Beverley v Drylandcarbon GP One Limited
[2023] NZHC 586
•22 March 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2022-485-158
[2023] NZHC 586
BETWEEN ANTHONY and WENDY BEVERLEY
Applicants
AND
DRYLANDCARBON GP ONE LIMITED
First Respondent
AND
DRYLANDCARBON ONE MANAGEMENT LIMITED
Second Respondent
AND
DC ONE H1 LIMITED
Third Respondent
AND
WILLIAM JAMES WATERHOUSE LECKIE
Fourth Respondent
Continued page 2 …
Hearing: On the papers Counsel:
M G Colson KC, K J Dobbs and M R M Gale for Applicants A S Olney, M G Mallett and O C Gascoigne for Respondents
Judgment:
22 March 2023
COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 22 March 2023 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
BEVERLEY v DRYLANDCARBON GP ONE LTD [2023] NZHC 586 [22 March 2023]
ANDCHRISTOPHER GORDON LEWIS MORRISON
Fifth Respondent
ANDLEWIS TUCKER AND COMPANY LIMITED
Sixth Respondent
ANDPHEASANT TAIL HOLDINGS LIMITED
Seventh Respondent
ANDLEWIS TUCKER FOREST PARTNERS LIMITED
Eighth Respondent
ANDLEWIS TUCKER FP INVESTMENTS LIMITED
Ninth Respondent
AND FOREST PARTNERS GP LIMITED
Tenth Respondent
ANDLEWIS TUCKER FP MANAGEMENT LIMITED
Eleventh Respondent
[1] In a judgment of 22 December 2022, I granted an application by the applicants (Mr and Mrs Beverley) for leave under s 165 of the Companies Act 1993 to bring proceedings in the name and on behalf of the first to third respondents against the fourth to eleventh respondents.1 I also held that the costs of the application were to be paid by the fourth and fifth respondents (the Directors). In the event there was disagreement as to quantum of those costs, counsel were to file submissions and I would determine the matter on the papers.
[2] On 22 February 2023, counsel for Mr and Mrs Beverley filed a memorandum advising there had been no engagement by the Directors on costs. They asked the Court to determine the issue of costs. Specifically, Mr and Mrs Beverley sought:
(a)costs to be assessed on a 3C basis;
1 Beverley v Drylandcarbon GP One Ltd [2022] NZHC 3606.
(b)an allowance for second counsel;
(c)a 50 per cent uplift in respect of the step relating to the preparation of affidavits; and
(d)disbursements, including experts’ fees.
[3] On 1 March 2023, I received submissions from counsel for the Directors. They argue that Mr and Mrs Beverley should be awarded costs on a 2B basis with no uplift, no certification for second counsel, and no expert witnesses’ fees as disbursements.
[4] In a minute of 1 March 2023, I granted Mr and Mrs Beverley leave to file submissions in reply and they were received on 7 March 2023.
[5]This judgment will resolve the following issues:
(a)Should the appropriate daily recovery rate be on a category 2 or category 3 basis?
(b)What is the appropriate time allocation for each step in the proceeding (which includes any uplift for preparation of affidavits)?
(c)Should there be an allowance for second counsel?
(d)Are Mr and Mrs Beverley entitled to recover expert witness fees and in what amount?
Issue one appropriate daily recovery rate
[6] This proceeding was not categorised for costs purposes during the case management process.
[7] Category 2 proceedings are those of average complexity requiring counsel of skill and experience considered average in the High Court. In contrast, category 3
proceedings are those which, because of their complexity or significance, require counsel to have special skill and experience in the High Court.2
[8] As noted, Mr and Mrs Beverley submit that costs should be awarded on a category 3 basis reflecting the inherent complexity of the factual background and the pleaded claims underpinning the application, and the breadth of the legal issues canvassed in the judgment.
[9] The Directors say the categorisation at issue relates to an originating application for leave under s 165 of the Companies Act 1993, not to the proposed proceeding for which leave was sought and obtained. They contend Mr and Mrs Beverley were granted leave to pursue their application by way of originating application reflecting the “relatively straightforward nature of the application and the absence of any need to resolve contested matters of fact”.
[10] The Directors also submit that applications for leave to commence a derivative action are almost invariably categorised as category 2 with costs following the event granted on a 2B basis. The Directors submit this proceeding was not of such complexity or significance as to require counsel to have special skill and experience in the High Court because applications for leave involve the application of statutory criteria. Further, while there were seven causes of action asserted by Mr and Mrs Beverley they were all primarily based on the same grievances, the Court was not required to resolve disputed affidavit evidence, or to rule on the ultimate merits of the claims.
[11] While I accept that most applications under s 165 will likely be categorised as category 2 for costs purposes, this case was not of average complexity. It was, in my assessment, one which was of such complexity that it required counsel to have special skill and experience.
[12] Because of the nature of the commercial arrangements between the parties and the legal structures that they adopted to give effect to them, the application raised difficult issues about the application of s 165. Mr and Mrs Beverley advanced seven
2 High Court Rules 2016, r 14.3.
causes of action some of which raised novel issues of law. Further the Directors added to the complexity by introducing a great deal of evidence which had to be responded to by Mr and Mrs Beverley. While it was not necessary for me to refer to much of this evidence in the judgment, or to finally determine the merits of any of the claims advanced by Mr and Mrs Beverley, that did not reduce counsels’ burden to have a complete mastery of complex facts, complex and novel issues of law, and hundreds of pages of documents.
[13] I therefore accept Mr and Mrs Beverley’s submission that this is a category 3 proceeding.
Issue two appropriate time allocation for steps in the proceeding
[14] Mr and Mrs Beverley have applied band C to each step in the proceeding and, in addition, sought a 50 per cent uplift for the preparation of affidavit evidence. In respect of the uplift, they say this is sought because of the manner in which the leave application was opposed. Specifically, seven affidavits were filed in opposition to the application dealing with matters which were not relevant to the issues, but had to be responded to on a precautionary basis. By way of example, they refer to evidence traversing the working relationship between the Directors and Mr Beverley, which were not matters referred to in my judgment.
[15] The Directors say that band B is the appropriate time allocation for all steps in the proceeding. In reliance on Joyce v Hooten, they say the reasonable time for a particular step is to be assessed prospectively and not in hindsight.3 They also submit that with the exception of affidavit preparation, Mr and Mrs Beverly do not address why a comparatively large amount of time was reasonable for each step in the proceeding and, viewed prospectively, it is reasonable to expect a normal amount of time would be required for all stages in a leave application under s 165.
[16] The Directors also do not accept there should be an uplift for the preparation of affidavits and say Mr and Mrs Beverley’s approach is flawed. They note that as the entitlement to an uplift is premised on the allegation that a large amount of the
3 Joyce v Hooton [2021] NZHC 2141 at [12].
evidence filed by the Directors in opposition was not relevant to the issues, there can be no justification for an uplift in relation to the preparation of Mr Beverley’s first affidavit. Further, they submit that insofar as any evidence filed in opposition was irrelevant, no response was required to it. They also do not accept the evidence they filed was irrelevant. While Mr and Mrs Beverley contend much of the evidence was most relevant to separate proceedings between the parties, the Directors say evidential cross-over was inevitable for proceedings so factually proximate to each other.
[17] Costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding.4 There are three time allocations set out in sch 3 of the High Court Rules. Band A applies where a comparatively small amount of time is considered reasonable for some step. Band B applies when a normal amount of time is considered reasonable. Band C is appropriate where a comparatively large amount of time is considered reasonable. As the authors of The Law of Costs in New Zealand note: 5
The appropriate time band is determined by an objective assessment of the time required for the step taken. That is, the actual time taken is irrelevant; rather, the appropriate time is the time the court would assess as reasonable for the step given what was involved.
[18] It follows that different time bands may apply to different steps in the proceeding. Here, the parties made blanket assessments, which I do not consider appropriate. In my assessment, band B should be applied to some steps and band C to others, as set out in the attached schedule one.
[19] That leaves for separate consideration whether there should be an uplift for the step relating to the preparation of affidavits. Counsel has not identified the particular rule that is being relied upon for this claim. However, r 14.6(3) provides:
The court may order a party to pay increased costs if
…
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by
4 High Court Rules, r 14.2(1)(c).
5 David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at [2.14].
…
(ii)taking or pursuing an unnecessary step or an argument that lacks merit[.]
[20] In my view, Mr and Mrs Beverley have not made out an entitlement for an uplift on scale costs. The Directors advanced a vigorous defence to the application and put before the Court evidence which ultimately I did not have to refer to in arriving at my conclusions, but I do not consider they did so unnecessarily or unreasonably or that the arguments advanced in reliance upon such evidence lacked merit. To the extent the Directors’ approach added to the complexity of the proceeding, this has been recognised in my assessment that this is a category 3 proceeding.
Issue three second counsel
[21] Mr and Mrs Beverley argue that second counsel was justified in light of the complexity of the proceeding and the volume of documentation. They note the Directors were represented at the hearing by two counsel.
[22] The Directors argue that certification for second counsel is inappropriate in a proceeding where there was no cross-examination, submissions were exchanged in advance of the hearing, and legal issues were restricted to the assessment of statutory criteria. They say the issues involved were not so numerous or lengthy that the presentation of submissions on them needed to be divided between counsel.
[23] My assessment is that this was a case where second counsel was necessary for reasons I have already explained, relating to the complexity of the facts and legal issues. It is incongruent that the Directors would suggest second counsel was not required when they themselves engaged second counsel. Further, I observed that second counsel were active during the hearing providing assistance to senior counsel when required. I will therefore allow for second counsel.
Issue 4 disbursements
[24] A successful party entitled to costs will also generally be able to recover expert witnesses’ fees and expenses as disbursements provided they are:6
(a)specific to the conduct of the proceeding;
(b)reasonably necessary for the conduct of the proceeding; and
(c)reasonable in amount; but
(d)may be disallowed or reduced if the claim is disproportionate in the circumstances of the proceeding.
[25] There is an onus upon the claiming party to establish the reasonableness of the sums claimed. This is a factual inquiry but there is a broad judicial discretion in making the assessment.7 Where expert evidence is irrelevant to any of the issues on which a party succeeds it will be unreasonable and unfair to expect the losing party to pay those costs.8
[26] Mr and Mrs Beverley have sought experts’ fees as disbursements. There are two amounts in issue, namely:
(a)Calibre Partners (Shaun Haywood) $19,055; and
(b)Mark Freeman Consultancy $6,300.
[27] The Directors oppose the claim for experts’ fees. In respect to Mr Freeman’s fees, they say the invoice provided to justify the claim was redacted. They say the redaction suggests that Mr Freeman carried out services in addition to providing an affidavit for the hearing, which have not been separately accounted for in the invoice.
6 Rule 14.12.
7 Teece v Veint [2021] NZHC 1036 at [13] citing Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2015] NZHC 470, (2015) 23 PRNZ 200.
8 At [14] citing Haricot Investments Ltd v Maerewhenua District Water Resource Company Ltd
[2015] NZHC 518 at [49].
In respect to the fees of Calibre Partners, they say Mr Haywood’s valuation evidence was not in reply to anything raised in the Directors’ notice of opposition or the evidence filed by them, so the subject matter of Mr Haywood’s affidavit was not a topic open for reply. I do not accept the Directors’ submissions.
[28] Mr and Mrs Beverley have produced for the Court’s inspection Mr Freeman’s invoice without redactions (and without waiving privilege) which provides the narration of the services provided. I am satisfied the attendances related to the preparation of his affidavit.
[29] As to the submission that Mr Hayward’s affidavit was not properly in reply, that evidence responds to a matter raised in the Directors’ notice of opposition, which pleads:
The evidence does not establish that the cost of the proceeding in relation to the relief likely to be obtained supports the making of the order sought, including because:
…
(b) Although all causes of action in the draft statement of claim seek damages, the draft statement of claim does not describe or quantify the losses alleged or identify which of the Proposed Plaintiffs (as distinct from their shareholders) is alleged to have suffered those losses.
[30] Mr and Mrs Beverley submit, and I accept, the Directors had put in issue one of the four mandatory criterion the Court was required to assess under s 165 which was “the costs of the proceedings in relation to the relief likely to be obtained”.9 While in submissions Mr Olney did not challenge the valuation evidence, it was entirely reasonable for Mr and Mrs Beverley to advance Mr Hayward’s affidavit in response to the ground of opposition. In short, I am satisfied the fees were necessarily and reasonably incurred for the conduct of the proceeding.
[31] The Directors have not directly challenged the reasonableness of the experts’ charges (except to the extent that Mr Freeman’s invoice was redacted). Having considered the experts’ qualifications and experience, the complexity of the work
9 Companies Act 1993, s 165(2)(b).
undertaken, the time expended and hourly rates charged, there is nothing to suggest the fees are not reasonable.
[32]I allow the experts’ fees as disbursements.
Result
[33] The applicants are awarded costs against the fourth and fifth respondents in the sum of $48,449.25 and disbursements of $25,824.57 as set out in schedules one and two (attached).
O G Paulsen Associate Judge
Solicitors:
Bell Gully, Wellington
Morrison Mallett, Wellington A Olney, Barrister, Wellington
Schedule One
Costs on a category 3 basis
Step Description
Time
Allocation
Total
Case management
10 Preparation for first case management conference (time band B)
o.4
$1,412.00
11
Filing memorandum for case management conference or mentions hearing (time band B)
0.4
$1,412.00
13
Appearance at case management conference (time band B)
0.3
$1,059.00
Originating applications
37 Filing application and supporting affidavits (time band C)
6
$21,180.00
40
Preparation of written submissions (time band C)
3
$10,590.00
41
Preparation by applicant of bundle for hearing (time band C)
1
$3,530.00
42
Appearance at hearing for sole or principal counsel (to nearest quarter day) (time band C)
1.75
$6,177.50
43
Second and subsequent counsel
0.875
$3,088.75
Total costs $48,449.25
Schedule Two Disbursements
Description Filing fee originating application for leave to commence derivative action
$469.57
Calibre Partners expert evidence of Shaun Hayward
$19,055.00
Mark Freeman Consultancy expert evidence
$6,300.00
Total costs $25,824.57
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