ALT New Zealand Ltd v Attorney-General
[2024] NZHC 140
•9 February 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-146
[2024] NZHC 140
UNDER the Judicial Review Procedure Act 2016 and the Declaratory Judgments Act 1908 IN THE MATTER
of an application for judicial review, and for declarations under the Declaratory Judgments Act 1908, in respect of cl 15 and Sch 5 to the Smokefree Environments and Regulated Products Regulations 2021
BETWEEN
ALT NEW ZEALAND LTD
First Applicant
AND
VEC LTD
Second Applicant
AND
MYRIAD PHARMACEUTICALS LTD
Third Applicant
AND
ATTORNEY-GENERAL
Respondent
On the Papers
Counsel:
D A Laurenson KC and L I van Dam for Applicants H Ebersohn and V A Howell for Respondent
Judgment:
9 February 2024
COSTS JUDGMENT OF ELLIS J
ALT NZ LTD v VEC LTD [2024] NZHC 140 [9 February 2024]
[1] In late March 2023, ALT New Zealand Ltd, VEC Ltd and Myriad Pharmaceuticals Ltd (together, the applicants) brought proceedings against the Director-General of Health regarding the interpretation of cl 15 of sch 5 of the Smokefree Environments and Regulated Products Regulations 2021. At issue was whether the cl 15 regulated the strength of nicotine in nicotine salt (as the applicants contended) or of the nicotine salt itself.1 A hearing on 16 August 2023 was allocated.
[2] On 26 May 2023 the Ministry of Health (the Ministry) advised the Minister of Health (the Minister) of its intention to concede that cl 15 was to be interpreted as submitted by the applicants.2
[3] On 23 June counsel for the Ministry filed a memorandum seeking an adjournment of the 16 August fixture because the Ministry was proposing to amend the regulations to “clarify” the meaning of cl 15 and were consulting on that proposal. The proposed amendment would (and later, did):
… regulate on the basis of nicotine strength (which is what the appellants [sic] seek). This amendment is proposed to set the concentration of nicotine strength in products containing nicotine salts at 28.5mg/ml.
[4] This memorandum prompted me to inquire, in a Minute dated 3 July 2023, whether the Ministry now agreed that the applicants’ grounds of review were made out and that a declaration to that effect could be made.3 The Ministry advised in response that the Ministry did not agree to a declaration being made “at this time”.
[5] The applicants opposed any adjournment of the hearing and denied that the interpretation issue was moot. I agreed with that submission and declined the adjournment application.4
1 To the extent this judgment requires the reader to understand the merits of the interpretation issue in any detail, it should be read alongside my decision in ALT New Zealand Ltd v Attorney-General [2023] NZHC 2300.
2 This advice was referred to in a later affidavit by the Minister.
3 ALT New Zealand Ltd v Director-General of Health HC Wellington CIV-2023-485-146, 3 July 2023 (Minute of Ellis J).
4 ALT New Zealand Ltd v Director-General of Health HC Wellington CIV-2023-485-146, 10 July 2023 (Minute of Ellis J).
[6] On 25 July 2023 (three weeks before the hearing), the Crown advised the applicants that it conceded the interpretation point, and a declaration was made by consent.5 The declaration was that cl 15 means that “the strength of nicotine in a nicotine salt vaping substance must not exceed 50 mg/mL”.6
[7] This meant the applicants had effectively succeeded in their original claim and were entitled to costs in the usual way.7
[8] The applicants now seek indemnity costs of $149,387.50 (exclusive of GST) on the basis that the Ministry knew or ought to have known from the outset that the applicants’ interpretation of cl 15 was correct.8
[9]The claimed costs are made up as follows:
(a)senior counsel: $36,400.00 (exclusive of GST), of which $21,000 (exclusive of GST) were incurred between 26 May and 25 July 2023;
(b)junior counsel: $75,900 (exclusive of GST), of which $29,200 (exclusive of GST) were incurred between 26 May and 25 July 2023; and
(c)instructing solicitor: $37,087.50 (exclusive of GST), of which
$13,861.76 (exclusive of GST) were incurred between 26 May and 25 July 2023.
[10] An indemnity award is resisted by the Attorney-General, who submits scale 2B costs plus disbursements (together totalling $36,274) with a further contribution of
$20,000 is appropriate.
5 ALT New Zealand Ltd v Director-General of Health HC Wellington CIV-2023-485-146, 15 August 2023 (Minute of Ellis J).
6 At [2].
7 At [3]; An application for interim orders nonetheless proceeded to hearing on 17 August 2023 on an amended basis, and there was a further substantive hearing in October 2023. Neither of those hearings or the resulting judgments is, however, the focus of the present costs application.
8 Disbursements totalling $2,020 are also claimed, but they are uncontroversial.
Relevant law
[11] It is trite that the determination of costs should be predictable and expeditious.9 Any departure from scale is an exception to this general rule, and an award of indemnity costs is particularly exceptional. Costs remain at the discretion of the court,10 and there are certain circumstances in which an indemnity award will be warranted.
[12] Rule 14.6(4) of the High Court Rules 2016 (the Rules) provides that a court may order that the costs payable to a party are the “actual costs, disbursements, and witness expenses reasonably incurred by a party” if:
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b)the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c)costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or
(d)the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e)the party claiming costs is entitled to indemnity costs under a contract or deed; or
(f)some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[13] A court may make an order for indemnity costs at any stage of a proceeding and in relation to any step in it.11
[14] In Bradbury v Westpac Banking Corporation, the Court of Appeal explained that, broadly speaking, indemnity costs may be ordered where a party has “behaved either badly or very unreasonably”.12 The word “unnecessarily” in r 14.6(4)(a) goes
9 High Court Rules 2016, r 14.2(1)(g).
10 High Court Rules, r 14.1(1).
11 High Court Rules, r 14.6(2).
12 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27(c)].
beyond simple unreasonableness to “distinctly bad behaviour”.13 To justify an order for indemnity costs the misconduct must be “flagrant”.14 The Court in Bradbury gave the following as examples:15
(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b)particular misconduct that causes loss of time to the court and to other parties;
(c)commencing or continuing proceedings for some ulterior motive;
(d)doing so in wilful disregard of known facts or clearly established law; or
(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
[15] The “hopeless case” test mentioned in (e) refers to an observation made by the former Chief Justice of Australia that indemnity costs may be awarded where a “party persists in what should on proper consideration be seen as a hopeless case”16 because “if the case is truly hopeless the action must be presumed to have been commenced for some ulterior motive”.17
The arguments here
[16]The applicants say:18
a.in October 2022, when Fair Go first raised the issue, the Policy and Regulation Manager advised the Minister that the Technical Expert Advisory Group (TEAG) had recommended a maximum nicotine strength of 60mg/mL (which was reduced to 50mg/mL in consultation with the Associate Minister);
b.in October 2022, in response to Fair Go’s inquiry, the Ministry contacted TEAG’s Chair, Dr Hayden McRobbie, who confirmed that the limit in clause 15 applied to the nicotine, not to the nicotine salt; and
13 At [26].
14 At [28].
15 At [29].
16 J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 (FCA) at 303; affirmed in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 348 at [17].
17 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 16, at [27].
18 Emphasis in original.
c.there was no evidential basis for an alternative interpretation of clause 15.
[17] And more particularly, in relation to the two months between 26 May and 25 July 2023, they say:
a.the applicants were formally advised of the Ministry’s intention to concede by letter of 25 July 2023, three weeks before the hearing;
b.however, it transpires that the Ministry had advised the Minister of its intention to concede the proceeding two months earlier, on 26 May 2023;
c.because of the expedited timetable agreed by the parties, during that two month period:
i.the applicants were unnecessarily put to the expense of reviewing the discovered material, filing further expert and fact evidence, reviewing the respondent’s affidavits and exhibits, drafting comprehensive submissions for the urgent substantive hearing, and defending (successfully) an application by the Ministry to adjourn the proceeding; and
ii.the Court inquired, on 3 July 2023, whether the Ministry now agreed that the applicants’ grounds of review were made out and that a declaration could be made, to which the Ministry advised that the Ministry did not agree to a declaration being made “at this time”.
[18] The Attorney-General disputes that the correct interpretation of cl 15 was obvious from the outset and says statutory interpretation is not a matter of evidence. And as to the delay between the advice given to the Minister and the formal concession, the Attorney-General submits as follows:19
7.The respondent accepts that there was a two-month delay from when the Minister was advised that the Ministry intended to concede and formally conceding the proceeding on 31 July 2023. This is because the Minister was informed of this intent before a formal decision to concede had been made by the Ministry. Before a final decision was made the Ministry was seeking to understand and confirm from senior staff within the Ministry that there was nothing to indicate that at the time the regulations were made the Ministry intended to regulate nicotine salt. Such information would explain the wording of Clause 15.
8.On 12 June 2023, when the Ministry consulted on amending clause 15, there was still a view that the Ministry’s original intention was to regulate nicotine salt as shown by the first version of the Ministry’s
19 Emphasis in original.
consultation document which included the words: “For example, for products using nicotine benzoate, the most commonly used salt, this would result in a maximum freebase nicotine concentration of 50mg/ml, rather than the 28.5 mg/ml that was intended.” The reference to 28.5 mg/mL is the equivalent nicotine strength to 50 mg/mL of nicotine salt (as referred to in Clause 15).
9.In essence, the Minister was informed of the intent to concede prior to the decision formally being made. The premature informing of the Minister of the decision to concede is not a step in the conduct of the litigation that would justify indemnity costs. However, the Ministry recognises that additional costs were incurred while it was working through the issues, which is part of the reason that it has offered a further $20,000 contribution towards costs.
Discussion
[19] I agree with counsel for the Attorney-General that the Ministry’s position on the meaning of cl 15 at the start of the proceedings could not be described as a hopeless case in the sense referred to in Bradbury. An inference of ulterior motive is not suggested and could not properly be drawn in this case.
[20] Rather, cl 15 provided that “[t]he strength of nicotine salt in a vaping substance must not exceed 50 mg/mL”. A relatively straightforward reading of those words suggests that (as the Ministry said) it was the nicotine salt content sought to be regulated. While I accept that there was factual evidence about the TEAG’s recommendations that pointed the other way, it would be unusual for evidence about regulatory purpose or intent to prevail over what were relatively clear statutory words. And because the point was ultimately conceded and agreed, the correct interpretation is not something on which this Court has ever had to grapple; my own view is that it was a matter on which opinions could have (and did) legitimately differ.
[21] I also regard the Attorney-General’s offer to pay increased costs of $20,000 as an appropriate recognition of any wasted costs resulting from two-month period between forming the intention to concede and formally making that concession. I regard the explanation for that two-month delay offered by the Attorney-General as reasonable. Moreover I am not persuaded that all those costs would, indeed, be wasted. It is hard to imagine that none of the work done then was not of some use when it came to the subsequent hearings; this is not a case where the proceedings simply ground to a halt at the point the concession was made—far from it.
Result
[22] The respondent is to pay the applicants’ costs on a 2B basis, together with an uplift of $20,000 and disbursements of $2,020. As noted earlier, counsel for the Attorney-General has calculated the 2B costs here as totalling $34,894. I am not sure whether there is any disagreement about that but if there is, I trust it can be resolved between counsel.
Rebecca Ellis J
Solicitors:
Powle & Hodson, Auckland Crown Law, Wellington
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