Edubase Ltd v Minister of Education
[2022] NZHC 2427
•22 September 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-484
[2022] NZHC 2427
BETWEEN EDUBASE LTD
Plaintiff
AND
MINISTER OF EDUCATION
Defendant
On the papers: Counsel:
D M Fraundorfer for Plaintiff
M Colson KC and N Fong for Defendant
Judgment:
22 September 2022
JUDGMENT OF CHURCHMAN J
[Costs]
[1] In a judgment dated 19 April 2022, I dismissed claims made by the plaintiff, Edubase Ltd, against the defendant, the Minister of Education.
[2] I then directed the parties to attempt to settle costs between themselves, and to file memoranda if that was not possible. Although the parties filed memoranda in May 2022, the matter was not referred to me for determination until now, owing to an administrative error. I apologise to counsel and the parties for that delay.
Issues
[3] The parties are agreed that the Minister is entitled to costs. The issues for the determination of costs in this proceeding are:
(a)whether the Minister is entitled to claim costs for Step 10;
EDUBASE LTD v MINISTER OF EDUCATION (COSTS) [2022] NZHC 2427 [22 September 2022]
(b)whether the proceedings are of a nature so as to warrant the certification of second counsel;
(c)whether the Minister is entitled to claim Band C for the inspection of Edubase’s documents, and/or whether the Minister’s conduct justifies a discount for this step;
(d)whether Mr Jordan’s fees are reasonable, or whether a discount is justified; and
(e)whether increased costs are appropriate in the circumstances for the reasons proposed by the Minister, and/or whether a reduction in costs is appropriate, for the reasons proposed by Edubase.
[4] I will address each of these issues in turn. I have concluded that the appropriate categorisation for the current proceedings is costs on a 2B basis. So far as possible, the determination of costs should be predictable and expeditious.1 However, to the extent that the Minister has claimed costs in respect of certain steps on a 2A basis, I accept those claims. I address whether a 2C classification is warranted for the inspection of documents below.
Positions of the parties
Minister of Education
[5] The Minister seeks scale costs of $83,578.30 and $33,849.16 in disbursements. The Minister asserts that attempts were made to resolve costs informally, but that Edubase has disputed the Minister’s costs calculation, and has sought sizable discounts. The Minister “does not accept Edubase’s challenges and rejects any suggestion of a global reduction”. The Minister’s costs are largely calculated on a 2B basis, with some adjustments, including an uplift of 30 per cent to reflect that the estoppel claim lacked merit.
[6]As to the calculation of costs, the Minister submits:
1 High Court Rules 2016, r 14.2(1)(g).
(a)as the successful party, the Minister is entitled to scale costs and reasonable disbursements, and there is no basis for any reduction;
(b)the Minister is entitled to claim costs for Step 10 for the first case management conference (CMC) despite there being no appearances required at that conference;
(c)the proceedings have been of a sufficient complexity to justify certification of second counsel;
(d)discovery by Edubase included over 8,000 documents, meaning that the Band B allowance for inspection of documents (one and a half days), does not reflect the work reasonably required, and the Band C allowance of six days is more appropriate;
(e)in circumstances where the Minister had put Edubase on notice as to the lack of merit of the estoppel claim, and Edubase refused to abandon that claim, an uplift of 30 per cent from scale costs is appropriate; and
(f)the fees charged by the Minister’s expert witness ($500 per hour), Mr Barry Jordan, are reasonable for a witness of his experience.
[7] The Minister submits that Step 10 (preparation for first CMC) is able to be claimed even where that conference is vacated by consent, because it is for ‘preparation’ rather than ‘attendance’, which has its own step at Step 13.
[8]As to certification of second counsel, the Minister submits that:
(a)given the large amount of documentation in the proceeding, second counsel was reasonably required at hearing to help senior counsel navigate documents and assist in the preparation of the Minister’s defence;
(b)the proceeding was conducted over four days, involved seven witness, and lengthy closing submissions – it would not have been practicable for a single counsel to manage; and
(c)second counsel had substantial input during the hearing, in that he led a witness and gave submissions on the first cause of action, to which a large part of the judgment was directed to addressing.
[9] The Minister submits costs on a Band C basis (six days) for this the inspection of Edubase’s documents is reasonable and appropriate. The Minister rejects Edubase’s claim that he should pay costs to Edubase for providing significant documentation in its “second tranche” of discovery, as these were “provided simply to avoid unnecessary dispute so close to trial”. Nor were they relied on at the hearing for more than context.
[10] The Minister seeks an uplift of 30 per cent from scale costs, based on r 14.6(3)(b)(ii). He submits that “The Minister’s position that the estoppel argument lacked merit was wholly vindicated by the judgment”. The Minister says that Edubase ran arguments that it either knew or ought to have known were not true, particularly that it was out of pocket as a result of paying carers at $25 per hour. The records showed that it had instead falsified the hours it had claimed from the Ministry. The Minister submits that by having to respond to false and meritless arguments, it was put to significant unnecessary cost, and that a 30 per cent uplift is therefore justified.
[11] Finally, the Minister no longer seeks disbursement for travel or accommodation costs, but rejects the assertion that Mr Jordan’s fees were excessive. He says:
Mr Jordan charged $33,250 in total (excluding GST). His invoices show that he spent 66.5 hours, at a rate of $500 per hour. The Minister submits, in the context of this case, the amount charged was reasonable. Edubase appears to say Mr Jordan’s fees were “high”. Considering Mr Jordan’s experience and assistance to the Court, his charge out rate is reasonable.
Edubase
[12] Edubase accepts that the Minister is entitled to costs, but proposes that it pays only scale costs of $38,240, plus disbursements of $24,824.05. Edubase submits that:
(a)it prepared the case management joint memorandum for the first CMC, which was vacated, and therefore the Minister should not be entitled to Step 10 costs;
(b)the proceedings are not of sufficient complexity to warrant certification of second counsel;
(c)as a consequence of the Minister’s conduct, a cost allowance in favour of Edubase should be made in relation to discovery, or in the alternative, the time allocation for inspection of documents should be on Band B rather than Band C;
(d)an uplift is inappropriate in the circumstances as no genuine settlement offers were made by the Minister, and Edubase’s claims did not lack merit, nor did it act unreasonably;
(e)a 20 per cent discount is appropriate because the Minister made no “genuine attempts to resolve matters”; and
(f)the costs attributed to Mr Jordan should be discounted by 30 per cent, given the lack of evidence as to the reasonableness of these costs.
[13] Edubase says that the proceedings were not “overly technical or complex”, so as to warrant certification for second counsel, and that the level of documentation does not affect this.2 Edubase submits that Mr Fong’s participation during the hearing was modest, and more akin to junior counsel gaining experience.
[14] As to the Minister’s claim for Band C for inspection of documents, Edubase submits that the amount of documentation was neither unusual nor unreasonable for a proceeding of this kind. Edubase submits that awarding Band C for this step would conflict with the purpose of the costs regime which “is not to indemnify a party, but [rather to] allow for two thirds of reasonable costs for the particular step, as opposed to actual costs incurred”. Edubase alleges that the Minister has not provided any
2 Moleta v Darlow [2022] NZHC 630 at [31].
evidence illustrating what its actual costs were for the inspection of documents, and that therefore the Court is unable to determine that Band C costs would not constitute over recovery.
[15] In response, Edubase asserts that the Minister’s conduct during discovery justifies a discount. It submits that the Minister provided further discovery late, following repeated requests, only two working days prior to the due date for Edubase’s written briefs of evidence. Edubase says that this increased their costs, particularly as the Minister relied on those documents during the hearing. As a result, Edubase submits that the Minister’s costs for inspection of document should be reduced from Band B, by 50 per cent.
[16] As to the proposed uplift, Edubase submits that its claims did not lack merit, and the fact that they were the losing party does not make it so. They say that “inherent demerit does not itself cast the proceedings into [increased costs consideration]”.3 Edubase submits that the Minister has not identified any particular conduct that unreasonably increased costs, and the substantive judgment does not identify that the claims were completely without merit.
[17] Further, they say that they attempted to settle the dispute, but that the Minister refused to engage. They say that this justifies a 20 per cent overall discount on costs, as the Minister made no reasonable attempts to engage in settlement discussions with Edubase, and declined Edubase’s suggestions for mediation to occur.
[18] Finally, Edubase submits that the disbursements claimed are unreasonable. They say that the onus is on the Minister to show that expert witness disbursements were reasonably necessary for the proceedings and reasonable in amount. They rely on the case of Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand, in submitting that a reduction is required to avoid unreasonable charging levels.4 Edubase submits that the work that Mr Jordan performed was simply to review and critique another witnesses’ evidence, his calculations were modest, and that he only provided a single brief of evidence. Edubase considers that $500 per hour
3 N-Tech v Abooth Ltd [2012] NZHC 1167 at [92].
4 Waterfront Development Agency Ltd v Mobil Oil New Zealand [2015] NZHC 470 at [48]–[49].
is not a reasonable rate to review another’s work, and notes that the Minister has not adduced evidence of market rates for similar services. They say that a 30 per cent discount is appropriate.
Analysis
Step 10
[19] Step 10 is described in sch 3 of the High Court Rules 2016 as being for “Preparation for first case management conference (including discussion about discovery)”. There are separate steps for “Filing memorandum for first or subsequent case management conference or mentions hearing” and for “Appearance at first or subsequent case management conference”. The rules therefore clearly differentiate between preparation for a CMC, filing memoranda for a CMC, and appearing at a CMC.
[20] The Minister has only claimed costs under Step 10 for the first CMC. In respect of that conference, he has not claimed costs for filing a memorandum, or appearing. As submitted by Edubase, counsel for Edubase prepared and filed a joint memorandum seeking the vacation of that conference.
[21] In those circumstances, it was entirely appropriate for the Minister to not claim for the filing of a memorandum or appearing at a conference. However, preparation for a conference, is a distinct step, which in the present case presumably involved discussions between the parties as to whether the conference should have been vacated, as well as discovery.
[22] In my view, given the clear distinction that sch 3 makes between the steps leading up to a CMC, the Minister’s claim for costs under Step 10 is entirely reasonable. The fact that counsel for Edubase prepared the memorandum that was filed is only relevant to Step 11, not Step 10, which is appropriately included in the Minister’s claim for costs. Accordingly, I am satisfied that the Minister has a claim for costs under Step 10.
Second counsel
[23] Costs may only be awarded for second counsel where that is allowed by the Court. However, the rules provide no guidance as to when that may be appropriate, and the general practice is that only one counsel is appropriate, unless there is a good reason to the contrary.5 An allowance for second counsel may be made in a costs order depending on the complexity of the proceedings, length of the trial, number of witnesses and the volume of documentation.6 Often, there needs to be an unusual feature in the litigation that warrants an award for second counsel. The overall question is “whether the circumstances of the hearing justify requiring the unsuccessful party to contribute to the costs of the junior counsel representing the successful party”.7 The focus being on whether the presence of second counsel was warranted in the circumstances.8
[24] In the current proceeding, the hearing took place over a period of four days, involved a considerable amount of documentation, seven witnesses giving oral evidence, and lengthy periods of cross-examination. The material in issue required that a large portion of the substantive judgment be directed to addressing the evidence, and the making of factual findings, rather than issues of a legal nature. That involved some complexity. Mr Fong assisted Mr Colson KC throughout the hearing, led evidence, and also made submissions.
[25] Another factor that I may consider is how many counsel appeared for Edubase.9 My recollection is that Mr Fraundorfer was supported at hearing by two other counsel, Ms Curtis and Ms Rosser. Although Ms Curtis and Ms Rosser did not lead evidence or make submissions, their presence is a matter I may take into account when assessing whether or not the presence of additional counsel for the successful party was necessary.
5 Northwest Developments Ltd v Zhang [2019] NZHC 2146 at [23].
6 Brady v Presbyterian Church of Aotearoa New Zealand [2013] NZHC 2300.
7David Bullock and Tim Mullins The Law of Costs in New Zealand (1st ed, LexisNexis, Wellington, 2022) at [2.17]; citing Hall’s Group Ltd v Rowe [2018] NZHC 3302.
8 At [2.17].
9Commerce Commission v Bay of Plenty Electricity Ltd HC Wellington CIV-2001-485-917, 4 December 2008 at [46].
[26] In my view, Mr Fong’s contribution to the hearing went beyond what Mr Fraundorfer has described as “junior counsel gaining experience”. His contribution was of assistance to both the Court and Mr Colson, in a matter continuing over the majority of a week, and involving a number of witnesses. Requiring Edubase to pay costs relating to his participation cannot be described as a requirement to subsidise Mr Fong’s practical legal education. Accordingly, I am satisfied that the Minister can claim costs for second counsel.
Discovery
[27] The costs rules are subject to the Court’s overriding discretion,10 but once a costs category has been determined, there must be special reasons for any proposed variation.11 The Court expects that particular steps would take a normal amount of time, unless a party can show why the step involved took more or less time.12 As stated by David Bullock and Tim Mullins:13
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.
[28] The parties each dispute matters under Step 21 “Inspection of Documents”. The Minster asserts that the time allocation should be at Band C (six days). Edubase asserts that the time allocation should be at Band B (one and a half days), and that there should be a discount from that figure, owing to the late provision of documents by the Minister.
[29] As already noted, there was a considerable amount of documentation involved in the proceeding. Edubase provided more than 8,000 documents in February 2021, and further documentation in December 2021. This would have undoubtedly taken longer than one and a half days to inspect. I note that it is unclear from the material provided by the Minister exactly how much time was spent inspecting the documents provided by Edubase. However, I am satisfied that for documentation of that quantity,
10 High Court Rules 2016, r 14.1(2).
11 Above n 7, at [2.10].
12Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544, (2007) 19 PRNZ 743 (CA) at [35].
13 Above n 7, at [2.14].
the time reasonable to inspect that documentation would have been in excess of what is provided for under Band B. As such, the Minister’s claim for inspection of documents at Band C is appropriate in the circumstances.
[30] In respect of Edubase’s claim for reduced costs under Step 21, I am not convinced that the Minister’s conduct in providing further requested discovery two days prior to the due date for the filing of evidence is in any way relevant to the determination of costs under this step. Counsel for the Minister stated in their costs memorandum:
Edubase’s assertion, even if accepted (which is not), does not detract from the fact that the Minister was put to substantial costs for inspecting Edubase’s discovery – for which costs are sought in relation to step 21.
[31] I agree with that submission. The Minister’s conduct in the proceedings is relevant to an award of costs. However, his provision of documentation with only tangential relevance to the issues in the proceeding, which were requested by Edubase, does not bear on what time was reasonable to inspect the documents provided by Edubase to the Minister. Therefore, no reduction in costs under this step is available.
Mr Jordan’s fees
[32] The fees of expert witnesses fall within the category of costs determined under disbursements. Disbursements must be reasonably necessary for the conduct of the proceeding and reasonable in amount.14 If they are disproportionate, they may be disallowed or reduced.15 When considering whether an expert witness’ fees are reasonable, the Court may commission a report or an assessment from a professional organisation or make any incidental order it considers just.16
[33] In Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd Katz J set out the following considerations for an assessment of the reasonableness of an expert’s fees:17
14 High Court Rules 2016, r 14.12(2).
15 Rule 14.12(3).
16 Rule 14.12(5).
17 Above n 4, at [44].
(a)Determine whether a particular attendance (or category of attendances) was reasonably necessary for the conduct of the proceeding. This requires a sufficient description of the particular work undertaken. A supporting affidavit from an independent expert practising in the same field may be necessary or appropriate when the quantum claimed is significant.
(b)Consider the amount of time claimed for the relevant attendance (or category of attendances) and whether it is reasonable, allowing for the significance and complexity of the particular work. A table showing the various steps taken and the costs associated with each step may assist.
(c)Consider the hourly rate charged for each author and whether that is reasonable, relative to the experience of that author and the complexity of the work undertaken.
(d)Consider any additional evidence which is relied upon to show that the rate charged is a reasonable one (or that the overall costs are reasonable). Again, in some cases (such as where the quantum claimed is particularly large) it may be necessary to file a supporting affidavit from an independent person practising in the same field as the relevant expert(s), deposing that the hourly rates claimed are appropriate and in accordance with industry standards.
(footnotes omitted)
[34] Neither the Minister nor Edubase provided an affidavit from an independent expert practising in the same field as Mr Jordan. That would have been of assistance in determining the reasonableness of Mr Jordan’s fees. However, in the interests of finality, and the time that has passed since the hearing, I propose to deal with the matter in the absence of such evidence.
[35] Firstly, I consider that Mr Jordan’s attendance was reasonably necessary for the conduct of the proceeding. While his evidence was given in essence, in challenge to the evidence of Mr Moriarty, it was relevant, cogent, and reliable. In coming to my conclusions in the substantive judgment, I accepted the bulk of Mr Jordan’s evidence. Mr Jordan was the only expert witness called by the Minister, and had he not attended, the Court would have been faced with undertaking his analysis without any expert guidance. In that respect, his attendance was of considerable assistance, and in my view, necessary.
[36] Mr Jordan provided a total of 66.5 hours work, at a rate of $500 per hour, resulting in a total fee of $33,250.00 excluding GST. The Minister has provided a
table which sets out a description of the tasks performed by Mr Jordan, the time taken, and the days on which they occurred. His hourly rate is consistent, and the time spent on each task listed appears to be appropriate.
[37] Katz J approached the consideration of the reasonableness of expert witness fees by reference to an analogy to solicitor-client costs.18 Mr Jordan is an experienced independent forensic and chartered accountant, with many years’ experience in New Zealand and the United Kingdom. His hourly rate is within an appropriate range of that of an experienced and senior commercial litigator in New Zealand. Accordingly, notwithstanding the lack of evidence provided by the parties as to market rates or industry standards for services of the kind provided by Mr Jordan, I am satisfied that his fees were reasonably incurred.
Uplift/reduction
[38] The Minister relies on r 14.6(3)(b)(ii) to justify a 30 per cent overall increase in costs. In response, Edubase alleges that a 20 per cent reduction is appropriate.
[39] Rule 14.6(3)(b)(ii) provides that where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in the proceeding by taking or pursuing an unnecessary step or argument that lacks merit, that may be reflected in an uplift. However, the mere fact that a party has failed is not enough.19 The claims must be hopeless or misconceived.20
[40] The Minister alleges that Edubase’s estoppel claim was misconceived, and that the Minister was put to significant cost by having to defend the claim, after telling Edubase that their claim lacked merit. The correspondence between the parties supports the Minister’s assertions, and included an offer to let costs lie, if Edubase discontinued the proceeding.
18 At [44].
19 Bullock and Mullins, above n 7, at [3.7].
20 Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2020] NZHC 1863.
[41] For the reasons set out in the substantive judgment, I came to the conclusion that the estoppel claim lacked merit.21 It was based on an unreasonable interpretation of the correspondence between Mr Meehan and Mr Best, and was clearly without foundation, given the contents of the contemporaneous documentation. I accept the Minister’s submission that his costs were increased by having to respond to the misconceived estoppel claim.
[42] The authorities provide that an order of increased costs will typically follow where a claim was “totally without merit”.22 I am satisfied that threshold is established in the present case, and that therefore an order for increased costs of the magnitude proposed by the Minister is appropriate.
[43] I do not consider that there is merit in Edubase’s argument that a 20 per cent discount is justified on the basis of the Minister’s refusal to accept an offer of settlement. The correspondence shows that the ‘offer’ provided by Edubase to the Minister was entirely contingent on the Minister conceding liability. For example, on 24 August 2021, Edubase stated:
In the circumstances, we do not see that the Ministry of Education has any realistic defence to [our] claim of quantum meruit. In the circumstances, our client would be prepared to consider moving directly to a quantum hearing with the Ministry was prepared to concede liability on this claim.
[44] This cannot be seen as a reasonable offer of settlement of the kind envisaged by r 14.7(v), or that the Minister, acknowledging what was known by both parties in late 2021, could be said to have acted unreasonably in refusing to accept that offer. At that point, it was clearly within the Minister’s contemplation that Edubase’s claim was without merit, and he had informed Edubase of that opinion. If anything, Edubase’s refusal to accept the Minister’s counter-offer of discontinuance with no costs implications, was an unreasonable refusal to accept a reasonable offer of settlement.
21 At [165]–[192].
22 Hawken Lane Development LP v Property Sales Direct Ltd [2021] NZHC 2021 at [21].
Result
[45]I order that Edubase pay costs in the sum of $83,578.30 plus disbursements of
$33,849.16 to the Minister.
Churchman J
Solicitors:
Holland Beckett Law, Tauranga for Plaintiff Crown Law, Wellington for Defendant
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