Exuberant Limited v Quinovic Property Management Limited
[2021] NZHC 3533
•20 December 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-595
[2021] NZHC 3533
BETWEEN EXUBERANT LIMITED
First Plaintiff
AKSHAYA KHERA
Second PlaintiffAND
QUINOVIC PROPERTY MANAGEMENT LIMITED
First Defendant
TE ARO PROPERTY MANAGEMENT LIMITED
Second DefendantROSS SCOTT DAVEY and LANA DOREEN DAVEY
Third Defendants
Hearing: 25 November 2021 Appearances:
P Dalkie and D Watson for plaintiffs T Gee and E Cox for defendants
Judgment:
20 December 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction and background
[1] The only aspect of this case that remains for determination is the costs payable by the plaintiffs, Exuberant Ltd and Akshaya Kera, to the defendants, Quinovic Property Management Ltd, Te Aro Property Management Ltd and Ross and Lana Davy, pursuant to a recent order made by Cooke J. On first blush, that sounds
EXUBERANT LIMITED v QUINOVIC PROPERTY MANAGEMENT LIMITED [2021] NZHC 3533
[20 December 2021]
straightforward. It has turned out to be anything but. The costs issue was set down for a full day’s hearing. There were preliminary skirmishes about the mode of hearing and evidence. The parties filed and served no fewer than eight affidavits, including affidavits sworn by legal practitioners offering opinion evidence. Both practitioners were cross examined. Counsel filed and served lengthy written submissions, which were supplemented by oral submissions at the hearing.
[2]For all that, the factual background is not especially complex.
[3] Quinovic Property Management Ltd is a Wellington-based property management company. At all material times Mr and Mrs Davy were shareholders in and directors of the company, which has franchised its business throughout the country. Exuberant was incorporated in anticipation of acquiring a franchise. Ms Khera was and is the company’s sole shareholder and director.
[4] During the first half of 2017, between late March and early May, following an involved series of transactions that there is no need to describe here, Quinovic Property Management and Exuberant entered into an agreement pursuant to which Quinovic Property Management granted to Exuberant a non-exclusive franchise to operate in Wellington. To provide some measure of the scale of the concern, I record that Exuberant paid close to $800,000 for the business, and a further $60,000 fee which was treated as consideration for training that Quinovic Property Management was to provide.
[5] From the start, the relationship between Quinovic Property Management and Exuberant was less than harmonious. In late 2018, Quinovic Property Management commissioned a report as to the operation of Exuberant’s business from an independent party. The report which emerged was critical of the way in which the business was being managed by Ms Khera.
[6] In early 2019, a series of reviews of Exuberant appeared on social media which were extravagantly laudatory of the company and its business.
[7] When Mr and Mrs Davey became aware of these reviews, they were sceptical about their provenance and authenticity. Quinovic Property Management embarked upon an investigation. Ultimately, the company concluded that Exuberant or Ms Khera were the source of these reviews.
[8] Having reached that conclusion, Quinovic Property Management terminated the franchise pursuant to cl 25.4(1) which entitled the franchisor to do so if the franchisee acted dishonestly.
[9] In their October 2019 Exuberant and Ms Khera commenced this proceeding against Quinovic Property Management, Mr and Mrs Davy and Te Aro Property Management Limited, a company apparently formed by Mr and Mrs Davy to take over the franchise, alleging that Quinovic Property Management’s termination of the franchise was unlawful.
[10] In their claim the plaintiffs asserted that they were not the source of the reviews, and did not know who was. The defendants contradicted this in their defence, and maintained that the termination of the franchise was lawful.
[11] The central issue in the case was therefore whether or not Exuberant and Ms Khera were the source of the reviews. This issue was the focus of the early interlocutory stages of the proceeding up until March 2021. It will be necessary to consider the steps taken by the parties — especially the defendants — in more detail in due course. For present purposes, it is sufficient to say that the defendants concluded that, both prior to and after the commencement of the proceeding, and throughout these interlocutory stages, the plaintiffs were withholding information. Ultimately, the defendants sought a search order. This was sought, as such orders invariably are, on an ex parte basis. The order was granted by Grice J on 23 March 2021. Pursuant to the search order, the defendants secured documentation establishing that Exuberant and Ms Khera were indeed the source of the reviews, directly contradicting the premise of their claim.
[12] Exuberant and Ms Khera sought to abandon the claim — what else could they do?
[13] Initially they tried to discontinue, but the defendants resisted that for the obvious reason that a discontinuance does not dispose of a claim fully and finally.
[14] The defendants applied for orders refusing the plaintiffs leave to discontinue, striking out the proceeding and ordering the plaintiffs to “pay the defendants’ costs, disbursements and witness expenses occasioned by the plaintiffs’ claim, on a solicitor-client basis, including the costs of this application”.
[15] The plaintiffs filed and served a response, correctly but inaptly entitled “Notice of Opposition”, in which they consented to the orders sought.
[16] The defendants subsequently amended their application insofar as it concerned costs, so as to seek an order that “the plaintiffs shall pay the defendants’ costs, disbursements and witness expenses, on a solicitor-client basis, including the costs of this application, and for the avoidance of doubt, including pre-proceedings costs, pursuant to cls 33.1, 33.2, and/or 38.1–38.2, of the franchise agreement the subject-matter of this proceeding”.
[17] As far as I am aware no notice of opposition was filed and served in response to the amended application, but nothing turns on that.
[18] That application was the subject of a hearing by teleconference before Cooke J on 10 August 2021.
[19] At the conclusion of that hearing Cooke J made orders that were ultimately sealed, and I set out the terms of the sealed judgment:
1The interlocutory application made by the defendants on 8 June 2021 for orders striking out the plaintiffs’ claims was determined by the Honourable Justice Cooke on 11 August 2021.
2The determination was made with the consent of the parties.
3The following orders were made:
(a)the plaintiffs’ claim is struck out;
(b)the defendants are entitled to indemnity costs on the basis they are entitled to such solicitor and client costs under the terms of the relevant contract;
(c)the plaintiffs are to make an interim payment of costs to the defendants in the amount of $63,693.50 by Tuesday, 31 August 2021.
(Emphasis added.)
[20] It will be observed that the terms in which costs were sought and consented to (see [14]-[16]) are not the same as the terms of the order. However, in the end, the sealed order governs the position. The Court is not asked to, and, in any event, could not, look behind this.
Some preliminary matters
[21] As already said, the costs hearing was set down for 25 November 2021. In the lead-up to the hearing the Court was required to make a series of directions.
[22] First, the question arose as to how the hearing was to proceed having regard to the fact that Wellington, the venue for the hearing where the defendants’ solicitors and counsel are based, and Auckland, where the plaintiffs’ solicitors and counsel are based, were at different alert levels. The plaintiffs sought leave for Mr Dalkie, Ms Watson and others to travel from Auckland to Wellington for the hearing, or alternatively for an adjournment until such time as they could travel without leave. I declined such leave, or to vacate the fixture and adjourn the hearing. I directed that the plaintiffs’ counsel and anyone else participating from Auckland would have to do so by AVL.
[23] Second, the plaintiffs signalled that they wished to cross examine the defendants’ witnesses. The defendants opposed this. I directed that both parties were entitled, on giving notice, to cross-examine the other side’s witnesses. In the end, counsel required only the two legal practitioners being put forward as expert witnesses to be available for cross-examination.
[24] Third, a question arose as to whether the legal practitioners who, it was proposed, would be called as expert witnesses should confer prior to the hearing. The defendants sought this. The plaintiffs resisted any such direction. I directed that they confer by telephone prior to the hearing and provide a joint report identifying the points on which they agreed, the points on which they disagreed, the reasons for any
disagreement and any views that they might have about the issues that the Court needed to address in order to resolve any differences between them.
[25] Finally, Mr Dalkie made it clear that the plaintiffs contended that they were not liable for the full amount of the costs claimed by the defendants because a proportion of their solicitor’s fee notes were addressed to a third party. Thus, the argument goes, the defendants did not incur these costs. Mr Dalkie also indicated that the plaintiffs would contend that the defendants’ evidence was deficient in that it did not establish a foundation upon which any expert could express an opinion, essentially because it did not include Gibson Sheat’s time keeping records. In order to deal with these matters, on the eve of the hearing, the defendants filed and served a further affidavit sworn by Mr Cox who is the solicitor on the record. Mr Dalkie objected to this affidavit being received into evidence on the grounds that its receipt would prejudice the plaintiffs, who had no opportunity to reply, and that the contents of the affidavit were controversial and yet Mr Cox was the defendants’ solicitor and appearing, with Mr Gee, as counsel.
[26] At the commencement of the hearing, having heard argument, I declined to allow the affidavit to be read. Against the possibility that this judgment has to be considered elsewhere, I summarise my reasons below:
(a)The pre-hearing directions contained no provision for the filing of additional affidavit evidence;
(b)The defendants did not seek leave to file additional affidavit evidence;
(c)It is apparent from the correspondence in evidence that the issues that Mr Cox’s affidavit was intended to address were at least alluded to at an earlier stage, and yet this affidavit was not filed and served until the eve of the hearing;
(d)This matter needs to be disposed of and the litigation brought to an end. Indeed, the defendants have been pressing to have it disposed of. I was not prepared to vacate the fixture, giving rise to further delay;
(e)Finally, and most critically, it appeared to me that to proceed without the plaintiffs having had a proper opportunity to consider and if necessary reply to any new evidence would be a breach of elementary principles of natural justice.
Issues for determination
[27] Having regard to the terms of Cooke J’s order of 11 August, the issues for determination are:
(a)The scope of the franchise agreement insofar as it confers on Quinovic Property Management a right to recover costs and disbursements;
(b)The defendants’ actual costs and disbursements; and
(c)The reasonableness or otherwise of the same.
[28]I will deal with these issues in the order I have summarised them.
The franchise agreement
[29]The primary term in the contract dealing with costs is cl 33:
33.Costs
33.1The Franchisee shall pay all of the Franchisor’s reasonable legal costs and disbursements relating to the:
(a)negotiation, preparation and execution of this Agreement and any Related Document;
(b)termination of the Agreement; and
(c)any consent, request for consent or the variation, replacement, surrender or assignment of this Agreement.
33.2The Franchisee must pay to the Franchisor upon demand any costs incurred by the Franchisor (including but not limited to legal costs (on solicitor-client basis) in remedying any default of the Franchisee under this Agreement or in enforcing any provisions of this Agreement.
[30] There was some reference to other clauses, and argument as to exactly which part or parts of cl 33 applied. However, it does not appear to me that it is necessary to look beyond cl 33.1(b). In my assessment, the costs claimed by the defendants are all caught by this sub-clause, from the initial investigation into whether or not the reviews were authentic through to the conclusion of the proceeding.
Defendants’ actual costs
[31] As earlier foreshadowed, the plaintiffs contend that the defendants have failed properly to prove the quantum of their costs claim. The defendants claim costs of
$609,790.69 (exclusive of GST) and disbursements (plus GST if any) of $251,071.64. The issue is no more complicated than this. The defendants’ solicitors’ fee notes span the period from January 2019 to August 2021. All fee notes, down to and including a fee note dated 28 February 2020, were addressed to Quinovic Property Management. The next fee note, dated 30 April 2020, and all subsequent fee notes, were addressed to a company by the name of QPM New Zealand Ltd which, though a related entity, is not a party. There is no evidence as to the flow of funds such as bank statements to show by which entity any of these invoices were paid.
[32] On that basis, Mr Dalkie submits that the defendants have failed to prove that they incurred any costs from March 2020.
[33]I reject that contention.
[34] Both Mr and Mrs Davy have sworn affidavits in relation to the costs incurred by the defendants in connection with this dispute. Focussing on Mrs Davy’s affidavit, as it contains the fullest explanation, she is a director of both Quinovic Property Management and Te Aro Property Management, and of course the second-named third defendant. She is also a director of QPM New Zealand. She produces all relevant invoices in a bundle that she says contains “true copies of all the invoices incurred by the defendants for costs relating to the breaches of the Franchise Agreement by the plaintiffs, which conduct is the subject of these proceedings, from January 2019 to the present”.
[35]Mrs Davy was not cross examined, and her evidence stands unchallenged.
[36] Thus, despite the infelicitous terminology (“costs” are incurred, not “invoices”), the defendants’ unchallenged evidence is that in relation to the dispute between the parties they incurred the costs and disbursements reflected in the bundle of invoices.
[37]In my view, the Court need not, and should not, look beyond that.
[38] I accept that in relation to this dispute the defendants (essentially Quinovic Property Management) incurred the costs and disbursements reflected in the fee notes produced by Mrs Davey.
Reasonableness
[39] Whilst the question of what costs the defendants incurred is a straightforward matter of fact, the question of the reasonableness of those costs is a very different matter. It is probably a mixed question of fact and law. At its heart, it is a matter of judgment. And it is, by some measure, the most difficult issue that needs to be determined. As noted in one leading text:1
… the requirement that the fee be reasonable is a quite distinct obligation. The imposition of the duty to charge a fee that is reasonable is a limit on the lawyer’s pursuit of self-interest. While a lawyer is entitled to charge a fee that reflects the degree of expertise required and the professional nature of the task, a lawyer may not extract the highest fee possible from the client when this exceeds a reasonable fee.
[40] There are two principal circumstances in which the Court may find itself making an assessment as to the reasonableness or otherwise of a litigant’s actual, solicitor-and-client, costs.
[41] First, the High Court Rules 2016 deal with costs in pt 14. Generally, costs awards are made in accordance with scales contained in the Rules. However, costs are ultimately a matter for the Court’s discretion,2 and there are any number of circumstances in which the Court may order decreased or increased costs.3 Such
1Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at 316.
2 Rule 14.1.
3 Rules 14.6 and 14.7.
orders usually reflect the approach adopted by one or either of the parties in the proceeding. In any event, on occasions, the Court orders one party to pay another party’s actual (“solicitor-and-client”) costs. Where the Court does so, the order is invariably that party A is to pay party B’s “actual and reasonable” costs.
[42] Second, not infrequently litigation arises out of contractual arrangements (typically, a contract between lender and borrower) which deals with the basis upon which costs may be awarded. In such cases, the contract will almost always provide that the party with the entitlement to costs (invariably the lender) may recover its “actual and reasonable” costs.
[43]This of course is an example of the second category of case.
[44] In reliance on Waho v Te Kōhanga Reo National Trust and Black v ASB Bank Ltd, Mr Gee submitted that, although the issue before the Court — the reasonableness of the defendants’ actual costs — may be framed in the same terms in these two categories of case, the Court should adopt different approaches.4 Although he did not put it in quite this way, the contention seemed to be that the Court ought to be more scrupulous in assessing the reasonableness of the claimant’s costs in the first category of case where the Court had ordered that costs be recovered on an indemnity basis than in the second where that decision had been made by the parties themselves in their underlying contractual arrangements.
[45] Whilst the two situations are obviously different, the authorities indicate that the overriding requirement remains that the costs claimed must be reasonable.5
[46] The issues in the two circumstances I have identified (where nothing in a contract provides otherwise) are the same — what were the claimant’s actual costs and were those costs reasonable. It does not seem to me to be open to the Court to calibrate reasonableness differently depending on the context in which the issue arises. I do not take the courts in either of the two cases referred to as saying that. A party’s actual
4Waho v Te Kōhanga Reo National Trust [2019] NZHC 1440, (2019) 5 NZTR 29-014; Black v ASB Bank Ltd [2012] NZCA 384 at [77]–[78].
5Bradbury v Westpac Banking Corp (2008) 18 PRNZ 859 (HC), [2008] BCL 630; Edel Metals Group Ltd v Geier Ltd [2019] NZHC 2538.
costs in connection with litigation are either reasonable or they are not. If they are reasonable then they are recoverable. If they are not, then only the proportion which is reasonable is recoverable. Any other approach would, in my view, lead to confusion and detract from the need to focus on the objective standard.
[47] That brings me to the principles that apply in determining the reasonableness or otherwise of a party’s actual costs, in relation to which both Mr Gee and Mr Dalkie made detailed submissions.6
[48] Obviously, in a case in which the applicant party’s claim is based on a contractual entitlement to recover its actual and reasonable costs, it is necessary to look first to whether there is anything in the contract which provides any guidance. Counsel did not draw to my attention to any aspect of the contract in this case suggesting that the parties intended to use the term “reasonable” as a term of art, or other than in its conventional meaning.
[49] Although the most obvious driver of the need to assess the reasonableness of a party’s actual costs in any given case is likely to be the express terms of a costs order for, or a contractual entitlement to, indemnity costs, the exercise is also informed by public policy considerations — the Court will not become an instrument of injustice, and an order that a party pay another party’s actual costs, when those costs are unreasonably high, would result in just such an outcome.
[50] The exercise in which the Court is engaged is an objective one. The Court must make a principled assessment of reasonableness against stated criteria.
[51] Although it is ultimately for the Court to determine the relevant criteria, the criteria by which the legal profession assesses the reasonableness or otherwise of practitioners’ costs is of considerable assistance. This point is made in most of the
6In Black v ASB, above n 4, at [80] the Court of Appeal outlined a 5-step approach to assessing whether the indemnity costs claimed under a contract are reasonable, but also noted there remains room for “robust judgment” as to the costs considered reasonable in all the circumstances. The 5-step approach generally involves first looking at the contract and what tasks attract a costs indemnity, assessing whether steps undertaken were reasonably necessary in pursuance of those tasks, and whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs.
cases, and both counsel emphasised this in submissions. Pursuant to the Lawyers and Conveyancers Act 2008 the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (“NZLS Rules”), have been promulgated. Rule 9 deals expressly with fees. It begins by saying that a lawyer “must not charge a client more than a fee that is fair and reasonable for the services provided, having regard to the interests of both client and lawyer and having regard also to the factors set out in r 9.1”. Rule 9.1 identifies a total of 13 factors which may apply in any given case, and which are essentially points of reference for assessing reasonableness. It will be necessary to return to these.
[52] Mr Gee and Mr Dalkie made contrasting submissions in relation to the relevance or otherwise of the conduct of the party against whom the order is to be made. Mr Gee submitted that the plaintiffs commenced and prosecuted this proceeding on a dishonest premise, and lied throughout until their lies were exposed. Inferentially at least, his submission was that this should be factored into the analysis. Mr Dalkie on the other hand submitted that the propriety or otherwise of the plaintiffs’ conduct was irrelevant. My own view is that neither of those extreme positions is correct. The conduct of the plaintiffs is clearly relevant to an assessment of the defendants’ actual and reasonable costs, in the sense that it was only as a result of the plaintiffs’ conduct throughout that the defendants incurred costs. However, there is also some force in Mr Dalkie’s contention, in the sense that the plaintiffs are to be “punished”, if that is the right term, by the order that they are to pay the defendants’ actual and reasonable costs (as opposed to scale costs that would normally apply), and there does not seem to me to be any principled basis upon which the severity of that punishment could be increased by sanctioning costs as reasonable which would not be regarded as reasonable in other circumstances. In the end, my view is that it comes back to the principle that the Court is obliged to make an objective assessment of reasonableness.
[53] Counsel also adopted different positions in relation to the relevance or otherwise of scale costs. In this regard, Mr Gee referred me to this Court’s observations in Bradbury v Westpac Banking Corp to the effect that in assessing actual and reasonable costs there was no room to have regard to what scale costs may have
been.7 Mr Dalkie, in the course of his submissions, compared what scale costs may have been with the defendants’ actual costs. In my view, the observations in Bradbury v Westpac Banking Corp do not preclude the Court having regard to scale costs as a point of reference in determining reasonableness. The Court’s comments in that case appear to me to be saying simply that, once the Court is in the business of determining actual costs, then the scales which are based on presumptions as to what actual costs should be are not of assistance. That is so. But that is a different matter from the Court using scale costs as a comparator when assessing reasonableness. What scale costs may have been is not likely to be especially influential, but nor do I accept that it is irrelevant.
[54] In reliance on an opinion of Judge Hotlzmann in a case before the Iran-United States Claims Tribunal (as cited in Williams and Kawharu on Arbitration), Mr Gee submitted that a relevant consideration is that the defendants did not object to the costs in question.8 He described Mr and Mrs Davey, and Quinovic Property Management, as “sophisticated commercial clients”. Not only is there no evidence that the Daveys or the company resisted the costs, Mr Davey has sworn an affidavit saying in effect that the defendants viewed them — and still view them — as reasonable. Mr Dalkie’s response is that it is hardly surprising that Mr Davey takes that position, as the defendants are seeking recovery of the costs in question. I am prepared to accept that the fact that the defendants did not object to the costs is of some probative value. However, I am inclined to agree with Mr Dalkie that that cannot carry very much weight.
[55] One feature that, as far as I am able to ascertain, is absent from the cases to which counsel referred me is reliance by the Court on expert evidence. There may be a reason for this. Counsel in these cases may have considered that the presiding judge would not necessarily be assisted by opinion evidence in relation to a subject with which he or she is well familiar. Nevertheless, given the terms of s 25(1) of the Evidence Act 2006, which provides that expert opinion evidence is to be allowed if the fact-finder concludes that it would be assisted by such evidence, my view is that there is no good reason to exclude the views of suitably qualified legal practitioners in
7 Bradbury v Westpac Banking Corp, above n 5, at [209].
8 Williams and Kawharu on Arbitration (2nd ed, LexisNexis, Wellington, 2017) at [16.12].
a case such as this. Their views may well be of assistance. However, it is important to emphasise that the assessment is ultimately a matter for the Court, and the views of experts may not be of assistance to the same extent, or as influential, as they are in cases where the subject matter is outside a court’s range of experience.
[56] In relation to the proffered expert evidence, it is necessary to deal with an issue of admissibility. As already said, both parties have elected to file and serve affidavits sworn by legal practitioners who offer opinion evidence as to the reasonableness of the defendants’ costs. And, indeed, the two practitioners have conferred and provided a brief report as to the outcome of their discussion, in accordance with my direction that they do so.
[57] The practitioner put forward by the defendants is Mr Hayden Wilson who is a Wellington-based partner in the firm of Dentons Kensington Swan. The practitioner put forward by the plaintiffs is Ms Niamh McMahon who is an Auckland-based partner in the firm of McMahon Butterworth Thompson.
[58] Through Mr Dalkie, the plaintiffs challenge Mr Wilson’s evidence on two bases. First, they say that he has not qualified himself to give expert evidence. Second, as earlier foreshadowed, they contend that the factual foundation for his opinion evidence has not been established.
[59] In his principal affidavit dated 29 September 2021, Mr Wilson qualified himself in the following terms:
2I have a Bachelor of Laws from Victoria University of Wellington and a Master of Laws, also from Victoria University of Wellington.
3With the exception of a six month period in Kensington Swan’s public law team during 2000, I have practised in litigation and dispute resolution since my admission.
4I became a partner of Kensington Swan (now Dentons Kensington Swan) in 2009. In my time with Kensington Swan and Dentons Kensington Swan I have served for periods as the firm’s Business Unit Leader for Litigation and Dispute Resolution and I have led the firm’s Wellington litigation practice since becoming a partner in 2009.
5I am presently the Chairman of Dentons Kensington Swan. I am also a member of the Global Board of Dentons and of Dentons’ Global Litigation Leadership Group.
6My practice is primarily in commercial, public law and regulatory litigation. I am familiar with the management and presentation of complex civil and commercial cases before the High Court and the Court of Appeal. My work has included acting for both franchisors and franchisees in relation to franchise disputes. I have also mediated franchise disputes.
7In my practice I have both obtained, and acted as a supervising lawyer, in relation to search orders issued by the Court.
8As well as my Court practice, I regularly act as counsel in a range of Tribunals, including the Health Practitioners Disciplinary Tribunal and the Waitangi Tribunal.
9In addition to my litigation and dispute resolution practice, I was a member of the Council of Wellington District Law Society until that body was disestablished by the Lawyers and Conveyancers Act 2008. During that time, I was a member of a Complaints Committee established by the Council.
10After the Lawyers and Conveyancers Act came into force, I was appointed to be a member of Wellington Standards Committee 2. I was the convenor of Wellington Standards Committee 2 until 30 June 2017, when I reached the statutory time limit for standards committee membership. Both the Complaints Committee and the Standards Committee’s regularly assessed and dealt with complaints regarding the reasonableness of fees rendered by lawyers, albeit under different statutory regimes. In some cases separate cost revision reports were obtained from practitioners considered to be expert in the relevant field, for consideration by the Committees. In others, the Committee members, usually lead by Committee member competent in the relevant area, would undertake the costs assessment themselves.
11Since then I have continued to assist the New Zealand Law Society by acting from time to time as mediator in respect of complaints made against lawyers, particularly those relating to commercial or costs issues. I have also accepted instructions on behalf of practitioners who are facing costs complaints (either formally or informally raised) to provide them with assistance in assessing and responding to those complaints.
12I am also a qualified mediator, specialising in the mediation of complex commercial disputes. I am a member of the mediation panels maintained by the Resolution Institute (formerly LEADR), the Arbitrators and Mediators Institute of New Zealand (for whom I am also a membership assessor), the Franchise Association of New Zealand and the New Zealand Dispute Resolution Centre. I am a registered mediator under the Farm Debt Mediation Scheme administered by the Ministry of Primary Industries under the Farm Debt Mediation Act.
13I have read, understood and agree to abide by the Code of Conduct for expert witnesses set out in Schedule 4 of the High Court Rules.
14The evidence that I provide in this affidavit is within my area of expertise.
[60] As Mr Dalkie says, Mr Wilson does not say, expressly at least, that he has conducted a fee review in the past. Thus, it is submitted, there is no evidence that Mr Wilson has any experience in the conduct of such reviews, at least up until the point where he accepted instructions to undertake a review in this case.
[61]I reject that contention.
[62] In my view, it is open to me to take judicial notice of the fact that under the Law Practitioners Act 1982 (repealed) District Law Society complaints committees undertook cost reviews and that, since the coming into force of the Lawyers and Conveyancers Act, New Zealand Law Society standards committees have done likewise. Mr Wilson’s evidence is that he was a member of committees under both Acts for a number of years and a convener of one of the New Zealand Law Society standards committees. In those capacities, Mr Wilson must necessarily have been involved in a large number of costs reviews. That is perhaps the most prevalent aspect of the work undertaken by those bodies. I have no hesitation in accepting that Mr Wilson is qualified to offer an opinion as to the reasonableness or otherwise of the defendants’ fees in this case. No issue is raised as to Ms McMahon’s entitlement to do so.
[63] The second basis upon which Mr Dalkie challenged Mr Wilson’s evidence related to the evidence, or lack thereof, as to the factual foundation upon which Mr Wilson reached his views. This was at the forefront of Mr Dalkie’s submissions, and he developed it with some force.
[64] Mr Dalkie’s contention began by reference to s 25(3) of the Evidence Act which provides that where expert opinions are “based on a fact that is outside the general body of knowledge that makes up the expertise of the expert, the opinion may be relied on by the fact-finder only if that fact is or will be proved or judicially noticed in the proceeding”. He pointed out that Gibson Sheat’s time recording records were
not in evidence. In those circumstances, he then submitted, there was no basis upon which Mr Wilson could base any views that he offers as to the reasonableness or otherwise of the time expended by the defendants’ solicitors and counsel in dealing with this matter. Accordingly, Mr Dalkie contended, the Court should decline to admit Mr Wilson’s affidavit into evidence.
[65]I reject that submission.
[66] It appears to me to be fallacious for at least three reasons. First, this is not a trial. It is an interlocutory hearing for the purpose of fixing costs in which the Court is being asked to exercise its judgement as to the overall reasonableness of the defendants’ costs — a taxing exercise, to use the old-fashioned terminology. Second, the argument tends to elevate the time expended by the defendants’ solicitors on the matter to a prominent position. Time is certainly a consideration. But, it is no more or less important than the other relevant considerations. Third, given that the overall hourly rates are in evidence, and that a blended rate could, if it was thought important, be calculated, it would be quite possible to carry out an arithmetical exercise to determine the overall hours expended and those sensibly attributable to what Mr Wilson referred to as the “work streams” involved. I have not carried out any such exercise. I do not perceive that it is necessary to do so.
[67] The approach I propose to take is first to carry out my own preliminary analysis of whether the work appears to me to have been necessary and the costs reasonable. I will then return to test that out by reference to other important considerations.
[68] The evidence is that the defendants engaged Gibson Sheat in January 2019. Thus, the period of time for the assessment is from then down to Cooke J’s judgment which was issued in August 2021. In his analysis, Mr Wilson analysed and categorised the work carried out for the defendants by their solicitors into what he referred to as work streams. Ms McMahon was prepared to accept Mr Wilson’s categorisation. I follow suit. Mr Wilson’s categories were as follows:
(a)The initial investigation into the bogus reviews. This appears to have involved reviewing and advising on the contractual position,
considering what avenues existed before investigation, engaging and instructing third parties to assist with the investigation, engaging with social media account holders who had commented on the social media platforms, identifying possible witnesses and interviewing them and engaging independent investigators. In relation to this work, Gibson Sheat’s costs totalled $64,899.72.
(b)The termination of the plaintiffs’ franchise agreement. Having carried out the investigation and reached a conclusion as to the provenance of the bogus reviews, the defendants took advice from Gibson Sheat in relation to their contractual entitlements and the firm assisted with the procedure involved in terminating it. Gibson Sheat’s costs for this work totalled $31,092.89.
(c)Gibson Sheat then provided advice in relation to aspects of the management of the franchise portfolio which involved analysing and advising in relation to the contractual arrangements between the former franchisee and customers. In relation to this work, the firm’s costs totalled $6,137.81.
(d)Advice in relation to the sale of the franchise and the implications for the litigation. Following termination, the defendants sold the franchise operation. Recognising that this might have implications for any potential litigation and their ability to recover costs, they sought advice in relation to this. Gibson Sheat provided such advice which would no doubt have involved analysing the relevant law and the material aspects of the contractual arrangement. Their total costs for this were
$13,114.16.
(e)When the Commerce Commission embarked upon an investigation into the issue of bogus reviews, the Commission sought to engage with the defendants. The defendants sought advice in relation to this from Gibson Sheat and Quinovic’s property management’s Chief Operating Officer was accompanied by Gibson Sheat representatives when he was
interviewed. This would no doubt involve an analysis of the scope of the Commerce Commission investigatory powers and assistance with preparation of Mr Chapman for the interview. Gibson Sheat’s costs in relation to this total $22,964.22.
(f)Mediation. Prior to the commencement of the proceeding, the parties engaged Mr Geoff Sharp to convene a mediation in an attempt to resolve the issues relating to the termination of the contract which had clearly already manifested themselves. The mediation apparently took a day. It was unsuccessful in resolving the dispute. The defendants took advice from Gibson Sheat in relation to this and Gibson Sheat acted for them through the mediation. No doubt this would have involved an analysis of the relevant law, the evidential position including the anticipated position of the plaintiffs in the proceeding and the defendants’ responses. It will also have involved the preparation of Quinovic Property Management personnel for the mediation process. Apparently, two Gibson Sheat partners attended the mediation. Gibson Sheat’s costs in relation to this totalled $29,408.55.
(g)The plaintiffs’ proceeding was commenced in October 2019 (apparently following further attempts by the parties to resolve the dispute). The defendants of course engaged Gibson Sheat in terms of the defence of the proceeding and Gibson Sheat’s initial attendances involved advising in relation to the terms of the statement of claim and the plaintiffs’ initial disclosure. Their costs totalled $16,797.30.
(h)Defence and counterclaim. The next step in the proceeding required the defendants to enter a defence. Gibson Sheat provided further advice, took further instructions and prepared a defence. Subsequently, the plaintiffs’ amended their claim and the defendants responded with a defence to the amended claim. Also during this period there were further interlocutory steps anticipated or completed such as an anticipated application to strike out one cause of action, which did not come to fruition and dealing with a series of other interlocutory
applications filed by the plaintiffs including an application to join a second and third defendants and an application seeking further and better particulars in relation to the defence. In relation to each these interlocutory steps Gibson Sheat would have been required to carry out an analysis of the courses open, drafting of the necessary documentation, taking further instructions, finalisation of the documentation and filing and service of the same. This is a relatively broad category of work, extended over a number of months and involved a series of distinct steps. Nevertheless, it is in my view properly grouped together as involving the entry of a defence and subsequent preliminary interlocutory steps. Gibson Sheat’s total costs for this work were $99,835.91.
(i)During the last quarter of 2020 the parties provided discovery. This was an important part of the exercise. Gibson Sheat total costs in relation to discovery were $49,987.53.
(j)Post discovery the defendants began to prepare for trial and in particular the process of identifying appropriate witnesses and briefing their evidence began. Gibson Sheat’s costs in relation to this work in preparation for trial totalled $6,495.60.
(k)The defendants through Gibson Sheat then identified a series of factual queries in respect of which they needed information and Gibson Sheat prepared a series of interrogatories to administer to the plaintiffs. The firm’s total costs of the preparation of those interrogatories was
$4,258.82.
(l)By this point, the defendants had clearly reached the view that they had been correct to conclude that the plaintiffs were themselves the source of the bogus reviews but that they had insufficient evidence to prove that. They were then advised by Gibson Sheat to seek a search order. Such an order was sought on an ex parte basis, obtained and executed. That would have involved Gibson Sheat providing advice in relation to
the application itself and the risks involved, the preparation of an ex parte application properly supported by affidavit evidence and other material, engaging third parties in connection with the matter, making the necessary application and the execution of the order. All of these matters are complex and difficult. Gibson Sheat’s total costs in relation to this exercise were $136,878.81.
(m)The search order appears to have thrown up clear evidence that, contrary to the position taken by them throughout, the plaintiffs were the source of the bogus reviews. The plaintiffs sought leave to discontinue. The defendants filed a notice of opposition and an application for an order striking out the claim and seeking costs which of course is the order that the Court is dealing with in this judgment. Gibson Sheat’s total costs in relation to his were $136,878.81.
(n)Mr Wilson has identified a catch-all category of work which he has referred to as “Client management and miscellaneous attendances”. As far as I can see this is simply attendances which do not fall into any of the other categories. He says that it “is inevitable in commercial litigation of any complexity” that “there are a range of tasks that need to be undertaken that are not neatly able to be categorised against steps in the proceeding or the dispute.” To this category Mr Wilson has allocated costs of $74,993.86.
(o)Gibson Sheat provided advice to the defendants relating to the sale of the franchise to Te Aro Property Management. Its costs in relation to this transaction totalled $3,359.00.
(p)Mr Wilson also has a category of “ancillary costs incurred by the client”. These are disbursements paid for engaging public relations and media management advice, tax advice, computer forensic advice and valuation advice. They total $15,937.26
[69] Thus, over a period of thirty-one months, Gibson Sheat and Mr Gee had the carriage of what I would characterise as a moderately complex commercial dispute of considerable importance to the defendants. This involved a significant preliminary investigation, dealing with the commencement of proceedings, and the interlocutory stages of those proceedings (most notably an application for a search order). They brought the matter to a successful conclusion. This all occurred in the context of a case which, if it went to trial, was expected to occupy less than a week. Of course, the case did not go to trial. Gibson Sheat charged a total of $609,790.69 and incurred disbursements (including counsel’s fees) on their client’s behalves of $251,071.64.
[70] I am unable to identify any particular step amongst those described above that I would be justified in concluding should not have been taken. Nor am I able to identify any disbursement (which, include Mr Gee’s fee notes as counsel) that strike me as having been incurred unnecessarily, or as being out of the ordinary, let alone unreasonable.
[71]The focus then is on Gibson Sheat’s costs.
[72] My overarching sense, bearing in mind the information before the Court as to the scope of the work done, is that this does not align comfortably with the total fees charged. That raises a concern as to whether or not the fees charged are objectively reasonable.
[73] Obviously, that preliminary view is too general to serve as a conclusion, and a more precise analysis is called for.
[74] In short my own preliminary conclusion needs to be tested out against other relevant considerations.
[75]I address first what appear to me to be the relevant aspects of the NZLS Rules.
[76] It is obvious that Gibson Sheat expended a considerable amount of time — which is hardly surprising given the nature of the case. There is no reason at all to think that the firm charged for more time than was spent on the job. However, it
appears to me that the time expended may have driven the calculation of fees more than perhaps was justified. Time is a factor referred to in the NZLS Rules but there is no reason to think that is any more or less important than other considerations. There is a difference between “time recording” and “time costing”. In my view, if too much emphasis is placed on the time recorded against files when it comes to costing that tends to diminish the emphasis on the value of what has been done and the importance of ensuring that tasks are carried out in an economical way.9
[77] There is no doubt that this was a comparatively difficult dispute that demanded a high level of skill and experience on the part of the defendants’ solicitors. But the difficulty factor falls well within the range that a large central city firm might be expected to handle.
[78] Looking at the work involved from the perspective of Gibson Sheat’s clients, it is obvious that this matter was of the first importance. It involved reputational issues. If that were not evident on the face of things, it is emphasised by the fact that the Commerce Commission embarked upon an enquiry in which Quinovic Property Management became involved.
[79] Urgency does not appear to have been a particular factor here. The plaintiffs initiated the litigation and there is a sense in which the defendants simply needed to respond. There is no indication that the litigation was prosecuted as a matter of urgency, which of course meant that the defence would not have to respond urgently. No doubt there were pockets of urgent work, but that is always the case with commercial litigation.
[80] As to the complexity of the matter and the difficulty or novelty of the questions involved, I can see that some of the work involved in this case was out of the ordinary, but the steps involved from a legal perspective, and the processes required to deal with them, were not unusual. For myself I would of thought that the matter was moderately but by no means overwhelmingly complex as a piece of commercial litigation.
9See Hart v Auckland Standards Committee 1 of New Zealand Law Society [2013] NZHC 83; [2013] 3 NZLR 103 at [176].
[81] The matter was dealt with by Mr Cox as the lead partner, other partners and senior lawyers, all of whom I accept are experienced lawyers with considerable ability and experience. The nature of the job demanded that.
[82] None of the other factors appear to me to be of any particular significance in this case.
[83] I certainly accept that the complexity of this case, the importance of it from the client’s perspective, the experience of the firm as a whole and Mr Cox in particular, and the obvious care and attention that they bought to the matter coupled with the significant amount of time that it demanded mean that the fees in this case might be expected to be materially higher than the run of the mill litigation. I would put it no higher than that.
[84] The conduct of the case by the plaintiffs is a difficult point to address in this case. Certainly it has been established that the basis of the proceeding was unjustified from the outset. Over and above that however, it does not seem to me that the conduct of the case by the plaintiffs’ solicitors and counsel (as opposed to the plaintiffs themselves) is open to criticism, and, as I said earlier, I see no principled foundation upon which the plaintiffs’ actions could affect my assessment of reasonableness.
[85] As against the defendants’ actual solicitor and client costs of $609,790.69 (excluding disbursements), on Mr Dalkie’s calculations, which appear correct to me, 2B scale costs would likely be in the order of $48,000 (3C would be in the $150,000 region). In other words, the defendants’ scale costs are 1170 per cent of what standard scale costs would be. Having regard to the factors described above, it should not come as a surprise that the defendants’ actual costs exceed scale costs by some margin, but the gap is vast.
[86] Mr Davey’s evidence, as already mentioned, is that Gibson Sheat kept the defendants well informed of their costs throughout and that the costs that they charged from beginning to end were not unexpected or in his view unreasonable. However, as said earlier, I do not regard this as a point that carries a great deal of weight in the analysis.
[87] That brings me to the opinions offered by Mr Wilson and Ms McMahon as to the reasonableness or otherwise of the defendants’ costs in relation to this matter. At the outset, let me say that both Mr Gee and Mr Dalkie invited me to conclude that the evidence of the expert called by them should be preferred. They both spoke of the demeanour exhibited by Mr Wilson and Ms McMahon and matters of that sort. I have reached no views as to such matters. Both Mr Wilson and Ms McMahon are senior and highly respected practitioners. As far as I could see, both were taking a professional approach to this matter, and doing everything they could to assist the Court as objectively as possible.
[88] However, there is no escaping that the difference between their views is huge. Mr Wilson offers the view that, taken overall, the defendants’ costs are reasonable and is prepared to support total fees of $609,790. Ms McMahon, on the other hand, takes the view that the maximum costs that could be regarded as reasonable is
$245,138.82.10
[89]Mr Wilson and Ms McMahon start at the same point. Both identify the issues
— correctly, in my view — as being whether any aspect of the work carried out for the defendants was unnecessary, and second, whether the amount charged for the necessary work can be regarded as reasonable. Both treat the NZLS Rules and in particular r 9 as the prime point of reference for determining reasonableness. As already said, both adhere to the same categories of work (that is to say Mr Wilson’s categories).
[90] However, from those shared starting points, Mr Wilson and Ms McMahon depart radically. It may be, as counsel suggested to me during the course of the hearing, that that reflects their somewhat different professional backgrounds. Mr Wilson has practised almost exclusively in the commercial litigation field. Ms McMahon in contrast is not a solicitor who has focussed on contentious, but rather commercial work, though, having said that, her evidence is that her considerable experience in cost reviews have often been in relation to contentious work.
10There are differences between the figures Ms McMahon refers to in her affidavit evidence and the schedules prepared by both parties. However, in the end, the amounts involved are not mentioned.
[91] Mr Wilson’s approach has been to bring his experience in commercial litigation to bear and conclude that every step taken by the defendants was a necessary or reasonable step to take, and that, taken in the round, the total fees charged by Gibson Sheat and Mr Gee are reasonable (though he would add that they are at the higher end of a range of reasonable fees for the work carried out), having regard to the r 9 considerations. In the course of his analysis he identifies two areas (the costs involved in connection with the counterclaim and the search order) in which he says the fees exceed what he assesses would be a reasonable fee, but then in other areas (including the investigation into the fake reviews and the mediation ) he says that the fees charged were materially less than he would have expected. That allows him to reach the conclusion that the total fees were reasonable. In doing so, Mr Wilson gives no particular exalted position to the time expended and tends generally to treat all of the r 9 factors as having equal weight.
[92] In contrast, Ms McMahon focusses to a considerable extent on the time involved. She does not necessarily take issue with anything that Mr Wilson says about the other r 9 considerations but nor does she appear on the face of her evidence to bring them to bear in the same way as she does the time expended. Ms McMahon essentially concludes the time allowances of Gibson Sheat in relation to most of the work streams were not reasonable.11 She would also exclude in their entirety some workstreams such as the Commerce Commission investigation and advice relating to the sale of the Te Aro franchise.
[93] In the end, there is a vast gulf between the views of these two senior practitioners, both of whom I accept have expertise to offer in relation to the reasonableness or otherwise of the costs. Mr Wilson would sanction a fee of
$609,790.69. Ms McMahon would not allow a fee of more than $245,138.82. Mr Wilson and Ms McMahon conferred as I had directed that they should. This did not result in either changing their view. What it did was to confirm the obvious, that is to say that the gulf between them comes down to their contrasting approaches. I prefer Mr Wilson’s overall approach, which emphasises an assessment of the overall reasonableness of the costs charged against the job done bearing in mind the NZLS
11To give just one example, Ms McMahon suggests a reasonable time allowance for the investigation work would be no more than 100 (and not 170) hours.
factors and the other considerations. Ms McMahon’s approach appears to me to give too much weight to time expended — almost to the point of elevating the exercise to a time costing one. Having said that, ironically, I have reached an overall conclusion that is marginally closer to Ms McMahon’s than Mr Wilson’s.
[94] As said earlier, the determination of what is reasonable in terms of fees is very much a matter of judgement. There is no mathematical formula. If there were, I cannot imagine how it could operate fairly. Litigation is quintessentially a human process, and, ultimately, the Court’s responsibility in a case such as this is to exercise its best judgement.
[95] I agree with the position urged upon me by Mr Gee that it would be quite wrong for this Court to determine, except perhaps in the most obvious case, that any category of work should not have been undertaken. It is commonplace in the conduct of litigation for a party to set off on a course which turns out to be unhelpful and has to be abandoned. I have already accepted that all of the categories of work carried out by Gibson Sheat in this case were carried out properly, and I am not prepared to exclude any area such as Mr Dalkie contends that I should. Nor am I prepared to conclude that any of the disbursements, which appear to me to be unremarkable, should be excluded.
[96] Having said that, I do not accept Mr Wilson’s “unders and overs” approach in relation to costs. It seems to me that if Gibson Sheat were particularly efficient in one area, that is no reason at all to sanction an unreasonable fee in another. I accept that that view leads to an approach that is highly sensitive to the categorisation and allocation of costs. That, however, is unavoidable.
[97] The view I have reached, having regard to all of the material before the Court, the principles outlined earlier, the helpful views offered by Mr Wilson and Ms McMahon and counsel’s submissions, is that the fees charged by Gibson Sheat in relation to the categories of work identified as (b), (c), (d), (e), (f), (j), (k), (o) and (p) are within the range of reasonable fees. I take a different view, however, of the remaining seven categories. In my assessment, whatever time may have been spent on this work, the maximum reasonable fee for them is $210,000, made up of:
(a) $40,000, (g) $5,000, (h) $60,000, (i) $25,000, (l) $40,000, (m) $20,000, and
(n) $20,000. I do not say that those figures are the result of arithmetical calculations. They reflect my judgement, made on the basis of the considerations canvassed herein.
[98] My conclusions are summarised in the attached schedule which is an adaption of a document developed by counsel.
[99]On that basis, the overall maximum fee that I have arrived at for this work is
$347,768.31, together with all claimed disbursements (plus GST if any).
[100] Costs in relation to this interlocutory application are reserved. I would expect counsel to be able to resolve these. If they are unable to do so they may file memoranda in the usual way.
Associate Judge Johnston
Solicitors:
Shine Lawyers, Auckland for plaintiffs Gibson Sheat, Wellington for defendants
Exuberant Ltd & Another v Quinovic Property Management Ltd & Others Gibson Sheat fees – ALL FIGURES ARE GST EXCLUSIVE
Wilson categorisation Gibson Sheat fees Wilson allowance McMahon allowance Determination (a) Investigation into fake reviews 64,899.72 37,500.00 40,000.00 (b) Termination of the franchise agreement 31,092.89 18,000.00 31,092.89 (c) Advice on management of
franchisee’s portfolio
6,137.81 2,500.00 6,137.81 (d) Advice on
implications sale of franchise on litigation
13,114.16 8,400.00 13,114.16 (e) Advice regarding
Commerce Commission
22,964.22 Nil 22,964.22 (f) Mediation 29,408.55 17,800.00 29,408.55 (g) Proceedings
commenced against defendant
16,797.30 6,780.00 5,000.00 Preparation of defence 24,889.30 — Case management 10,864.28 — Joinder application 8,387.03 — Further particulars application 14,083.87 — Counterclaim 41,611.20 — (h) Total highlighted categories 99,835.91 50,000.00 60,000.00 (i) Discovery 49,216.72 19,000.00 30,000 (j) Witnesses and briefing 6,495.60 40,000.00 6,495.60 (k) Interrogatories 4,258.82 4,258.82 4,258.82 (l) Search order (all phases) 136,878.81 20,000.00 40,000.00 (m) Discontinuance and strike out 34,400.06 8,400.00 20,000.00 (n) General client management and miscellaneous 74,993.86 12,500.00 20,000.00 (o) Sale of Te Aro 3,359.00 Nil 3,359.00 (p) Costs 15,937.26 Nil 15,937.26 Total 609,790.69 609,790.69 245,138.82 347,768.31
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