       extensive correspondence by email and letter between counsel and client, counsel and counsel, or counsel and the Court – a very conservative estimate being one day at $3,000;

(b)	drafting and filing counsel for the respondent’s memorandum to the

Court dated 28 April 2015 being ¼ day at $3,000 – a subtotal of

$750.00.

(c)       research, drafting and filing, costs and related submissions – one day at $3,000 a day; and

(d)       preparation  and  anticipated  appearance  at  the  hearing  by  way  of telephone conference today (by analogy with an issues conference) – half a day at $3,000 a day – a subtotal of $1,500.

[38]	Mr Gray (counsel) thus arrived at an additional sum to be charged of $8,250 plus GST.	He says that there are additionally general disbursements of $50 and

specific research costs, being an invoice from the New Zealand Law Society Library at $34.50.

[39]     The total sum sought by way of costs and disbursements by Mr Gray is

$21,276.04 (in addition to the costs and disbursements component of $1,165 met by

Norwich when making payment pursuant to the statutory demand).

Exclusion of GST

[40]     The invoices in evidence indicate that Mr Gray (counsel) is registered for

GST purposes.

[41]     I adopt the conclusions in my judgment in Dunedin Catering Supplies v Mr Chips Ltd in relation to the GST component of indemnity costs – it is not recoverable in the present situation where the indemnified party will recover the GST as an input.4

Norwich’s criticism of the Gray legal costs

[42]     Mr Percy makes criticisms of the general costs approach adopted in relation

to Mr Gray’s fees as well as some specific criticisms of the sums involved.

[43]     The general criticisms were:

(a)       The focus of enquiry into indemnity costs is to establish whether they are reasonable.

(b)       In Bradbury v Westpac Banking Corporation Harrison J observed that indemnity costs are calculated, not from the costs rules, but from a “reasonable allocation of actual costs”.5   What Mr Gray (counsel) has
done is to base his fees on the costs rules and not actual costs.

4	Dunedin Catering Supplies v Mr Chips Ltd [2013] NZHC 1815, (2013) 21 PRNZ 798 at [67].
5           Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 (HC) at [209]; affirmed on appeal Bradbury v Westpac Banking Corporation [2009] NZCA 234; [2009] 3 NZLR 400; (2009) 19 PRNZ 385.

(c)       The Gray invoice does not disclose the hourly rates charged, the time expended, or any information as to how the time was actually allocated.  (Mr Gray (counsel) had not recorded his time, yet without time records there is no way to verify time actually spent on Mr Gray’s behalf).

(d)       The Court in this case cannot be satisfied that the indemnity costs sought by Mr Gray would not involve a profit from the conduct of the litigation, a situation which would offend against the principle under r 14.2(f) High Court Rules (that an award of costs should not exceed the costs incurred by the party claiming costs).

(e)	Mr Gray (counsel) has not rendered a fee note for the post-November

2014 attendances.  It is fundamental that a party may only be liable to indemnify another party if a fee note has been rendered.

[44]     Mr Percy then turned to the calculations in the invoice and in Mr Gray’s submissions as to post-November attendances.  Mr Percy highlighted the following financial implications:

(a)       The attendances covered by the $9,815 invoice were “modest”, being in relation to the letter of demand, the statutory demand, the notice of opposition and affidavit in opposition, the first call of the application and some limited settlement discussions.  If the hourly charge-out rate for the work was $200 it would equate to 49 hours work.

(b)       The post-November calculation of an additional $8,250 (plus GST) for the period from November 2014 indicates (at an hourly charge-out rate of $200) 41 hours’ work.

[45]     Mr Percy concludes that, on the evidence in fact before the Court, I should not be satisfied that the 90 hours involved on a $200 per hour rate were actually expended on this litigation by Mr Gray’s solicitors.

Discussion of the December invoice

[46]     The approach adopted by Mr Gray (counsel) to the fixing of the December invoice is unusual but I do not regard it as unreasonable.   The Rules Committee establishes something of a benchmark by which reasonableness may be tested when it sets the daily recovery rate under the High Court Rules.6   In appropriate cases, the Court commonly imposes a 50 per cent uplift above 2B scale.  This reinforces what I will call a “notional 100 per cent” recovery.

[47]     The fact is that in this case, Mr Gray’s solicitors do not seek in terms of the principle of their approach more than a notional 100 per cent recovery.

[48]     It will not uncommonly be the case in High Court litigation, particularly where costs are ordered on a 2B calculation, that even an uplift of 50 per cent above scale will not cover the actual fees charged.  In other words, the solicitor/client fee will be more than the notional 100 per cent recovery arrived at on a 2B calculation plus 50 per cent uplift.  As expressed in Bradbury v Westpac Banking Corporation the judicial expectation of a reference to time taken and hourly rates has particular relevance where the claimant for costs seeks to have the unsuccessful party provide
indemnity of costs which exceeds the notional 100 per cent recovery.7    But it does

not require a disregard of scale costs.   In fact, in Bradbury v Westpac Banking Corporation, Harrison J acknowledged in his Honour’s assessment of what costs were reasonably incurred:8

… I have been greatly assisted by Ms Kos’ [sic] provision of the schedules
of the scale costs …

His Honour went on to refer to other provided information such as actual costs.

[49]     I therefore conclude that Mr Gray’s approach, based on a notional 100 per cent recovery, provides acceptable guidance as to whether the fees claimed were reasonably incurred.   Such an approach is unlikely to carry the same weight in a
situation where the indemnity costs sought exceed a notional 100 per cent recovery

6           See Sim’s Court Practice, (looseleaf ed, LexisNexis) at [HR 14.4.3]: “The daily rates … are intended to broadly approximate two-third of the rates which practitioners within the three groups customarily charge to clients as actual fees.
7	Bradbury v Westpac Banking Corporation, above n 5.
8	At [210].

but this is not such a case.  It is a very different case from Bradbury, in which the Court  found  that  Westpac’s  fees  had  been  of  a  magnitude  which  an  objective observer would not have expected for the litigation in question.9

[50]     Save to correct some of the detailed calculations of the approach to recovery, I accept the December invoice as representing a reasonable and predictable recovery as between solicitor and client (reminding myself in terms of Black v ASB Bank Ltd that my review of reasonableness in this context does not import a discretion in the usual sense).10

[51]     That said, the following items fall for deduction from the costs to be ordered in relation to the December invoice:

(a)       Costs  and  disbursements  on  the  issue  of  statutory  demand  were already identified in the demand itself and were met by Norwich when making payment on the demand.  It would be inappropriate to award a “top-up” let alone a double recovery.

(b)	Given that Mr Gray’s solicitors were expressly intending to adopt the

50 per cent uplift approach, based on a 2B calculation, the recoverable figures should accurately reflect that approach (correcting the daily rate to $2,985).

(c)       The charging of an additional $900 (approximately one third of the daily rate)  for  an  additional  two-page  affidavit  when  two  days  is already allowed for the opposition’s supporting affidavits cannot be viewed as reasonable by the standards of what a reasonable observer would expect to be recoverable costs, and should not be included.

(d)	GST is to be excluded.

9	At [205].
10	Black v ASB Bank Ltd, above n 3.

Outcome on December 2014 invoice

[52]	It is just that Mr Gray recovers in relation to the December invoice his reasonable indemnity costs (other than those in relation to the statutory demand as
covered by a previous payment), which I conclude are:

Notice of opposition and supporting affidavits	$5,970.00	
Memorandum for first call	$1,194.00	
First conference (0.2)	  $597.00	
Subtotal (fees)	$7,761.00	
Disbursements	  $416.79	
Total	$8,177.79	

[53]     It  is  not  appropriate  to  make  any  adjustment  for  what  Mr  Percy  has characterised as a “profit” element in the invoice.  Mr Gray (counsel) has confirmed in  submissions  that  the  invoice  has  been  accepted  by  his  client  for  payment. Recovery of the sum of costs which I will be ordering will not involve a recovery by Mr Gray of a sum over and above his fees’ liability.

[54]     I recognise that Mr Gray (counsel) has stated that, upon the basis of the items calculated in total by reference to the High Court Rules, the fee invoice did not include charges for various communications with counsel, the High Court and the client.  Such attendances may have justified a fee as between solicitor and client, but it is inappropriate to  recognise them in the absence of  any proffered  details or calculations.

[55]     Consequently, the sum of fees and disbursements which I would recognise as reasonable for recovery purposes up to 9 December 2014 is $8,177.79.

Discussion of post-November 2014 attendances

The items claimed

[56]     Most of the attendances identified by Mr Gray in the period from November

2014 relate to the present hearing and judgment in relation to costs.  I will deal with those separately.

[57]     One remaining item relating to the opposition to the application is the item which Mr Gray (counsel) explained (above at [37](a)).  Mr Gray claimed $3,000 for extensive correspondence between counsel and client, counsel and counsel and counsel and the Court.   Mr Gray (counsel) stated that a conservative estimate of those attendances was one day.  He said that his client had incurred that cost.

[58]     Mr   Gray’s   calculation   cannot   be   supported   by   a   reference   to   any

contemporary time records.

[59]     When the Court is dealing with general attendances (as against specific steps in  a  proceeding)  and  there  is  not  a  time  record  to  support  the  estimate,  the attendances are of a different nature to the steps in litigation which are the subject of the December invoice (all steps on a proceeding).  I accept Mr Percy’s criticism of the lack of specific evidence as to time taken.  A party which seeks to pass on its costs for general attendances (as against specific steps in litigation) upon the basis of a contractual right of indemnity cannot expect the Court or the other party to regard a broad estimate of the time taken as reasonable.

[60]     On the basis of the evidence (or lack thereof) provided by Mr Gray (counsel), I do not have a basis for finding any level of recovery reasonable in relation to the
$3,000 claim for one day of correspondence.

[61]     Mr Gray also seeks a costs award which includes an additional $5,250 in relation to attendances which primarily relate to costs submissions and this hearing, together with a total of $84.50 disbursements.  I will deal with those costs later in this judgment, after I have dealt with separate orders sought by Mr Gray.

Additional  powers  of  the  Court  on  an  application  to  set  aside  a  statutory demand

Mr Gray’s request

[62]     Mr Gray identifies a sum of $4,168.03 calculated under the contract as the penalty interest unpaid when Norwich satisfied the statutory demand on 29 April
2015.

[63]     Mr  Gray  asks  the  Court  to  use  the  additional  power  provided  under s 291(1)(a) Companies Act 1993, which provides:

291 Additional powers of court on application to set aside statutory demand

(1)        If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is  not subject to a counterclaim, set-off, or cross-demand, the court may—

(a)        order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or

(b)        dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,—

on the ground that the company is unable to pay its debts.

[64]     Mr Gray does not seek an order of liquidation under s 291(1)(b).  Rather, he seeks an order as to payment under s 291(1)(a).

Inability to pay debts

[65]   I accept Mr Gray’s submissions that it is established that Norwich has demonstrated an inability to pay its debts.   Mr Percy has submitted that Norwich’s payment of the demand cuts across a finding of such inability.  But correspondence over a lengthy period from Norwich has indicated that it has cash-flow problems which have prevented it from paying debts as they fall due.   Norwich has had to depend on funders, with the attendant delays, to come up with money for overdue payments.  The failure to meet Mr Gray’s demand on time (only to make payment at a much later date) may have entitled Mr Gray to rely on the presumption of insolvency under s 291(2), although I reach my conclusion as to Norwich’s inability to pay its debts by reference to its own documentary record.

Lack of substantial dispute

[66]     I am also satisfied, in terms of s 291(1), that there is a debt due by Norwich to Mr Gray that is not the subject of a substantial dispute.  The debt is, as Mr Gray (counsel) submitted, the penalty interest of $4,168.03 payable under the contract. Norwich, by meeting the statutory demand on 29 April 2015, paid the interest due as

at 10 October 2014 but has not paid the interest which accrued from 11 October 2014 to 29 April 2015.

[67]     The threshold tests (a debt due and inability to pay debts) are therefore met.

The discretion under s 291(1)(a) – the accrued interest

[68]     I have the power to make an order under s 291(1)(a).

[69]     The “debt due” under s 291(1) is not required by the terms of the legislation to be the very debt identified in the statutory demand.  It is enough that there is “a debt due by the company to the creditor”.

[70]     In this case, the additional debt due arises out of the same contract and has increased in size solely because Norwich failed to satisfy the demand for months after its issue.

[71]     I am satisfied that it was within the intention of Parliament, as expressed in s

291,  that interest on a debt could be the subject of a s 291(1)(a) order.  It is a “debt”, and if the Court were not to treat it as a qualifying debt, a creditor could be forced from time to time to issue fresh statutory demands in relation to liabilities accruing under the same contract when the debtor delays payment.

[72]     I will accordingly be making a s 291(1)(a) order in relation to the accrued interest.

The discretion under s 291(1)(a) – the costs and disbursements of this proceeding

[73]     At the conclusion of an application to set aside a statutory demand, there will frequently be a costs and disbursements order, as there will be in this case.

[74]     That costs and disbursements order becomes a debt due when the Court gives judgment or makes orders on the hearing of a s 290 Companies Act application.

[75]     It  is  not  clear  in  terms  of  s  291(1)  whether  a  costs  and  disbursements

judgment ordered following the hearing of an application under s 290 is “a debt due

… on the hearing of an application under s 290”.  I am inclined to the view that the section’s reference to “the Court [being] satisfied that there is a debt due” is a reference to debts which exist at the time of the hearing rather than those which come into existence through a judgment given as a result of the hearing.

[76]     Counsel did not refer me to any authority on that point and I refrain from deciding the issue in  this  case on  the basis  of a particular view of the correct construction.

[77]     I assume, for the following discussion (without deciding), that there may be jurisdiction to make a s 291(1)(a) order in relation to a costs and disbursements judgment flowing from the hearing of a s 290 application.  If so, it would be a power which the Court would exercise only in exceptional cases.

[78]     Norwich’s debt for professional fees and interest was for a liquidated sum. Norwich  could  itself  calculate  the  interest.    It  is  appropriate  that  any  balance payment of interest, calculated to the date of payment of the principal sum, should be the subject of a s 291(1)(a) order based on the same statutory demand.

[79]     On the other hand, the costs and disbursements, which are the subject of the order which I will be making, are of a different nature.   While the entitlement to claim indemnity costs arises from the contract, the amount payable is subject to determination by the Court pursuant to a discretion, albeit a somewhat limited discretion.  The amount of costs and disbursements which ultimately becomes due and owing on an indemnity basis remains uncertain until the Court adjudicates.

[80]     By this judgment, Norwich now knows the extent of its liability for costs and disbursements and may settle that liability.   If it does not do so it is a relatively simple matter for Mr Gray to issue a statutory demand relating to the costs and disbursements.  The modest cost and additional time involved does not outweigh the appropriateness of leaving such a specific debt, now quantified, to be dealt with in a fresh statutory demand.  Such a course also meaningfully preserves the right of the company, if it believes the costs and/or disbursements judgment is incorrect, to pursue an appeal and a full or partial stay of execution.

Outcome

[81]     There will be an order in terms of s 291(1)(a) that Norwich pay the accrued interest, but no similar order in relation to the costs and disbursements.

Costs and disbursements on the present applications

[82]     I return to the issue of costs.

[83]     Mr  Gray  has  succeeded  in  obtaining  both  an  order  under  s  291(1)(a) Companies Act and an order for costs and disbursements.

[84]     It might be suggested that Mr Gray has been significantly less successful in his applications than he desired.  The s 291(1)(a) order will refer only to the interest debt and not to the more substantial costs and disbursements order.  The costs and disbursements judgment is not for the full amount sought by Mr Gray.   With the contest  over  costs  and  disbursements  having  been  as  to  quantum  (rather  than liability),  the  outcome  falls  somewhere  between  Mr  Gray’s  asserted  right  of indemnity and Norwich’s assertion that a 2B calculation was appropriate.

[85]     However, Norwich’s liability for costs and disbursements has flowed from its unsuccessful application to set aside the statutory demand.   Norwich committed itself contractually to a liability in relation to debt collection steps which I have found to be in the nature of an indemnity.

[86]     I am satisfied that the appropriate and just outcome is that Mr Gray should recover his costs and disbursements on an indemnity basis subject to the Court’s being satisfied that they are reasonable in the sense that a reasonable observer would expect those costs for the attendances involved.

[87]     The attendances involved in this context primarily related to an argument over the costs and disbursements of the setting aside application.   The costs also relate to Mr Gray’s successful pursuit of a s 291(1)(a) order but the issue in that regard was simpler and the submissions account for less than a quarter of the overall submissions.   The submissions were understandably dominated by the costs and

disbursements issues.  It also emerged in the course of the submissions of Mr Gray (counsel) that approximately a quarter of his submissions had been provided (apparently free of charge) by another firm of solicitors with expertise in relation to the NZIA form of contract.

[88]     Mr Gray’s submissions identified three items of costs claimed in this regard. Mr Gray (counsel) confirms that his client has incurred the costs involved but, in the absence of time records, there is a degree of doubt as to whether the times estimated represent the actual time or indeed are reasonable as between solicitor and client. There are, however, only three quite specific items which the Court is in a reasonable position to assess with  a degree of robustness  because they represent  relatively standard steps in the civil litigation process.  Because Mr Gray’s solicitors have not provided time records, the robustness will be exercised in favour of Norwich.

[89]     The three items are:

(a)	Drafting  and  filing  a  memorandum  in  response  to  a  notice  of discontinuance.

    Counsel for Norwich had purported to discontinue the proceeding by filing a notice of discontinuance, suggesting that costs be dealt with by the Court on the papers on the basis of memoranda to be filed.   Mr Gray (counsel) appropriately filed a memorandum in response.   For this item, Mr Gray (counsel) proposes to charge
$750.  Schedule 3, Item 11 would allow 0.4 days for a mentions hearing memorandum.  By comparison to a daily rate of $2,985,
$750 is a reasonable figure.

(b)	Research, drafting and filing submissions for this hearing.

    Mr Gray (counsel) estimates one day and proposes to charge his client $3,000.  The submissions occupy 13 pages of which three are devoted to a simple chronology.   There is some simple discussion of legal principles relating to s 291 Companies Act.  A

quarter of the submissions were not Mr Gray’s own work.  There is some reference to relatively standard authorities in relation to costs and disbursements.   In the absence of time records, I am satisfied that at least one quarter day was justified as between solicitor and client. Approaching the memorandum on the basis of one quarter-day, I find a reasonable sum to be $746.25.

(c)	Preparation for and appearance at this hearing.

  Mr Gray (counsel) understandably had to anticipate the time potentially  involved  at  this  hearing.    He  adopted  a  half-day estimate by reference to Schedule 3, Item 14 (which allocates that time for preparation for an appearance at an issues conference).  I regard  that  as  a  reasonable  approach  as  between  solicitor  and client.     The  exact  figure  produced  (at  $2,985  per  day)  is
$1,492.50.

[90]	The fees reasonably incurred are therefore:

Memorandum	$750.00	
Submissions	$746.25	
Hearing	$1,492.50	
Total	$2,988.75	

[91]     Mr Gray additionally seeks disbursements of $84.50.   The $34.50 invoice paid to the New Zealand Law Society Library includes an element of $4.50 GST which is recoverable as an input by Mr Gray and ought not to be included in a costs and disbursements order.  The other disbursement is a general disbursements claim which Mr Gray (counsel) charges to cover general disbursements.  Having regard to the required attendances, this is a recoverable disbursement in terms of r 14.12(1)(a) High Court Rules.

[92]     The appropriate award in relation to disbursements is therefore $80.00.

[93]     Given that these costs (of $2,988.75) and disbursements (of $80.00) totalling

$3,068.75 have arisen in the context of the applications before me at this hearing, I

do not find it unacceptable (as Mr Percy suggested it is) that there is not a finalised invoice in evidence.  It is sufficient in the circumstances that Mr Gray (counsel) has confirmed that Mr Gray accepts the changes.

Orders

[94]     I order:

(a)       the applicant shall pay to the respondent the interest debt of $4,168.03 within 10 working days and, in default of payment, the respondent may make an application to put the applicant into liquidation;

(b)       the applicant shall pay to the respondent the costs and disbursements of the setting aside application in the sum of $8,177.79;

(c)       the applicant shall pay to the respondent the costs and disbursements of  this  hearing  in  relation  to  costs  and  disbursements  and  the s 291(1)(a) Companies Act 1993 application in the sum of $3,068.75; and

(d)       the applicant has leave to withdraw its application which withdrawal is of immediate effect.

Associate Judge Osborne

Solicitors:
C P Burke, Solicitor, Dunedin
Kevin MacDonald & Associates, Auckland
Copy to: B L Gray, Barrister, Dunedin