Houghton v Saunders
[2019] NZHC 1362
•14 June 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2008-409-348
[2019] NZHC 1362
BETWEEN ERIC MESERVE HOUGHTON
Plaintiff
AND
TIMOTHY ERNEST CORBETT SAUNDERS, SAMUEL JOHN MAGILL, JOHN MICHAEL FEENEY, CRAIG EDGEWORTH HORROCKS, PETER DAVID HUNTER, PETER THOMAS and JOAN WITHERS
First Defendants
CREDIT SUISSE PRIVATE EQUITY INCORPORATED
Second Defendant
CREDIT SUISSE FIRST BOSTON ASIAN MERCHANT PARTNERS LP
Third Defendant
Hearing: 30 May 2019 Counsel:
C R Carruthers QC and P A B Mills for plaintiff D J Cooper and S T Coupe for first defendants
J B M Smith QC, A S Olney and C J Curran for second and third defendants
Judgment:
14 June 2019
JUDGMENT OF DOBSON J
[Costs Issues]
HOUGHTON v SAUNDERS [2019] NZHC 1362 [14 June 2019]
Contents
When to reconsider stage one costs? [1]
Supreme Court direction [5]
Should stage one costs be revisited before stage two outcome is known? [8]
Disgorgement of stage one costs paid to the defendants [30]
Costs on plaintiff’s partial success at stage one [41]
Plaintiff’s stage one disbursements [46]
The ATE insurance premium [52]
Security for costs [68]
Security for adjusted outcome of stage one costs [79]
The form of security [86]
Summary [89]
Costs on the applications [91]
Directions on discovery [92]
Further case management/interlocutories [93]
Schedule A - Plaintiff’s claim for costs on stage one, per scale Schedule B - Plaintiff’s claim for stage one disbursements
When to reconsider stage one costs?
[1] Following the partial success achieved by the plaintiff in the Supreme Court, he has applied for orders requiring reimbursement by the defendants of all, or a substantial part, of the costs I ordered in favour of the defendants who had been successful before me on all issues.1 In terms of my costs order, the plaintiff paid a total of $3,780,302 (including a small interest component) to the remaining defendants.2
[2] In addition, the plaintiff has sought a new order for costs in his favour in respect of stage one, to reflect what he treats as a substantial reversal of the outcome in his favour. The amount claimed for stage one costs is some $756,000, before seeking an uplift on the relevant scale costs in the same manner as I allowed in favour of the defendants in my stage one costs judgment. In addition, the plaintiff seeks reimbursement of disbursements totalling $2,568,056. The largest and most contentious component of the disbursement claim is an amount of some
$1.924 million for an after-the-event (ATE) insurance premium.
1 Houghton v Saunders [2015] NZHC 548.
2 A further substantial amount was paid to the then fourth and fifth defendants, but those payments are not in issue as the plaintiff did not succeed on any points on appeal against them.
[3] The defendants oppose any order to disgorge any part of the costs awards paid to them for stage one. They argue that it is premature to treat the effect of the plaintiff’s partial success in the Supreme Court as constituting a substantive success to any extent when elements of liability have still to be made out by the claimants and meaningful quantum of loss established. The defendants also oppose disgorgement on the basis that any funds repaid would be dissipated, so they would in any event be entitled to security for costs for eventual repayment of amounts disgorged, which they argue remains a prospect if the claimants do not have any substantive success at stage two. The defendants argue for deferral of any revisiting of stage one costs until the substantive impact of the points on which the plaintiff was successful in the Supreme Court is known.
[4] If a costs order in the plaintiff’s favour is contemplated, then the defendants challenge a number of the line items claimed by the plaintiff for stage one costs. They also maintain challenges to many aspects of the disbursements claimed, in particular disputing the recoverability of the ATE insurance premium.
Supreme Court direction
[5] The parties took typically divergent views as to the effect of the Supreme Court’s judgment on costs. That included the following:3
[11] We accept that many arguments made by the appellant on appeal were not properly founded on the facts or pleadings. We also agree with the respondents that the appellant’s “but for” argument was a significant aspect of his case and of the representative claim and was rejected by this Court. On the other hand, the representative claim succeeded on a significant aspect of the case, the confirmation of the Court of Appeal’s finding that the FY04 revenue forecast was an untrue statement and the setting aside of that Court’s finding that no liability arose from that untrue statement under the Securities Act or the Fair Trading Act. Whether this Court’s decision on that issue ultimately leads to a successful outcome for the representative class and if so, to what extent, cannot yet be determined. But a costs award is required to recognise that success in relation to the issues before this Court. We consider an award of $30,000 is appropriate.
…
[20] We do not quash the award of costs in the High Court or make an order requiring repayment of the costs award made by that Court, as the appellant submitted we should. But we direct that the High Court should reopen the
3 Houghton v Saunders [2018] NZSC 112.
question of costs and determine that question afresh. The High Court can, if it considers it appropriate to do so, make an order requiring a refund of a portion of the costs paid by the appellant pursuant to the High Court costs judgment.
[6] I note that the plaintiff had sought costs of $75,000 in the Supreme Court and a footnote in its judgment acknowledges that, in two recent appeals involving three day hearings (as this was), costs of $45,000 had been awarded to successful parties.
[7] Mr Carruthers QC submitted that the Supreme Court’s observations acknowledged that the plaintiff has had a significant success on stage one issues, and that costs consequences ought to follow on that basis. In contrast, the defendants pointed to the Supreme Court’s refusal to either quash the stage one High Court costs order, or to require repayment. What may have been contemplated was that the High Court could order a refund of a portion of the costs that I originally ordered the defendants were entitled to. The Supreme Court left to the High Court whether it should reconsider stage one costs before, or only after, the determination of stage two.4
Should stage one costs be revisited before stage two outcome is known?
[8] The defendants submitted that reconsideration of stage one costs should be deferred. They argue that the materiality of the partial success the plaintiff achieved in the Supreme Court cannot be determined until it is known whether it will lead to making out liability against the defendants and, if so, the quantum of damages that follow. I have considerable sympathy for that view.
[9] In the course of my exchanges with him, Mr Carruthers conceded that the diverse range of potential outcomes of stage two are likely to have a material impact on a proper assessment of the final costs entitlements for all parties for stage one. For example, I might assume that the plaintiff’s partial success in the Supreme Court constituted a significant reversal likely to translate into a substantive success and re- cast the respective costs entitlements accordingly. If I now make orders on that assumption, and the claimants fail entirely at stage two, the defendants would have good grounds for applying to re-open my initial revision of the stage one costs outcome. Equally, I might assess the costs consequences on the basis that the outcome
4 Houghton v Saunders, above n 3, at [18].
in the Supreme Court creates reasonable prospects for a modest to mid-range level of substantive success, but the claimants are subsequently awarded damages at the top of their aspirations. In that event, the plaintiff would have a case to require re-opening on the basis that my initial costs revision had under-rated the impact of the success in the Supreme Court. The outcome is that any costs orders made now in relation to stage one will necessarily be on a basis that there is a prospect that they may need to be revisited depending on the outcome of stage two.
[10] The uncertainties in evaluating the materiality of the plaintiff’s partial success in the Supreme Court are exacerbated by two factors. First, the issues in the representative action were not split neatly between liability and quantum as is a more usual approach. Rather, the way stage one has now come back to the High Court, issues of reliance on the untrue statement, and possibly also issues of its materiality, remain to be made out before liability is established.
[11] Secondly, the plaintiff’s case changed to a substantial extent following trial in the High Court, with a much refined variation on the arguments being presented to the Supreme Court. Somewhat reluctantly, Mr Carruthers conceded that he was seeking a reconsideration of costs entitlements on the basis that the significantly different case presented to the Supreme Court was transposed over the issues as presented in the High Court. Whilst the finding of an untrue statement in the prospectus about the FY04 revenue forecast was given prominence in the Supreme Court, it was relegated to a relatively minor component of much more diverse criticisms of the prospectus at trial.
[12] In present circumstances, it is hardly appropriate, and may even be invidious, to assess the extent to which the plaintiff’s partial success in the Supreme Court alters the relative ranking of stage one success by each side. It is highly material to that assessment to project the extent of the likely success at stage two that may follow in reliance on the plaintiff’s partial success at stage one. On the other hand, that is a matter on which I must retain an entirely open mind until stage two has been determined. The present exercise therefore requires an artificial construct assuming success by the claimants at stage two at some point on a continuum from none to
complete success, but on terms that I have consciously not turned my mind to the reasonableness of that assumption.
[13] In an unhelpfully literal sense, the defendants categorise the allegation of the FY04 revenue forecast as being an untrue statement in the prospectus as one out of 80 criticisms raised in the High Court, so that the Supreme Court’s reversal on the point should only be treated as a 1/80th alteration to the original outcome. More credibly, in their response to the plaintiff’s claim for costs, the defendants concede that the Supreme Court reversal could represent 20 per cent of issues required to make out meaningful success, so costs should not (at this stage) in any event exceed 20 per cent of what full success at stage one would have entitled the plaintiff to.
[14] There appears no set rule for or against revisiting a High Court costs order following an appellate reversal in cases of the first stage of split trials. The point may be novel. Mr Carruthers could not cite any precedent for his application to revisit costs at this stage, in similar circumstances. The authorities cited for the defendants involved the somewhat different circumstance of appellate review of decisions by trial judges to make costs determinations after the first stage of split trials (ie where the outcome as to liability in the High Court had not altered).
[15] Such orders were considered by the New Zealand Court of Appeal in Cousins & Associates v FM Custodians Ltd.5 In that litigation, the liability issues set for a stage one trial were conceded by the defendant shortly before trial. Prior to any second stage trial on quantum, the plaintiff sought costs on stage one of the proceeding, with an emphasis on the wasted costs incurred in preparing for the trial on liability when those costs could have been avoided by an earlier admission of liability. The Court of Appeal considered English decisions on the appropriateness of ordering costs after the first stage of a split trial, commenting on them in the following terms:6
[15] … In Weill v Mean Fiddler Holdings Limited, Lightman J observed that if there is a split trial and there is doubt whether the plaintiff will recover more than nominal damages at the quantum trial, it “may be proper” for the trial Judge to defer making a costs order until the outcome of the quantum trial is known. We agree that such a course may be proper, but we do not see that as establishing a principle that must be followed in all cases.
5 Cousins & Associates v FM Custodians Ltd [2013] NZCA 99.
6 Citations omitted.
[16] In our view, another decision of the Court of Appeal of England and Wales sums up the position correctly. In Alan Williams Entertainment Ltd v Hurd, the Court referred to the Weill decision noted above and observed that that decision found that reserving costs until after a quantum trial was a permissible but not the only way of dealing with costs. The Court in Williams said the trial Judge might properly have reserved the costs of the hearing before him to the Judge hearing the inquiry as to damages in due course but was unable to see any principle the trial Judge had failed to observe in not doing so. …
[16]Dealing with litigation before it, the Court of Appeal observed:7
Another Judge may have been prepared to reserve costs. But there was no principle requiring this. The Judge was entitled to view with concern the wasted effort by the parties and the Court that had arisen from the late admission of liability as a relevant factor.
[17] A more recent example has arisen in the claim by kiwifruit growers against the Crown.8 In that litigation, Mallon J was prepared to order costs in favour of the larger group of claimants after substantial success in stage one of the trial. Claimants made out liability for negligence, notwithstanding a deferral until stage two of precise quantification of loss, where an element of the cause of action required loss, caused by the breach, to be made out at least at a conceptual level. Appeals and cross-appeals to the Court of Appeal were pending and the prospect of needing to revisit a costs order in relation to stage one, depending on subsequent developments, was acknowledged. As with the present litigation, the kiwifruit claim was pursued as a representative action funded by a third party litigation funder.
[18] Despite submissions from the defendant in the kiwifruit litigation that backing by a secure litigation funder meant there would be no prejudice to the claimants if a costs entitlement from stage one was deferred until stage two had been determined, Mallon J treated the stage one outcome as sufficiently discrete to give priority to the principle that the plaintiffs were entitled to the usual consequences of judgment in their favour.
[19] The present circumstances are materially different from those confronting Mallon J in the kiwifruit litigation. There is a greater degree of uncertainty about the
7 Cousins & Associates v FM Custodians Ltd, above n 5, at [17].
8 Strathboss Kiwifruit Ltd v Attorney-General [2019] NZHC 62 at [5]–[9].
impact stage two determinations will have on the appropriate costs entitlement for the plaintiff, having regard to the extent of success enjoyed in the Supreme Court. There is accordingly a greater degree of provisionality about a determination at this stage, and a corresponding increase in the range of circumstances in which revisiting any costs order now made may be justified following the stage two determination.
[20] More compelling in the practical sense is the situation with funding of the litigation. Mr Carruthers acknowledged that the application for disgorgement of the costs previously paid to the defendants and pursuit of the plaintiff’s claim for costs for stage one was a financial imperative for cash flow reasons. When submissions in support of the application were filed, the plaintiff did not have funding in place for stage two. Although there had been some developments in that regard by the date of the hearing on 30 May 2019, I was invited to assess the application on the basis that there was still a cash flow imperative, and that amounts either repaid by the defendants from sums previously paid to them, or paid by the defendants in compliance with a fresh costs order in the plaintiff’s favour, would be applied to the claimants’ costs of preparing for and presenting their case on stage two.9
[21] The cash flow imperative is an important factor in favour of determining the plaintiff’s application at this stage, notwithstanding the various uncertainties that arise. Mr Carruthers put it as highly as suggesting that the absence of a meaningful award on either or both aspects of the application was likely to preclude the claimants’ ability to proceed with stage two. He argued that there were access to justice considerations that required the costs issues to be addressed. Prejudice in that stark form does attribute importance to the plaintiff having the positive consequences of its limited success in stage one addressed now.
[22] I raised with counsel whether the confirmed identity of the additional claimants whose claims are to be heard and determined at stage two was relevant to this concern. Impecuniosity, or indeed inability to pursue the stage two claim without the involvement of a third party funder, could certainly not be asserted by claimants such
9 During the 30 May 2019 hearing, Ms Mills tendered a sealed envelope containing a copy of then recently concluded partial funding arrangements. Given the stance adopted on argument of the applications, it is unnecessary to consider those arrangements on the basis that there remains a cash flow imperative requiring the claimants to have a measure of funding to advance stage two.
as the Accident Compensation Corporation or Hunter Hall Investment Management Limited. Others among the 31 proposed claimants identified in the plaintiff’s 17 May 2019 memorandum may also be able to make meaningful contributions to the cost of pursuing their stage two claims.
[23] Arguably, given the extent to which issues have been resolved by stage one, the prospects of pursuing stage two for significant shareholders should not be seen in the same light as the disproportionality between the relatively modest amount at stake for an individual such as Mr Houghton, and the very significant costs in taking on the whole challenge of the claim from the outset against the directors and the promoters. That disproportionality, and the common interest shared by a large number of claimants with relatively modest amounts at stake, is an important aspect of the context in which the Court is prepared to use the representative action rules to facilitate class actions of this type.
[24] At least at an impressionistic level, claimants with an interest in a substantial number of shares, once the issues have matured to the point they now have, would have difficulty maintaining that pursuit of their own claims (particularly if a number of them join together) exposes them to costs disproportionate to the amounts of damages they might recover. These developments raise an issue as to the extent to which Mr Carruthers can rely on the imperative of needing a costs order in his favour on access to justice considerations.
[25] However, defendants’ counsel acknowledged that inclusion in the proceedings of named claimants that have the financial capacity to fund their stage two claims did not trigger the prospect of such claimants being fixed with individual liability for adverse costs orders. The defendants’ position was that, while ignoring the financial capacity of some of the claimants may add weight to the imperative the plaintiff can claim for a costs order in his favour at this stage, the clear corollary is that this reinforces the justification for the defendants to have full, or nearly full, orders for security for costs.
[26] I am not persuaded that it is necessary, in managing representative actions that proceed by way of split trials, to adhere to the original characterisation of the
proceeding throughout. This proceeding is unusually protracted, and has involved the defendants successfully defending all claims for liability in the High Court and the Court of Appeal. A partial success by the plaintiff in the Supreme Court has now introduced grounds for making out liability that would, at least from the plaintiff’s perspective, entitle claimants to substantial awards of damages at stage two.
[27] This proceeding may be atypical in that, having reached this point, numerous individual claimants have been nominated to have their individual claims finally determined at stage two, where they have the financial wherewithal to pursue the stage two claims without the need for a third party funder. The value of some of their individual claims is well in excess of the modest amounts that are often in issue for individual claimants where their pursuit would be uneconomic unless on a representative class action basis.
[28] However, in the absence of any challenge to Mr Carruthers’ assertion that an award of costs to reflect the plaintiff’s partial success at stage one is necessary to fund the next stage of the proceeding, I consider the merits of dealing with costs at this stage on that basis. I also rely on Ms Mills’ statement from the bar that any amounts repaid by the defendants from the original costs orders in their favour are not required to be paid on to the ATE insurer that funded the costs payments, at least not until a final determination of stage two. Reconsidering stage one costs in the present circumstances reflects the idiosyncratic position that exists and cannot be taken as an approach that I would generally endorse.
[29] Weighing these various factors, I am persuaded that both aspects of the plaintiff’s costs application should be addressed. There is a prospect that the outcomes may need to be revisited but, in the particular circumstances of this litigation, that is not a sufficient consideration to decline to deal with them.
Disgorgement of stage one costs paid to the defendants
[30] The inaccuracy in the FY04 revenue forecast was relegated in importance in the presentation of the plaintiff’s case before me. Had I correctly applied the definition of untrue statement, on the way the plaintiff’s case was presented I would have found partial success for the plaintiff and a larger proportion of success for the defendants.
In those circumstances, it seems most likely that I would have deferred any costs award, pending the stage two determination that would reflect the relative importance of making out the untrue statement.
[31] If I had been pressed to deal with costs at that point, I would have begun by calculating costs entitlements for the respective extents of success for each side. The practical outcome would have been a netting off so that the defendants’ proportionately larger award would have been reduced by setting off the plaintiff’s lesser entitlement for succeeding in making out one (albeit potentially important) untrue statement. I would likely have recognised that the apportionment of costs entitlements reflected the relative importance of the issues on which each side had succeeded, similarly recognising the prospect of having to revisit that proportionality after stage two.
[32] Given the circumstances in which I am now persuaded to revisit the costs, it is preferable that I reconstruct a gross costs entitlement for each side to reflect that outcome.
[33] For the directors except for Mr Horrocks, I calculated a scale costs entitlement of $212,185 for pre-trial steps, and $458,640 for trial preparation and appearances.10 For reasons explained in my costs judgment, I awarded increased costs because of inadequate aspects of the conduct of the case for the plaintiff.11 Having revisited that, I am satisfied that that reasoning remains unaltered by the Supreme Court judgment.
[34] The uplift I allowed was 15 per cent on the pre-trial steps and 50 per cent on trial preparation and appearance. I consider it is appropriate now to reduce the costs entitlement in both categories by 20 per cent.
[35] As to disbursements, I gave relatively detailed consideration to disputed items claimed, disallowing a number at least in part.12 If I was considering a disbursements entitlement for the directors in the context of a partial rather than complete success, I am likely to have adopted a somewhat more stringent approach. Pragmatically, for present purposes, I consider it sufficient to apply an equivalent discount of 20 per cent.
10 Houghton v Saunders, above n 1, Schedule 1.
11 At [68]–[78].
12 At [80]–[111]. In particular, disallowance of 35 per cent of Professor Cornell’s invoices at [104].
[36] In terms of additional items paid to the defendants for stage one costs, the plaintiff’s submissions record payment of $15,490.94 for the costs of the two day hearing on costs. Had there been partial success on both sides and I proceeded to hear a similar extent of argument, I would likely have let costs lie where they fell. Accordingly, that amount should be repaid. There is also an item for interest paid of
$6,345.02 and a reduction of 20 per cent on that is appropriate. The result is:
Costs $ 931,972.75 Disbursements 546,685.60 Interest 6,345.02 Total $1,485,003.37 20 per cent = 297,000.67 Plus costs on hearing 15,490.94 Total repayment $ 312,491.61
[37] Mr Horrocks was separately represented at the stage one hearing and I ordered costs and disbursements, plus costs of the costs hearing, in his favour. I ruled originally that Mr Horrocks was not entitled to an uplift beyond scale and reduced somewhat the claim he made for discovery, inspection and interrogatories. The costs order in his favour was $260,279. His claim for disbursements was agreed at
$27,468.39.
[38] The plaintiff’s memorandum acknowledges that he too was paid an amount of interest. I direct that there should be the same reduction of 20 per cent that applied to the other director defendants. It is as follows:
Costs $260,279.00 Disbursements 27,468.39 Interest 1,528.74 Total $289,276.13 20 per cent = 57,855.22 Plus costs on hearing 5,970.00 Total repayment $ 63,825.22
[39] For the present exercise, I see no reason to treat the Credit Suisse defendants any differently, and the same reductions ought to apply as follows:
Costs $ 803,640.85 Disbursements agreed 1,155,885.97 Interest 1,077.10 Total $1,960,603.92 20 per cent = 392,120.78 Plus costs on hearing 14,758.00 Total repayment $ 406,878.78
[40]In summary, the disgorgement obligations are:
Directors (except Mr Horrocks) $312,491.61 Mr Horrocks 63,825.22 Credit Suisse entities 406,878.78 Total $783,195.61
Costs on plaintiff’s partial success at stage one
[41] The claim for costs was presented on the basis that the outcome in the Supreme Court should be treated as justifying an award in favour of the plaintiff as if he had succeeded at stage one. Before contending for an uplift from scale costs, the plaintiff’s submissions in support of his application included a chart comparing the scale line items claimed, compared with the items accepted by the defendants as appropriately claimed. I have considered those competing positions on scale costs, and set out my analysis in Schedule A to this judgment. That analysis precedes a review of the appropriateness of any deduction to reflect the partial nature of success, and justification for any uplifts such as were ordered in favour of the plaintiff.
[42] In summary, on the assumption that the plaintiff had been substantially successful in stage one, scale costs appropriately awarded would be:
Commencement steps $ 23,644.00 Case management 25,000.00 Interrogatories/discovery/inspection 190,000.00 Interlocutory applications not otherwise the subject of costs orders 10,000.00
Trial preparation and appearance 341,160.00 Total $589,804.00
[43] The first possible adjustment to scale costs is the plaintiff’s claimed entitlement to an uplift on the basis that he should be treated for costs purposes the same as the defendants. Parity of treatment is not warranted when a major consideration in granting an uplift to the defendants on their costs awards was the unnecessary costs
incurred on behalf of the defendants by inadequacies and inefficiencies in the manner in which the plaintiff’s case was run in the High Court. That view remains valid, notwithstanding the partial success subsequently achieved in the Supreme Court.
[44] The next issue is the extent to which the partial success in the Supreme Court bears as a part of the whole of the plaintiff’s case, as an indication of what the portion of the costs otherwise appropriately awarded for a complete or substantial success should be. As the case was argued in the High Court, the allegation of an untrue statement about the FY04 revenue forecast occupied certainly no more than 20 per cent of the time and effort in preparation and hearing. Also, the allegation assumed a relative importance materially less than 20 per cent of the plaintiff’s case as it was presented.
[45] It is understandable that the plaintiff would claim greater significance from his present perspective because it is the single criticism on which the claims may continue, and because of the extensive re-casting of the plaintiff’s claims through the appeals that gave a greater focus to this allegation in any event. A 20 per cent apportionment is generous given that in the High Court the parties argued the materiality of any untrue statement, but now materiality is still an issue for stage two. Twenty per cent of the scale costs entitlement of $589,804 would be a costs order of $117,960.80.
Plaintiff’s stage one disbursements
[46] Of a total sum of $2.568 million claimed for disbursements, the major challenges raised by the defendants were to the ATE insurance premium of
$1,924,622.18 and components of witness expenses which were claimed at
$395,305.47.
[47]Of this total claim, the defendants concede only proper recoverability of
$26,809.73. Their arguments for disallowance of items claimed reflects a measure of double-up. First, they contend that certain disbursements should be disallowed on the ground that a trial confined to the cost of proving an untrue statement in the prospectus on the FY04 revenue forecast would only have taken 10 days, with correspondingly confined expenses for witnesses. Secondly, they adopted a global approach,
contending that, as success on the single issue could not raise any more than 20 per cent of the total, then that should be the limit of recoverable disbursements.
[48]High Court Rule 14.12(2) defines recoverable disbursements as follows:
14.12 Disbursements
…
(2)A disbursement must, if claimed and verified, be included in the costs awarded for a proceeding to the extent that it is—
(a)of a class that is either—
(i)approved by the court for the purposes of the proceeding; or
specified in paragraph (b) of subclause (1); and
(b)specific to the conduct of the proceeding; and
(c)reasonably necessary for the conduct of the proceeding; and
(d)reasonable in amount.
Rule 14.12 also includes a discrete definition of “relevant issue”:
in relation to a disbursement, means the issue in respect of which the disbursement was paid or incurred.
[50] Despite the inclusion of that definition, the phrase does not appear elsewhere in the terms of the rule about the scope of recoverable disbursements. Commentary on the rule suggests that the definition is included to limit recoverability to disbursements incurred in respect of an issue on which the claiming party has succeeded.13
[51] Because of its amount, and the scope of argument I heard about it, I deal here with the recoverability of the ATE insurance premium. The disputed claims for other categories of disbursement are set out in Schedule B to this judgment.
13 Andrew Beck and others McGechan on Procedure (online loose-leaf ed, Brookers) at [HR14.12.01(ii)].
The ATE insurance premium
[52] The recoverability of such expenses has been considered in a number of class actions in other jurisdictions. Between 2000 and 2013, ATE premiums were recognised as a recoverable disbursement in the United Kingdom under s 29 of the Access to Justice Act 1999. Speaking extra-judicially some years after the repeal of that provision, Jackson LJ, who has led review and reform of civil procedure rules in the United Kingdom, has observed:14
Recoverable ATE premiums were the most expensive and inefficient form of one-way costs shifting that anyone has ever invented. When they were combined with recoverable success fees, one party litigated at the risk of paying up to four times the cost of the action, while the other party paid no costs regardless of whether they won or lost. Furthermore, there was no effective control over the level of the ATE premiums.
[53] Subsequent to repeal of that provision, the United Kingdom Supreme Court has confirmed the unrecoverability of an ATE premium. In McGraddie v McGraddie (No 2), Lord Neuberger for the Court observed that such a premium is simply not part of the costs of (in that case the appeal), as a matter of ordinary language.15 That appeal was brought from Scotland and the judgment considered the different terms applying under the Scottish rules of court, but the differences were immaterial and the judgment observed that:16
… (i) as a matter of principle, (ii) in the light of the terms of the relevant court rules, and (iii) on the basis of consistent judicial authority on both sides of the border, the law is clear. In the absence of agreement or a specific statutory sanction (either expressly or through valid delegated legislation) to the contrary, a successful party to litigation cannot recover an ATE premium, however reasonable it was to have incurred it, as part of his costs or expenses of legal proceedings.
[54] Mr Carruthers relied on the recognition of the recoverability of an ATE premium in a decision by the Senior Master of the Queen’s Bench Division in England in Arroyo v BP Exploration Company (Colombia) Ltd.17 That judgment arises out of a case management conference in which the Senior Master declined a defendant’s
14 Rupert Jackson, Lord Justice of the Court of Appeal of England and Wales “Reform of Civil Justice: Was it all worth it?” (Lecture to Cambridge University Faculty of Law, 5 March 2018).
15 McGraddie v McGraddie (No 2) [2015] UKSC 1, [2015] 1 WLR 560 at [13].
16 At [19].
17 Arroyo v BP Exploration Company (Colombia) Ltd (The Ocensa Pipeline Group litigation) Case No HQO8X00328, 6 May 2010.
application for access to the terms of the ATE policy. In reliance on s 29 of the Access to Justice Act, which was then in force, the reasoning acknowledges the recoverability of an ATE policy premium as a disbursement. The reasoning can have no application post the repeal of s 29 of that Act.
[55] Mr Carruthers also cited a decision of the Equity Division of the Supreme Court of New South Wales for the recognition in principle of the recoverability of an ATE premium as a disbursement in litigation.18 The judgment addressed applications for the Court’s approval of settlements that had been reached in class actions. In one group of claims, solicitors who had funded pursuit of the action on terms including a success fee had purchased an ATE policy incurring a premium of some $1.9 million. Ball J observed that, in the absence of a litigation funder, the insurance was essential to enable the class action to proceed. The Court considered the premium did not appear to be unreasonable and approved terms of settlement which allowed the solicitors to recover it before accounting to the claimants for the net proceeds.
[56] The analysis in that decision traverses different considerations from whether an unsuccessful party ought to bear the costs of a successful claimant having insured its risk of having to meet adverse costs awards in the event of failure. Approving the deduction of that expense before accounting to the claimants for the proceeds of an otherwise reasonable settlement involves different considerations to those arising on what would be the effective transfer to the potential recipient of an adverse costs award of the insurance premium for covering a claimant for that liability.
[57] The defendants disputed the recoverability of the ATE premium as not being specific to the conduct of the proceeding, nor arguably was it reasonably necessary for the conduct of the proceeding. They also argued that to be recoverable, a disbursement had to be paid or incurred by the party claiming it. That is not an explicit requirement within the definition of recoverable disbursements, but is arguably implicit in the concept of disbursements being expenses paid or incurred for the purposes of the proceeding and charged for separately from legal professional services.
18 Smith v Australian Executor Trustees Ltd (No 4) [2018] NSWSC 1584.
[58] In this case, the premium was an expense incurred by the litigation funder that funded stage one, at least for the High Court hearing. The defendants submitted that the litigation funder had incurred the premium to cover the exposure it had contractually assumed to the claimants, and reflected a business choice by the funder as how best to cover itself for that contingency.
[59] I would accept that the premium had been paid specific to the conduct of the proceeding. No doubt the underwriter calculated the premium it charged on some assessment of the risk of an adverse costs order being made in this case, and then charged what appears to have been a very substantial premium relative to the extent of cover it committed to.
[60] I did not hear argument on how the Court might assess the scope of expenses that should be recognised as reasonably necessary for the conduct of the proceeding. In civil litigation between individually identified litigants, the cost of a claimant insuring against the risk of adverse costs orders is likely, in most circumstances, to be seen as a personal or commercial choice rather than being reasonably necessary.
[61] On the other hand, in representative proceedings including significant numbers of claimants for whom individual amounts at stake are insufficient to justify individual pursuit of their claims, responsible arrangements by those managing the representative action might treat insurance against the risk of adverse costs orders to be an essential part of managing the litigation. Given the prospect of relatively full orders for security for costs in such cases, the existence of such insurance might also be a commercial requirement to facilitate the availability of security on feasible terms.
[62] The manner in which the recoverability of such premia has been treated in the United Kingdom is instructive. Statutory recognition of their recoverability was motivated by concerns for access to justice, but after somewhat more than a decade’s experience, provision for their recoverability was removed, with the views expressed by Jackson LJ no doubt reflecting the experience whilst it was in force. The commercial consequences for defendants in third party funded representative actions is highly significant. Allowing such a cost as a disbursement would not, in my view, advance the genuine interests of access to justice sufficiently to outweigh the patent
unfairness of unsuccessful defendants having to meet significant additional costs to cover a claimant group’s insurance against the prospect of their losing. Accordingly, I am satisfied that the ATE premium is not recoverable as a disbursement of the costs of stage one.
[63] I have reviewed the competing positions on the remainder of the disputed claims for disbursements in Schedule B. My conclusions are reflected in this summary:
Disbursement Plaintiff’s claim Amount allowed Filing fees $ 4,450.00 $ 4,450.00 Scheduling fees 1,600.00 1,600.00 Hearing fees 91,400.00 91,400.00 USB drives 60.76 60.76 Courier charges 2,059.00 508.49 Accommodation and meal charges 90,730.16 68,086.41 Photocopying 3,656.80 3,656.80 Document capture – Polaris 54,172.19 12,480.00 ATE insurance premium 1,924,622.18 0.00 Witness expenses 395,305.47 149,200.93 Total $2,568,056.56 $331,443.39
[64] As I understood the submissions challenging the disbursements claims, the defendants contended both for:
(a)specific deductions on individual items to exclude costs or disbursements that were unrelated to the issue on which the plaintiff has now partially succeeded; and
(b)a global reduction (contended for 80 per cent) to reflect the proportion of the partial success in the Supreme Court that arguably could not have an impact on any more than 20 per cent of the plaintiff’s original claims.
[65] In considering the claims for disbursements in the categories where that is appropriate, I have dealt with the non-recoverability of disbursements that can clearly be excluded from those that at least in some part involved the issue of the FY04 revenue forecast. Having done so, I will not consider whether a further reduction is warranted on a global basis.
[66] My determination in the circumstances presently confronting me in relation to stage one is therefore as follows:
Costs $117,960.80 Disbursements 331,443.39 Total $449,404.19
[67] The plaintiff is entitled to an order in his favour for costs and disbursements incurred at stage one, in these amounts. This order is subject to the prospect of revision, depending on the outcome of stage two, as discussed earlier in the judgment.
Security for costs
[68] The defendants applied for security for costs, primarily in respect of costs and disbursements to be incurred on stage two. In addition, they have also applied contingently for an order preserving their entitlement to recover from the plaintiff any disgorgement I now order of the costs previously paid to them by the plaintiff in respect of stage one, and also for appropriate security to enable the defendants to recover any positive costs order made in favour of the plaintiff in terms of costs orders made on the current arguments.
[69] The plaintiff accepts that there should be an order in respect of security for costs for stage two. Counsel for the plaintiff considered they had achieved agreement on quantum at $800,000 and resist the substantially larger sum that is now sought on behalf of the defendants. As to an order for security for a subsequent obligation to repay any amount I order the defendants to disgorge, as well as any positive order for costs in the plaintiff’s favour that I now make, I took the plaintiff to dispute the need for such security on the premise that those contingencies do not realistically arise.
[70] Bearing in mind the factors that persuaded me to revisit stage one costs entitlements at this point,19 I consider the application for security for costs consistently with the approach previously adopted in cases of representative plaintiffs pursuing claims for a significant number of claimants with the support of third party funding.20
19 See [1]–[29] above.
20 Walker v Forbes [2017] NZHC 1212 at [93]; Paine v Carter Holt Harvey Ltd [2019] NZHC 478 at [71]; White v James Hardie New Zealand [2019] NZHC 188 at [24].
That is, that the defendants in such cases are entitled to full, or nearly full, security for a projection of the reasonable costs they will incur.
[71] The stage two hearing is set down for five weeks in November and early December 2019. Preparation for the defendants will include inspection of up to 31 sets of documents for the proposed stage two claimants. In addition, there will be retention and briefing of experts who I anticipate are likely to focus on:
· the materiality of the FY04 revenue forecast as an untrue statement in the prospectus and the circumstances of alleged reliance on it;
· grounds for challenging the plaintiff’s projected difference in fair value of the shares acquired in the IPO, respectively with and without the untrue statement; and
· preparing the ground work for challenging those claimants whose evidence will be to the effect that, had they been aware of the untrue statement at the time of committing to the Feltex shares, they would have elected not to purchase at all.
[72] In addressing the quantum of security sought, Mr Cooper for the first defendants acknowledged that at the comparable point in time when the quantum of security for stage one was proposed on behalf of the defendants, they substantially under-estimated the extent of work that would be involved.
[73] The second and third defendants produced a schedule projecting the work involved relative to scale costs for all the pre-trial and stage two trial costs. That schedule was adopted by the first defendants and there was no itemised criticism of it on behalf of the plaintiff. In summary it was:
Plaintiff’s strike out application $ 20,460.00 Defendants’ interlocutory application 75,900.00 Trial preparation and appearance 940,500.00 Total $1,036,860.00
[74] On the basis that in such cases security should be for a very substantial portion of likely costs, the defendants jointly proposed security of $800,000.
[75]As to disbursements, the defendants projected the following costs:
An expert to respond to the plaintiff’s intended reliance upon Bevan Wallace as an expert witness $ 400,000.00
Expert(s) conducting an alternative analysis of loss 500,000.00 Expert(s) to respond to any other testimony from plaintiff’s experts 150,000.00
Total $1,050,000.00
[76] Counsel were at odds as to whether the plaintiff’s initial indication of agreement to security for stage two at $800,000 included or excluded disbursements. The plaintiff’s position at the hearing was that $800,000 was sufficient for both costs and disbursements. Comparison was made with the extent of costs and disbursements for the stage one hearing, which ran substantially longer and was on a substantially wider front for both factual and expert witnesses.
[77] Any projection of such costs can only be intuitive. In my original costs decision, I made observations in respect of the disbursement claimed for a senior United States-based economist. I reflected on an expectation that a measure of proportionality would be applied if the defendants expected substantial reimbursement in the event of a successful defence. Comparison with the respective quality and cost of various brands of motor cars does not bring clarity. Doing the best I can on information presently available, I consider a total allowance for disbursements to be incurred at stage two ought not to exceed $850,000.
[78] I accordingly order that the plaintiff is to provide security for the defendants’ stage two costs and disbursements in the total sum of $1.65 million.
Security for adjusted outcome of stage one costs
[79] On the terms outlined above,21 I have ordered the defendants to disgorge to the plaintiff a total of $783,195.61 of the costs awards I made in their favour in my costs determination on stage one. In addition, I have ordered that the plaintiff is entitled to
21 At [30]–[40] above.
costs and disbursements orders in his favour of $449,404.19 for the partial success on stage one now achieved in the Supreme Court. Accordingly, the defendants are liable to pay the plaintiff $1,232,589.80 in respect of stage one costs.
[80] The defendants have opposed the making of any such orders. As a fall-back position, they have submitted any such orders could only be made on terms requiring the plaintiff to provide security for the contingent liability of having to repay those amounts if he is unsuccessful in stage two in circumstances where the defendants argue the costs orders I have made in his favour in this judgment need to be reversed in whole or in part.
[81] The concomitant of making orders in respect of stage one at this point in preparation for stage two is that I am obliged to recognise the prospect of a stage two outcome that would justify a reconsideration of the orders I am making in favour of the plaintiff, including the contingency that he may be required to repay amounts to the defendants on account of stage one costs and disbursements.
[82] I have adopted the presumption that any amounts paid by the defendants to the plaintiff in terms of costs orders will be, or are likely to be, dissipated prior to the determination of stage two.
[83] In these circumstances, I accept that the defendants have a legitimate interest in securing the prospects of repayment should their defence of stage two be successful to an extent that a revisiting of the present orders is justified. In this regard, I do not accept the submission for the plaintiff that his performance thus far in paying costs orders demonstrates that the claimants will have the wherewithal so there is no need for an order for security for costs in this regard. Although I gained the impression from Ms Mills that the position with funding was being positively progressed at the time of the hearing, the plaintiff’s written submissions for the hearing were on the premise that there was no litigation funding in place for the stage two hearing.
[84] I do not dismiss the conceptual prospect that the defendants may succeed at stage two in circumstances requiring a complete reversal of the two aspects of costs orders made in favour of the plaintiff in this judgment. However, for the purposes of
fixing the appropriate quantum of security for costs against that contingency, I am inclined to project (and it can be no more than a projection) that the range of adverse outcomes for the claimants at the most negative end of the spectrum would not warrant depriving them of all of the stage one High Court costs to which they become entitled by virtue of the partial success on stage one in the Supreme Court. Whether viewed as a minimum extent to which the reversal of the orders originally made in favour of the defendant would not be revisited, or by the extent of reduction of the positive costs order in the plaintiff’s favour now made in reliance on his partial success, there is a component of the amounts now payable for stage one costs by the defendants to the plaintiff that does not require security against the contingency for repayment. I fix that at $300,000.
[85] As to the balance, security will therefore be needed as a condition of payment by the defendants to the plaintiff for the sum of $932,599.80. Applying a sensible extent of rounding in the plaintiff’s favour, this aspect of the order is for $930,000.
The form of security
[86] The defendants submitted that the security would need to be in cash lodged with the Court or in a solicitor’s trust account, or cash equivalent. If security is required in that form, then the plaintiff might complain that the end result of the orders made in this judgment is to take away with one hand the advantages to the plaintiff that are given with the other. I am mindful that Mr Carruthers acknowledged the imperative for pressing the applications as he has was one of cash flow. Given the state of flux in relation to funding arrangements alluded to by Ms Mills, there remains the prospect that satisfactory arrangements by way of bond or bank guarantee can be negotiated by the claimants so that the benefit of costs orders on stage one is not entirely eroded by the need to comply with the orders to provide security by way of cash.
[87] As to the mechanics, I may need to hear counsel further but, unless variations are agreed or the matter is revisited by the Court, I direct that payment by the defendants of the disgorgement of the stage one costs previously paid to them, plus the costs order now made in favour of the plaintiff is to be paid to the plaintiff’s
solicitors. This is to be on the same day as the plaintiff provides security in a form satisfactory to the reasonable requirements of the defendants, for the lesser sum of
$930,000 in relation to the contingent obligation to repay a part of that sum.
[88]Security for the defendants’ costs on stage two is to be provided in the sum of
$1,650,000, again in a form satisfactory in terms of reasonable requirements of the defendants, within 20 working days of the delivery of this judgment.
Summary
[89] I allow the plaintiff’s application to reconsider the original costs judgment on stage one in the High Court and order that, of the sums paid to the remaining defendants, they are to disgorge to the plaintiff a total of $783,195.61. In addition, I order that the plaintiff is entitled to a costs award in his favour at stage one of
$449,404.19, making a total costs entitlement to the plaintiff of $1,232,599.80.
[90] I allow the defendants’ application for security for costs. In relation to security for costs and disbursements to be incurred on stage two of the proceedings, I order that the plaintiff is to provide security on terms satisfactory to the reasonable requirements of the defendants in the sum of $1,650,000, to be provided within 20 working days of the delivery of this judgment. I also order security for the contingency of partial repayment to the defendants of the amounts of costs originally awarded to them required to be disgorged, and the new costs entitlement made in favour of the plaintiff, in a total sum of $930,000.
Costs on the applications
[91]I defer consideration of costs on the applications dealt with in this judgment.
Directions on discovery
[92] At the hearing on 30 May 2019, counsel presented a joint memorandum specifying directions that might be made by consent to deal with the plaintiff’s on- going discovery obligations. Those directions are in the following terms:
(a)by no later than 14 June 2019, the plaintiff is to provide discovery by the 31 claimants identified in the plaintiff’s memorandum dated 17 May 2019 (or at least from those of them whose individual claims the plaintiff proposes be determined at the November hearing);
(b)the discovery is to be provided by way of affidavits of documents sworn by each claimant (or, in the case of a corporate entity, by a director or senior executive of that entity) in compliance with the High Court Rules 2016, including the listing and exchange protocol in sch 9; and
(c)unless a claimant has provided such discovery by 14 June 2019:
(i)the plaintiff may not call the claimant as a witness at the November trial;
(ii)the individual claim of the claimant will not be determined at the November trial; and
(iii)leave is reserved to the plaintiff to apply to vary the effect of this order.
Further case management/interlocutories
[93] No further interlocutory applications have been signalled thus far, nor have counsel conveyed any request as to the optimum timing for a further case management conference. Without inviting any appearances which might hopefully be unnecessary, I flag my limited availability to attend to such matters in the coming months. As matters presently stand, I would be able to hear counsel on 8 or 9 August 2019, but not otherwise.
[94] If counsel identify issues that require a pre-trial hearing, matters ought to be arranged to deal with them on either of those days. I direct that counsel are to advise
the judicial resources manager, Ms MacFarlane, by Friday, 12 July 2019, if counsel anticipate time will be required.
Dobson J
Addendum:
This judgment was completed and was being processed for delivery when I received notice of the plaintiff’s application for leave to appeal my judgment of 15 May 2019 dismissing his strike-out application. On reflection, I have not revisited the reasoning in the present judgment. I urge counsel to have any argument that will be required to deal with that prepared promptly, and will attempt to deal with it at short notice.
Solicitors:
Wilson McKay, Auckland for plaintiff
Gilbert Walker, Auckland for first defendants (other than Mr Horrocks and Ms Withers) Wilson Harle, Auckland for Ms Withers
Clendons, Auckland for Mr Horrocks
Russell McVeagh, Wellington for second and third defendants
Counsel:
C R Carruthers QC and P A B Mills for plaintiff D J Cooper for first defendants
J B M Smith QC and A S Olney for second and third defendants
Schedule A - Plaintiff’s claim for costs on stage one, per scale
A1. On commencement steps, the plaintiff claims scale costs of $33,052 and the defendants concede only the $16,000 allowed for the original statement of claim. The plaintiff filed four amended statements of claim and $5,880 was claimed for two of those amended statements of claim. In addition, three replies to affirmative defences were filed for which $1,764 was claimed for each.
A2. The majority of the amendments to the pleading were required as a result of orders for particulars. My interlocutory judgments on those matters reflect a measure of frustration at the diffuse and confusing nature of prolix pleadings. There were positive refinements of the plaintiff’s case reflected in the successive amendments to the statement of claim and a reply to affirmative defences was warranted. I allow the sums of $16,000 for the original statement of claim, $5,880 for one of the amended statements of claim and $1,764 for one of the replies to affirmative defences ($23,644).
A3. There are some 40 line items in the case management claims for the plaintiff’s costs in respect of which he seeks $32,787. The defendants dispute a number of items on the basis that either the separate steps claimed for did not occur or otherwise were resolved in circumstances not entitling the plaintiff to costs. The defendants accept
$23,094 of the amount claimed. In general terms, reviewing the numerous minutes issued in the course of managing the case, there is something of a pattern of defaults on the plaintiff’s behalf, and the need for many directions arose because of inadequacies or defaults by his legal team. Without descending into minutiae, I consider that a global figure for this stage of the preparation of $25,000 to be appropriate.
A4. There is a more significant difference between the plaintiff’s claim for interrogatories, discovery and inspection of $247,375, and the amount the defendants concede as appropriate of $101,425. Some $49,000 of the difference is accounted for by the defendants’ rejection of the plaintiff’s claim for inspecting the documents provided in second affidavits by Credit Suisse and Messrs Horrocks and Saunders. Again, it is sufficient to deal with the matter in the round and I consider $190,000 is appropriate for that stage of the pre-trial work.
A5. The costs consequences of a relatively small number of interlocutory applications were not dealt with as the applications were determined. The claims relate to an application to lift an interim stay, and for submissions on the terms of the opt-in notice for Feltex shareholders. The plaintiff’s claim is for $17,775, with the defendants acknowledging a legitimate claim for $3,555. I do not accept the extent of the amount claimed for preparing submissions on the interim stay, nor do I consider junior counsel’s appearance should be certified for on that argument. I similarly consider the amount claimed for submissions on the opt-in notice to be higher than warranted. I certify for $10,000.
A6. The plaintiff has claimed $423,360 for trial preparation and appearance. The defendants accept $335,160 of this, the difference being the plaintiff’s claim of
$76,440 for appearance by fourth counsel, and $11,760 for preparation of lists of issues and authorities and the common bundle.
A7. The presentation of the plaintiff’s case in the High Court did not reflect input of four counsel, and appearances in Court by a fourth counsel were in any event sparse. I am not prepared to certify for that item.
A8. Similarly, the preparation of bundles was undertaken very substantially on behalf of the defendants so only a partial allowance of $6,000 for those steps on behalf of the plaintiff is appropriate. I would accordingly certify for the amount of $341,160 for trial preparation and appearances. Accordingly:
Commencement steps $ 23,644.00 Case management 25,000.00 Interrogatories/discovery/inspection 190,000.00 Interlocutory applications not otherwise the subject of costs orders 10,000.00
Trial preparation and appearance 341,160.00 Total $589,804.00
A9. I am mindful that this calculation by reference to the scale is materially less than I calculated for various defendant groups in my original costs judgment. I am comfortable that the disparity is warranted.
Schedule B - Plaintiff’s claim for stage one disbursements
Filing fees
B1. The plaintiff has claimed $4,450, but all but $1,100 of this (for filing the original statement of claim) is challenged on the basis of lack of adequate explanation.
B2. My understanding is that filing fees of at least that amount will have been paid. Although some issues may arise that the plaintiff was required to pay a filing fee for an interlocutory step where costs may have been settled without addressing the disbursement, or in respect of which the plaintiff failed, given the scale of stage one I am prepared to allow all of that sum as claimed.
Courier charges
B3. The plaintiff has claimed $2,059. The first ground of opposition is that invoices in respect of such disbursements have been provided for only $508.49. As with the cost of other expenses, a paying party is entitled to insist on specific proof of the detail of the disbursements incurred. There was no rejoinder on behalf of the plaintiff specifically addressing this. Ms Mills’ generic response was that she could provide me (and defendants’ counsel) with several bundles of invoices for the whole undertaking, that stood several inches high, with an invitation to go through them myself, and a personal assurance that “all the money has been spent”. That is not a sufficient justification where specific items are challenged. I limit the claim to those for which invoices have been provided.
B4. As with other challenges to disbursements, the defendants then argued that this lower figure ought to be further reduced by 80 per cent to reflect the proportionate extent of success that has subsequently been enjoyed on stage one. I do not consider such a proportionate adjustment is required but do uphold the challenge on lack of invoices. Accordingly, the courier charges properly payable as disbursements are
$508.49.
Accommodation costs
B5. The claim for accommodation comprised:
Bolton Hotel $80,044.84 Average daily meals 10,000.00 Restaurant charges (excluding alcohol and GST) 685.32 Total $90,730.16
B6. The defendants challenged this claim on numerous grounds, conceding only a claimable cost of $6,862.50.
B7. First, the defendants objected to inclusion of accommodation costs for fourth counsel, Mr Wilding. He had made only spasmodic appearances in court, and the case did not warrant any allowance for fourth counsel. My original costs judgment had only allowed the defendants a maximum of three counsel per party with less for the fourth and fifth defendants. Exclusion of Mr Wilding from the accommodation costs would reduce the Bolton Hotel charges by $15,180. I consider the claim for him is not justified.
B8. The plaintiff claimed a total of seven nights’ accommodation for three witnesses who were briefed in relation to data from global system manager (GSM) software that had been utilised by Feltex and took some reconstructing.22 Two of the three briefs were taken as read so the witnesses were not required for cross- examination. A fourth witness, Mr Steve Pierce, was called to criticise the practice Feltex had adopted of forward dating its invoices. Criticisms of the practice were not relevant to any challenge to the content of the prospectus that succeeded.
B9. The defendants dispute the accommodation for these individuals on the ground that two of them were not needed because their briefs were taken as read, and in respect of the remainder that their evidence was adduced on a topic on which the plaintiff failed.
B10. In addition, one night’s accommodation was claimed for Ms Karen Clarke, who was not otherwise identified. The defendants oppose it on the basis that no brief was served by a person of that name, nor were the defendants’ legal team aware of such a person having involvement in the plaintiff’s case during the stage one hearing.
22 Messrs Mark Walter, Andrew Harper and Michael Davies.
B11. Given the relative novelty of reconstructing in usable form data from the GSM and the uncertainties surrounding it prior to trial, I do not accept that recoverability of the witnesses’ accommodation expenses should be determined by whether the issue to which it related was successful for the plaintiff. I do accept that more efficient management would have reduced the length of stay required, particularly for those whose briefs of evidence were read without cross-examination. I accordingly allow five out of the nine nights for those witnesses as recoverable. I do not accept the night claimed for Ms Clarke. Deleting five of the 10 nights challenged reduces the claim by a further $1,129.50.
B12. The defendants objected to the plaintiff’s global claim of a round $10,000 for food which was not related to specific invoices, there being a total only of $1,609.91 verified. However tedious the obligation to account by way of invoices may appear during a long trial, it is the standard routinely expected. Ms Mills submitted that it is obvious counsel and others involved had to eat, and that it was done cost-efficiently by cooking at the Bolton Hotel. It is not enough to assert that it is obvious counsel and others were away from home and equally obvious that they had to eat for the length of the trial. The quantum of the claim needs to be justified and the defendants’ objection is accordingly upheld.
B13. On the defendants’ approach, the reductions from the accommodation claim that it contended for would reduce the starting claim to $64,661.68. I have only upheld part of their objection to the accommodation costs for Messrs Walter, Harper, Davies and Pierce, and Ms Clark, so that the comparable number on my analysis is
$65,791.18. Assuming the costs acknowledged by the defendants as relating to 52 hearing days for three counsel, the daily cost of $414.50 was then challenged as an excessive daily rate.
B14. I was referred to recent authority in which a claim of $261.30 per day for out of town counsel’s accommodation had been rejected as excessive.23 The litigation in which that view was expressed also related to accommodation costs in Wellington. It was in a context where one defendant claimed for a daily rate of some $228 and the
23 Arnold v Stuff Ltd [2018] NZHC 1641 at [42].
unsuccessful plaintiff challenging the extent of a higher rate of $261 therefore had a direct comparator by which to complain that the higher daily rate was excessive.
B15. In dealing with disputed disbursements in other Wellington-based litigation, I have confronted the sad reality of the high cost of appropriate accommodation for counsel in the vicinity of the Wellington High Court. Although disallowing some components, I have accepted the reasonableness of rates higher than the $261.30 rejected by Mallon J in Arnold. The defendants’ calculation of a daily rate is in any event over-simplistic. It assumes that accommodation costs should only be allowed at all for three counsel when I have accepted the reasonableness of accommodating other personnel. It also excludes accommodation costs on days during and around the trial (by confining the number of days for which accommodation ought to have been charged to the sitting days) when counsel would reasonably have remained in Wellington on days when the Court was not sitting. Given other aspects of my analysis, I am not prepared to reduce the claim for accommodation further on the basis that it constitutes an unreasonable daily rate.
B16. My ruling is:
Bolton Hotel $65,791.18 Food costs – invoiced 1,609.91 Restaurant charges 685.32 Total $68,086.41
Photocopying
B17. The defendants disputed the charge for photocopying of $3,656.80 only on the ground that the extent of photocopying should be pro-rated across the proportionate part of the length of trial that would have been required to determine the allegation that has now succeeded. I do not accept that that is an appropriate approach on this disbursement and allow the full extent claimed.
Document capture
B18. Another significant disbursement claimed by the plaintiff is the sum of $54,100 for “document capture”. This expense was incurred in retrieving Feltex documents from Godfrey Hirst Pty Limited, the Australian company that purchased the Feltex
business from its receivers. After counsel had inspected the documents in Geelong, Melbourne solicitors were retained to supervise the scanning of the documents through a software system enabling the Feltex documents to then be accessed by the plaintiff’s advisers. The sum charged includes A$41,550 for some 166 hours of law clerks inputting the documents at A$250 per hour. The charge also included some 15.5 hours for a relatively senior solicitor at A$400 per hour. (The invoice was dated August 2012.)
B19. The first ground the defendants raised for opposing recovery is that charges by a law firm at these levels should be treated as the provision of legal services, which is not properly chargeable as a disbursement. Alternatively, the extent of the charges for the task of scanning relevant Feltex documents was unjustifiably high and ought to be either completely or substantially disallowed as not being reasonable in amount.24 The defendants filed an affidavit from Ms Angela Goodwin, who is a litigation support consultant. She scoped the task that had been undertaken by the Melbourne solicitors and obtained three quotes to complete it, with the estimates provided ranging between
$9,100 and $17,300. An average of those estimates produced a notionally reasonable figure of $12,480. The defendants’ fall-back position was that that ought to be the maximum extent allowed, before discounting the proportion of the task that was justified as relating to the making out of the untrue statement on the FY04 revenue forecast.
B20. Despite Ms Mills’ submission that plaintiff’s counsel were confronted with no alternative but to instruct Melbourne solicitors in the way they did, I am satisfied that the cost incurred was not justifiable. A reasonable disbursement recovery for this work, assuming the plaintiff had succeeded completely or substantially, would be an amount of NZ$12,480. This disregards, at this point in the analysis, the defendants’ argument for only allowing a portion of that cost reasonably related to making out the allegation on which the plaintiff has succeeded.
24 As required by High Court Rules 2016, r 14.12(2)(d).
Witness expenses
B21. The plaintiff also claimed $395,305.47 for witness expenses. Almost all of those items were challenged by the defendants on grounds that the experts retained gave evidence on topics on which the plaintiff has not succeeded, in some cases that the evidence offered by the experts was expressly rejected by me, and that, in one case, the plaintiff was now seeking recovery for costs supposedly incurred for the High Court hearing of stage one but only charged by that expert on 31 January 2019, after it would be apparent that there was a prospect of recovering witness fees from the defendant subsequent to the partial success in the Supreme Court. After making deductions on various arguments, the defendants contended that the recoverable figure for witness expenses should be limited to $1,090.50.
B22. As to the claim for a witness presenting an invoice some five years after the event in the absence of an explanation on behalf of the plaintiff when challenged by the defendants, I am obliged to accept their challenge that it was not reasonably incurred in the course of the stage one hearing.
B23. As to the balance, the defendants are correct that costs incurred for witnesses, Messrs Harrison, Coleman, Russell and Blakemore Consulting International all related to areas completely unrelated to the FY04 revenue forecast. Given the broadest possible relevance to the matters they covered, none of them had any relevance at all to the issue on which the plaintiff has succeeded. They accordingly do not qualify as disbursements on a relevant issue on which the plaintiff succeeded and given the clear basis for eliminating any relevance, I accept that they should not be recoverable. The expenses claimed for those four are $114,818.
B24. I do not accept that there is the same ground for excluding the original costs charged by Ms Newberry of $35,000. Her analysis did touch on matters that may become relevant to the ground on which the plaintiff succeeded in the Supreme Court.
B25. The defendants also challenged the expenses incurred with two further experts, Messrs Lim and Meredith, on the basis that I did not find their evidence substantially helpful or had other reasons for not giving weight to the opinions they expressed. The
findings in respect of the evidence given by those experts is not sufficient to disentitle the plaintiff to their recovery. With both of them it is difficult to precisely delineate the extent of effort committed to topics on which the plaintiff has failed, but some apportionment is appropriate in each case.
B26. My conclusions on the contested amounts claimed for witness expenses is therefore:
(a)Costs of the four described in B23 above $114,818 is unrecoverable.
(b)The 2019 invoice for $30,600 is unrecoverable.
(c)The expenses charged by Messrs Lim and Meredith are, at least as to 50 per cent, on matters that bear no relevance to either the criticism of the FY04 revenue forecast, or opinions on other matters that the Court might reasonably be expected to have found of assistance as the issues in stage one were presented in the High Court. Those expenses total
$201,372.15, 50 per cent of which is $100,686.07.
B27. The claim for witness expenses of $395,305.47 is therefore to be reduced by
$246,104.07, leaving an accepted claim for $149,200.93.
Summary of disbursements
Disbursement Plaintiff’s claim Amount allowed Filing fees $4,450.00 $4,450.00 Scheduling fees 1,600.00 1,600.00 Hearing fees 91,400.00 91,400.00 USB drives 60.76 60.76 Courier charges 2,059.00 508.49 Accommodation and meal charges 90,730.16 68,086.41 Photocopying 3,656.80 3,656.80 Document capture – Polaris 54,172.19 12,480.00 ATE insurance premium 1,924,622.18 0.00 Witness expenses 395,305.47 149,200.93 Total $2,568,056.56 $331,443.39
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