Commercial Management Ltd v Commissioner of Inland Revenue
[2020] NZHC 1906
•31 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2740
[2020] NZHC 1906
IN THE MATTER of an appeal under s 370 of the Companies Act 1993 BETWEEN
COMMERCIAL MANAGEMENT LTD
Appellant
AND
COMMISSIONER OF INLAND REVENUE
Intervener
CIV-2019-404-2742 IN THE MATTER
Of an appeal under s 370 of the Companies act 1993
BETWEEN
EQUITY CAPITAL INVESTMENTS LTD
Appellant
AND
COMMISSIONER OF INLAND REVENUE
Intervener
Hearing: On the papers Judgment:
31 July 2020
JUDGMENT OF KATZ J
[Costs]
This judgment was delivered by me on 31 July 2020 at 3:30 pm pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors:Douglas Burgess, Auckland Crown Law, Wellington
Counsel: A Beck, Greytown
COMMERCIAL MANAGEMENT LTD v COMMISSIONER OF INLAND REVENUE [2020] NZHC 1906 [31 July 2020]
Introduction
[1] On 4 May 2020, I granted an application by the Registrar of Companies to be struck out as a respondent to both of these appeals. I also granted applications by the Commissioner of Inland Revenue seeking leave to intervene in both appeals. The applications were opposed by the appellants, Commercial Management Ltd and Equity Capital Ltd.
[2] I reserved leave to file memoranda on costs, if they could not be resolved between counsel. The appellants have settled costs with the Registrar. They have not, however, settled costs with the Commissioner and those costs must therefore now be determined.
The costs sought by the Commissioner
[3] In general, the unsuccessful party should pay costs to the successful party.1 Interlocutory applications follow the general costs rules unless there are special reasons to not do so.2 All awards of costs are at the discretion of the Court, but the exercise of that discretion should follow the principles in r 14.2 unless there are special reasons to the contrary.3
[4] Here, the Commissioner (as the successful party) seeks costs on a 2B scale basis, totalling $6,094.50. The costs sought can be broken down as follows:
(a)filing interlocutory application (0.6 days);
(b)preparation of written submissions (1.5 days);
(c)appearance at hearing of defended application for sole or principal counsel (0.25 days);
1 High Court Rules 2016, r 14.2(l)(a); Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 205 at [8].
2 Rule 14.8.
3 Rule 14.1; clarifying that discretion is to be exercised in accordance with the rules unless special circumstances prevail, Mansfield Drycleaners Ltd v Quinny’s Drycleaning Ltd (2002) 16 PRNZ 662 (CA) at [27].
(d)sealing order or judgment (0.2 days).
The Commissioner also seeks disbursements of $892.19:
(a)air travel for counsel from Wellington ($501.87);
(b)court filing fees for the two interlocutory applications, for CIV-2019-303-2740 and CIV-2019-303-2742 ($173.91 x 2 = $347.82);
(c)sealing order fees ($42.50).
[6]The total sought (costs and disbursements) is therefore $6,986.69.
What is the appropriate quantum of costs?
[7]I will address the appellants key arguments in turn.
Did the Commissioner agree not to seek costs?
[8] The memorandum of counsel filed on behalf of the Commissioner in support of her application for leave to intervene stated that:
The Court has previously admitted interveners on the basis that they are to bear their own costs and not to be liable to the parties. The Commissioner seeks leave on that basis.
The appellants submit that this disentitles the Commissioner from seeking costs in respect of her applications to intervene.
[9] The Commissioner’s position is that this was a reference to the costs of the substantive appeals, if she was granted leave to intervene. The Commissioner says that, having been granted leave to intervene, she does not intend to seek costs for steps that will be undertaken as an intervener to appear at the appeals hearing and assist the court. The Commissioner submits, however, that she did not agree to not seek costs in respect of the leave applications themselves if the applications were unsuccessfully opposed.
[10] I accept the Commissioner’s submissions on this issue. The Commissioner was clearly referring in her memorandum to the costs position going forwards, in the event that she was granted leave to intervene. She is not precluded from seeking costs on her applications to intervene, particularly given that the applications were vigorously opposed by the appellants.
To what extent did the appellants’ opposition increase costs?
[11] The court has a discretion, in its inherent jurisdiction, to permit interested parties to intervene, participate and be heard in a proceeding. Strictly, such persons are not parties to the proceeding; it is simply that the court has granted them the right, to a greater or lesser extent, to participate and be heard in the proceeding.4 The onus rests on the would-be intervener to show that its intervention is appropriate.5
[12] Given that the Commissioner had to show that her intervention was appropriate in any event, the appellants submit that most of the Commissioner’s costs would have been incurred regardless of whether the application was opposed. If the costs (or a significant portion of them) would have been incurred either way, the appellants submit that it would be unjust to make them pay full 2B scale costs for the submissions and court appearance. The appellants submit that the costs should be reduced by 60 per cent to reflect this factor.
[13] The decisions I made in this case were not finely balanced ones. It was clear that the Registrar of Companies had been improperly joined. It was also clearly in the interests of justice to grant the Commissioner leave to intervene. If the appellants had consented to the Commissioner’s request to intervene, or at least not opposed such a course, the Commissioner’s request could have been granted by consent. This could have been done on the basis of a consent memorandum, outlining the relevant jurisdiction and setting out the reasons why intervention was appropriate.
4 Robert Osborne and others McGechan on Procedure (looseleaf ed, Thompson Brookers, updated to 9 December 2019) at [HR4.1.01].
5 Seales v Attorney-General [2015] NZHC 828 at [43], citing Re Northern Ireland Human Rights Commission (Northern Ireland) [2002] UKHL 25 at [32].
[14] Because of the appellants’ opposition, however, formal applications, written submissions and an oral hearing were necessary. The appellants’ written and oral submissions in opposition to the intervener applications were comprehensive, and the Court was referred to various authorities. The Commissioner is entitled to recover 2B scale costs for both the hearing and the preparation of written submissions.
[15] Given, however, that the Commissioner would have had to incur some costs in obtaining leave to intervene, that should be reflected in the overall costs award. The most appropriate way to do this, in my view, is to not award costs in respect of the Commissioner’s interlocutory applications (which were supported by memoranda) seeking leave to intervene. I also disallow the filing fees for the two applications.
Did the interlocutory order need to be sealed?
[16] The appellants submit that the interlocutory order did not need to be sealed, and hence the cost of sealing the order should be disallowed. They cite r 7.47 to this effect. Rule 7.47, however, requires that interlocutory applications affecting a person who is not a party be sealed. It is therefore at least arguable that the order did require sealing, given that the Commissioner is a non-party intervener. Even if that is not the case, however, it was reasonable for the Commissioner to err on the side of caution, particularly given the lengthy history of this and related litigation. The cost of sealing the order is allowed.
Was it appropriate for the Commissioner to instruct Wellington-based counsel?
[17] The sum of $501.87 is claimed for counsel’s travel costs to and from Auckland. The appellants submit that, although the Commissioner is based in Wellington, it was inappropriate for her to instruct Wellington-based counsel for a matter that could have been dealt with by Auckland-based counsel.
[18] The Commissioner explains that her practice is generally to instruct Crown Law in matters relating to Russell template tax avoidance schemes, due to their experience and knowledge of this litigation. The appellants respond by pointing out several cases where Meredith Connell was instructed in Auckland.
[19]In Commerce Commission v Bay of Plenty Electricity Ltd Clifford J wrote:6
[50] I must also comment that in a very small country such as New Zealand, I find the concept of “out of town” counsel – particularly in this commercial area – as being somewhat outdated. Without wishing to raise further market definition issues, I would have thought the market for legal services at this level was a national one. On that basis, the costs of travel and accommodation are disbursements reasonably incurred and payable as such, unless for some very unusual reason the decision to retain counsel of choice could be seen as being particularly unreasonable. An example of such unreasonableness might arise where that decision was itself properly seen as a cost raising exercise.
[20] In my view it was not unreasonable of the Commissioner to instruct Crown Law in this matter. The Commissioner is based in Wellington and the Revenue team at Crown Law understandably has specialist knowledge in the area and a history of involvement in related litigation.
[21] As for the cost of the flights, the appellants submit that $501.87 is excessive. The Commissioner needed to arrange flights at specific times. Counsel are not expected to travel at unusual or off peak times to secure the cheapest possible airfares. I am satisfied that the sum claimed is reasonable, and allow the disbursement claimed for flight costs.
Result
[22]I award costs to the Commissioner, on a 2B scale basis, for the following steps:
(a)preparation of written submissions (1.5 days);
(b)appearance at hearing of defended application for sole or principal counsel (0.25 days);
(c)sealing order or judgment (0.2 days).
6 Commerce Commission v Bay of Plenty Electricity Ltd HC Wellington CIV-2001-485-917, 4 December 2008 at [50]. This passage was cited and approved by the Court of Appeal in Hong v Commissioner of Inland Revenue [2019] NZCA 336, (2019) 29 NZTC 24-015 at [64].
[23]I also award the following disbursements to the Commissioner:
(a)air travel for counsel from Wellington ($501.87);
(b)sealing order fees ($42.50).
[24] Commercial Management Ltd and Equity Capital Ltd are accordingly ordered to pay costs of $4,660.50 together with disbursements of $544.37 to the Commissioner, totalling $5,204.87. Each company is liable to pay half of that sum.
Katz J
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