International Roofing Limited v Global Roofing Solutions Limited
[2014] NZHC 2913
•13 November 2014
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2013-470-497 [2014] NZHC 2913
BETWEEN INTERNATIONAL ROOFING LIMITED
First Plaintiff
PEARCE TOOL & MANUFACTURING LIMITED
Second Plaintiff
APEX TILE MANUFACTURING LIMITED
Third Plaintiffs
AND
GLOBAL ROOFING SOLUTIONS LIMITED
First Defendant
PHOENIX BUISNESS SLUTIONS (PBS) LIMITED
Second Defendant
LANCE ALFRED EAGLE Third Defendant
SOLUTION SERVICES NEW ZEALAND LIMITED
Fourth Defendant
ANTHONY JOHN RODGER Fifth Defendant
CHRISTOPHER SUKKEL Sixth Defendant
Hearing: 13 November 2014 Appearances:
P D M Johns for Plaintiffs
J Mangal for DefendantsJudgment:
13 November 2014
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
INTERNATIONAL ROOFING LIMITED v GLOBAL ROOFING SOLUTIONS LIMITED [2014] NZHC 2913 [13 November 2014]
[1] Mr Chris Sukkel has made non-party discovery under r 8.21 of the High Court Rules. He is entitled to his actual and reasonable expenses in making discovery. The question is how much? He claims $26,338.50. The plaintiffs say that that is too much.
[2] This is intellectual property litigation. The plaintiffs carry on business in Katikati, manufacturing metal roof tiles and machines that produce metal roof tiles. The defendants also carry on business in Katikati, manufacturing and distributing metal roof tiles. The plaintiffs sue the defendants for breach of contract, breach of confidence, infringement of copyright, and breach of the Fair Trading Act 1986.
[3] Mr Sukkel is a designer in Katikati. He once worked for the plaintiffs. Later, he supplied drawings and designs to the defendants. The plaintiffs sought discovery of his documents. On 3 April 2014 I made an order by consent for non-party discovery against Mr Sukkel and his company, CJ CAD Services Ltd. That order required him to swear an affidavit listing:
(a) CAD-CAM files obtained by him from his employment with the plaintiffs;
(b)CAD-CAM files produced or designed by Mr Sukkel or CJ CAD Services Ltd for any of the defendants; and
(c) correspondence relating to the plaintiffs’ designs with any of the
defendants or companies or individuals connected with them.
[4] He was required to file and swear the affidavit by 5 May 2014. Inspection of documents was to be completed by 31 May 2014. The plaintiffs were required to pay his reasonable costs in providing discovery and inspection of his discoverable documents.
[5] He swore an affidavit of documents on 12 May 2014. It is nine pages long and lists 162 documents. In June the plaintiffs complained that Mr Sukkel’s affidavit was insufficient. On 31 July 2014 they filed an application to enforce the discovery
order against Mr Sukkel and CJ CAD Services Ltd. The plaintiffs wanted the court to declare that Mr Sukkel was in contempt of court. In a minute following a conference on 26 August 2014 I directed that all outstanding affidavits of documents were to be filed and served by 30 September 2014. That included further discovery by Mr Sukkel.
[6] Mr Sukkel swore a fresh affidavit of documents on 26 September 2014. It is
198 pages long. It lists 4,636 documents. For both affidavits of documents, the lawyers Mr Sukkel went to for help in complying with the non-party discovery order were the defendants’ barristers.
[7] In the meantime, on 23 July 2014, I made an order joining Mr Sukkel as a sixth defendant.
[8] Mr Sukkel has not claimed costs on his first affidavit of documents, but he has claimed costs for the second. He has claimed these costs (exclusive of GST):
Legal Fees $20,550.99 CJ CAD Services Ltd
for Mr Sukkel’s own time, for travel and expenses
$2,351.95
Total $22,902.94
With GST, the total is $26,338.50.
[9] Under r 8.22(3), an order for non-party discovery may include an order that the person from whom discovery is sought is to be paid the whole or part of the legal expenses (including solicitor and client costs) incurred in relation to the application and in complying with any order. In this case, the plaintiffs consented to pay Mr Sukkel’s costs.
[10] Rule 14.6(4)(d), which allows a non-party to recover solicitor-client costs, may be applied in favour of a non-party making discovery:
The court may order a party to pay indemnity costs if -
…
(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it.
[11] On the recovery of solicitor-client costs, there is helpful guidance in decisions on indemnity costs under contractual provisions. In Black v ASB Bank Ltd,1 the Court of Appeal set out a number of principles. Some of them can be applied in cases of costs payable for non-party discovery. The Court indicated that reasonableness does not import any notion of a discretion in the usual sense. It said that in assessing whether costs sought are reasonable, the court makes an objective
assessment including taking into account whether the tasks undertaken were reasonably necessary and whether the charge-out rates were reasonable, having regard to the principles normally applicable to solicitor-client costs. The Court also indicated that in many cases the time and pressure on judges “leave room for robust judgment as to costs considered reasonable in the circumstances”.
[12] If parties are not happy with a robust judgment, the Court of Appeal indicated that there are other avenues open. The first was to require costs to be taxed under rr 14.18-14.21 and 14.23 of the High Court Rules - although the court noted that these rules had been little used in recent years. A second avenue would be for the parties to agree to be bound by the decision of a suitably qualified practitioner, who would vet the reasonableness of the costs, and that decision would be referred to the court to be formalised in an order. The third avenue involved the procedures under s 132(2) of the Lawyers and Conveyancers Act 2006, although the court noted that access to that jurisdiction was not clearly established.
[13] Another decision dealing with indemnity costs under a contractual provision is the interim judgment of Associate Judge Faire in Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd.2 In that decision Judge Faire referred to the reasonable fee factors in r 9.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008:
Reasonable fee factors
9.1 The factors to be taken into account in determining the reasonableness of a fee in respect of any service provided by a lawyer to a client include the following:
(a) the time and labour expended:
1 Black v ASB Bank Ltd [2012] NZCA 384 at [77]-[99].
2 Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd (2008) 19 PRNZ 591 (HC).
(b) the skill, specialised knowledge, and responsibility required to perform the services properly:
(c) the importance of the matter to the client and the results achieved:
(d) the urgency and circumstances in which the matter is undertaken and any time limitations imposed, including those imposed by the client:
(e) the degree of risk assumed by the lawyer in undertaking the services, including the amount or value of any property involved:
(f) the complexity of the matter and the difficulty or novelty of the questions involved:
(g) the experience, reputation, and ability of the lawyer:
(h) the possibility that the acceptance of the particular retainer will preclude engagement of the lawyer by other clients:
(i) whether the fee is fixed or conditional (whether in litigation or otherwise):
(j) any quote or estimate of fees given by the lawyer:
(k) any fee agreement (including a conditional fee agreement) entered into between the lawyer and client:
(l) the reasonable costs of running a practice:
(m) the fee customarily charged in the market and locality for similar legal services.
[14] Judge Faire also gave guidance as to the evidence the court would look for in a case where the reasonableness of fees had to be established. He said:3
What is required in this case is the following:
(a) Is the plaintiff registered for GST purposes?
(b) If so, will the plaintiff be able to claim an input credit for the GST
portion of the costs?
(c) If so, what is the net fee payable in respect of the bill of costs?
(d) If the GST portion is not recoverable, what is the gross fee, plus
GST, but excluding disbursements?
(e) Who were the authors who were working on each part of the legal work undertaken and which is referred to in the affidavits? What is required is a sufficient description of the work undertaken so that it discloses that it is work reasonably undertaken for the step and
3 At [14].
which also discloses that the step is a reasonable step taken in relation to the recovery of the outstanding debt…
(f) What rate is charged in respect of each author; (g) What experience does each author have; and
(h) Any additional evidence which is relied upon to show that the rate charged is a reasonable one having regard to the principles normally applicable to solicitor client costs. Counsel may find assistance from considering the approach which the Court approved in relation to the approval of liquidators’ fees. I refer to the Full Court judgment in re Medforce Healthcare Services Ltd (in liquidation) ([2001]
3 NZLR 145 at 154 [27]). There the Court endorsed as appropriate an affidavit from an experienced practitioner and not being a partner
or associate of the liquidator concerned deposing that the hourly rates were appropriate for the particular liquidator and his
employees.
[15] On that last point I note that there is updated guidance on liquidators’
remuneration in the decision of the Full Court in Re Roslea Path Ltd.4
[16] Judge Faire referred to the question of GST. Associate Judge Osborne has explained that more fully in Dunedin Catering Supplies Ltd v Mr Chips Ltd.5 The principles that Judge Osborne summarised include these:6
●The non-profit rule is recognised under r 14. which provides that costs awarded should not exceed the costs incurred by a party.
●A party which is GST registered will, in relation to most services, recover from the Commissioner of Inland Revenue a GST input credit for the GST which it has paid to its solicitor. Such recovered GST is not generally recoverable in an indemnity costs award.
●There are situations where the successful party will not have been entitled to recovery of GST from the Commissioner of Inland Revenue including where the successful party is not GST registered or where the subject of the dispute does not for other reasons lend itself to a GST input credit such as where the service provided is an exempt supply under the GST legislation. In such cases, the GST component will generally be recoverable in an indemnity costs award.
●It is appropriate in a parallel manner to take into account or disregard the GST content of disbursements.
4 Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 (HC).
5 Dunedin Catering Supplies v Mr Chips Ltd [2013] NZHC 1815.
6 At [67].
[17] There are also decisions as to the reasonableness of costs when discovery orders have been made against non-parties. The cases show these matters:
(a) As already noted, costs may be fixed on both the application and in complying with the order. In this case we are concerned only with the costs of complying with the order.
(b)The non-party is entitled to reimbursement for all expenses - not just solicitor-client costs.7
(c) The non-party is entitled to a reasonable amount for time and labour expended in complying with the order. On that point, in Berryman Properties Ltd v Colonial Mutual General Assurance Co Ltd, Williamson J said:8
The word “expenses” appearing in r 302 must be given its plain and ordinary meaning. In my view this is not restricted only to monetary expenditure by a non-party but can include time or labour expended in complying with the order. Clearly there will be many factual situations where such time and labour is not expended in the sense of that phrase but in this case where a professional partnership, person, or company is required to carry out a search of its professional records and to make an analysis of those records for the benefit of parties to an action, then in my opinion it comes within the meaning to be given to the words in this rule. Otherwise it would mean that if the non-party employed a third person to carry out the research and analysis, there could be recovery of an amount paid, whereas if the work is carried out internally then the cost of it could not be recovered.
[18] In Clear Communications Ltd v Telecom Corporation of New Zealand Ltd,9
McGechan J said as to costs of compliance:
Once the order was made, whether or not justifiably resisted, it was the third parties’ duty to comply, and in the difficult circumstances of this arbitration to take considerable care over compliance. Costs in that operation should, in the absence of good reason to the contrary, be recoverable from the party requiring discovery. Third parties brought in as by a sidewind should not be left meeting their own
7 AMP Society v Architectural Windows Ltd [1986] 2 NZLR 190 (HC) at 203.
8 Berryman Properties Ltd v Colonial Mutual General Assurance Co Ltd (1987) 1 PRNZ 196 at 197.
9 Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1994) 8 PRNZ 200 (HC) at 202.
expenses. Those costs are of course to be reasonable in the circumstances. I do not see a reason in the circumstances of this case for order otherwise. Some challenge was raised on a quantum basis, particularly to hours both of legal representatives and by way of executive time, and some question as to rates. I can understand those concerns as the material supplied was not over-adorned with corroborative records. On the other hand, there are in these operations disturbance factors and other less easily identified costs which are real, although not easily ascertainable in exact figures. I rather think the total expenditure in the end may well reflect a fair enough indemnity on an unders and overs basis, and am not inclined to be too exact.
[19] On the last point, the tendency to take a light-handed approach to assessing the reasonableness of charges can also be seen in the decision of Rodney Hansen J in Commerce Commission v Cards NZ Ltd.10
[20] It is for the non-party to justify the costs claimed. It has the burden of proof. In general, I regard it as reasonable that a non-party required to make discovery should seek legal assistance to comply with the order. Discovery is difficult for anyone. It requires specialist knowledge. In my experience I find that litigants in person struggle with discovery.
[21] Although he has now been joined as a defendant, it is common ground that Mr Sukkel is entitled to recover his actual and reasonable costs in complying with the order, even though he provided that discovery after his joinder.
[22] I am aware that in many cases where non-party discovery is ordered, parties may confer as to discovery, with those obtaining the orders not requiring strict compliance with the rules. That is often done to save costs. That has not happened in this case. The plaintiffs did require discovery to be carried out according to the rules.
[23] For evidence, Mr Sukkel swore an affidavit in support, and a manager of International Roofing Ltd has given an affidavit in opposition. Neither of them has legal qualifications or legal expertise. Although the amount of the fee is in issue,
neither side has tendered evidence from an independent lawyer as to the
10 Commerce Commission v Cards NZ Ltd HC Auckland CIV-2006-485-2535, 10 December 2009.
reasonableness or otherwise of the charges claimed. There is no affidavit from the lawyers who assisted Mr Sukkel.
[24] Mr Sukkel’s affidavit attaches an invoice from the lawyers and an invoice from his own company. The invoice from the lawyers describes individual tasks undertaken, the date of each task, the name of the person who undertook it, and the amount charged for each task. In addition, there is a schedule attached to the affidavit, providing further analysis. That shows the actual hours undertaken for each task and the hourly rate charged for each task. For many entries the lawyers have applied a discount so as to reduce the total charge. Before any deductions were made, the total costs based on actual recorded hours come to $35,391.68; with the deductions applied the amount comes to $20,550.99.
[25] Almost all the work was undertaken by one lawyer. The hourly charge-out rate for that lawyer was $250.00 per hour although it appears that towards the end of the period the rate was increased to $300.00 per hour. There is also a claim by a senior barrister for supervision at $600.00 per hour. A secretary or an administrative assistant carried out approximately 11 hours work at a charge-out rate of $75.00 per hour. There were also attendances by two other lawyers who carried out a relatively small part of the work.
[26] While that information is all helpful, as far as it goes, there was no attempt to organise that work into categories of tasks. Instead Mr Johns’ submissions provided an analysis.
[27] The plaintiffs advance three main grounds for opposing the costs claimed:
(a) The costs claimed are for matters that were not reasonably part of providing discovery and inspection of documents as a non-party.
(b)The costs claimed are unreasonable. That is a question of work being carried out by lawyers who were too senior for it.
(c) They seek a deduction on account of alleged misconduct on the part of Mr Sukkel and his company. That is a complaint of delay.
[28] In his submissions, Mr Johns broke the work down into eight categories: (a) copying/software/renaming/stripping out files - $4,100;
(b) reviewing/inspecting documents - $5,812.50; (c) listing documents for affidavit - $7,939.59;
(d) correspondence with plaintiffs’ lawyers - $225.00; (e) discussions with senior barrister - $445.00;
(f) correspondence with Mr Sukkel - $280.00;
(g) removing duplicates, reviewing orders, drafting affidavit statements - $462.50;
(h) costs of senior barrister - $1,286.40
[29] Mr Johns’ submissions made detailed challenges to the costs claimed in each
case.
[30] I note the nature of the documents. Mr Sukkel’s documents were in many cases industrial designs. He used CAD-CAM software. There were other documents by way of emails and the like, which were stored electronically. There appear to be relatively few documents in hard copy. Some of the documents stored electronically are stated to be corrupt – about 1500. Mr Sukkel was required to search his own records and his company’s records to identify documents. He loaded them on to flash-drives and took them to the lawyers. There is some evidence from Mr Sukkel as to the difficulties the lawyers were likely to encounter in downloading documents and organising them into an easily identifiable list format. I bear in mind that Mr Sukkel is trying to give second-hand evidence as to work carried out by lawyers. He does say that a number of the documents were contained in zip folders and that the lawyers would find it difficult in the available time to organise the documents and put them into appropriate order for discovery.
[31] To assess the reasonableness of the legal fees, I would have been assisted by evidence from an independent lawyer who had reviewed the work carried out by Mr Sukkel’s lawyers. That would have helped me make an objective assessment of the charges claimed.
[32] Without such independent evidence, I admit to being under some difficulty. It is now some time since I was in practice and had to prepare affidavits of documents. I am not personally familiar with the current methods for discovering electronically stored documents. The evidence has helped me only in a limited way to understand the difficulties Mr Sukkel referred to.
[33] There are other factors. On each side in this proceeding there has been, to a certain extent, posturing and talking past each other. This is not the only occasion in this proceeding when the parties have not been able to reach agreement. The case has required greater and more intense case management than would normally be expected in litigation of this sort with experienced lawyers on both sides. As an example, the parties were not able to reach agreement on efficient ways of carrying out discovery.
[34] Another factor was the lawyers Mr Sukkel chose to assist him. They were in Auckland, whereas he was in Katikati. Ordinarily I would expect any business person in Katikati required to make non-party discovery to obtain the services of a local practitioner in the Bay of Plenty. In particular, there are a number of experienced litigation lawyers in Tauranga who could competently prepare an affidavit of documents for a non-party.
[35] Mr Johns speculated as to the reasons for Mr Sukkel to go to the defendants’ barristers for assistance on the non-party discovery. Rather than speculate, I comment that there were elements of risk for Mr Sukkel in asking the defendants’ lawyers to assist him in complying with the discovery order.
[36] The risk for him was that those lawyers may not be able to provide the detachment which he would obtain from an independent lawyer. Inevitably, they would approach their task with some knowledge of the litigation. That might give
them some advantage in efficiency in dealing with the discovery. But there was the risk that they may be equally interested in dealing with the matter from the point of view of the defendants as well as attending to Mr Sukkel’s own discovery obligations.
[37] There was the added complication that there had been difficulties in communications between the plaintiffs’ lawyers and the defendants’ lawyers. For better or for worse, Mr Sukkel chose lawyers who had difficulties dealing with the plaintiffs’ lawyers.
[38] Another difficulty that emerged, primarily through my exploring matters with Mr Mangal, is that the barrister’s chambers were not ideal for attending to the job of non-party discovery. While these chambers did have a secretary, she was not fully conversant with the requirements for preparing affidavits of documents, and she was able to give only limited assistance. That meant that more work had to be carried out by professional staff rather than administrative staff.
[39] In Black v ASB Bank Ltd,11 the Court of Appeal identified alternative ways of fixing costs rather than a robust judgment, as discussed above. If I were to adopt any of those courses, I would be imposing further uncertainty, further work, and further delay on the parties when what is required is a prompt and final decision on the reasonableness of costs. For that reason, I do not intend to direct the parties to follow up any of the alternatives suggested by the Court of Appeal. That means that my judgment may be “robust” but it seems to me more important that there be some finality rather than a long pursuit for a purer definition of the reasonableness of the costs.
[40] There are two approaches I could take. One is to work through Mr Johns’ criticisms of the particular charges and re-assess them. The other way is to approach the matter on a somewhat hypothetical basis, namely, to consider without reference to the lawyers’ invoice and records what would be the reasonable charges made by a
reasonably competent litigation lawyer.
11 Black v ASB Bank Ltd, above n 1.
[41] I see difficulties in following the first approach. That is because while there are time records as to actual time spent on the job, it is apparent that those records do not cover everything that a reasonably competent lawyer would charge for. The attendances make no claims for receiving initial instructions from Mr Sukkel, for example. Mr Sukkel has charged for a visit to the lawyers on 26 August 2014, but the lawyers themselves have not made any claim for that time. Going just by the work records put in evidence does not fully recognise all the work. Tweaking those claims may lead to an artificial result.
[42] Another difficulty is that the “unders and overs” approach suggested by McGechan J12 would not reflect the reasonable costs in this case, given my view that there has been a misallocation of resources in the way the lawyers carried out their work.
[43] Accordingly, I am going to follow the “clean slate” approach by starting afresh and assessing what I consider a reasonably competent lawyer would charge. As to charge-out rates, I am going to apply $75 per hour for administrative/secretarial work, and $250 per hour for the work of the lawyers. I adopt that rate for administrative/secretarial work because it is comparable to rates I see for similar work claimed by liquidators when they apply to the court for approval of their remuneration. So far as the professional rate is concerned, I do not regard it as in any sense excessive. It is appropriate for a staff solicitor.
[44] I identify the steps that I consider a lawyer would have undertaken:
Receiving initial instructions and establishing the scope of assignment
2 hours
Receiving documents from Mr Sukkel
(which may be a number of attendances)
8 hours
Assessing the documents, steps [i] and [ii] in Mr Johns’ categories, including checking documents for relevance, privilege and confidentiality, obtaining software to read documents
10 hours
12 In Clear Communications, above n 9, at 202.
Giving instructions and setting up systems so that documents can be listed 3 hours
Supervising secretary and giving further instructions
2 hours
Checking completed affidavit
8 hours
Communications with the plaintiffs’ lawyers
as to discovery
2 hours
Further attendances with Mr Sukkel, sending affidavit for consideration and attending on him for swearing
2 hours
TOTAL:
37 hours
(at $250 per hour)
= $9,250
[45] In addition, there are the charges for secretarial work. That would include allocating unique identifiers for each document and, under supervision, preparing a list of documents. As best I can do, it seems that it would take a reasonably competent secretary about an hour to do 50 documents. That means that it would require a secretary about 93 hours to prepare the list of documents. I include in that the need to make corrections, eliminate duplications and the like. With those 93 hours, the charge comes to $6,975. That means that I fix the total legal expenses for complying with the discovery order at $16,225.
[46] There is also the matter of Mr Sukkel’s own expenses. At this stage, Mr Johns’ criticisms became somewhat carping. I generally accept the reasonableness of the charges claimed by Mr Sukkel. However, he has claimed the cost of travel to Auckland. In my view, he could more efficiently have used Tauranga lawyers and I adjust his travel claim as a result. I fix it at $61.60 for travel between Katikati and Tauranga. I uphold his other charges.
[47] Mr Johns criticised Mr Sukkel for claiming the costs of the flash-drives he bought for the job because the plaintiffs returned them to him. That is niggardly and unjustified. I accept that the flash-drives were required for the purpose of this
discovery. Mr Sukkel incurred an expense that he would not otherwise have
incurred. I fix Mr Sukkel’s own time and expenses at $2,141.55.
[48] In total then, I find that Mr Sukkel and his company should have costs totalling $18,366.55. There is no allowance for GST. I follow Judge Osborne’s approach in Dunedin Catering Supplies v Mr Chips Ltd.13 CJ CAD Services Ltd is registered for GST and will be able to claim a GST input credit. Accordingly the award of costs is GST exclusive.
[49] The plaintiffs claim a deduction on account of the delay by Mr Sukkel and his company in complying with the discovery order.
[50] In June 2014 the plaintiffs identified that the initial discovery was inadequate. They wrote to the lawyers acting for Mr Sukkel, raising that matter. They did not receive any constructive response. They then applied to the court to hurry matters along. That achieved the desired response. The plaintiffs have been put to additional costs to obtain a compliant affidavit of documents which they should have been spared if there had been proper compliance from the outset. For that, I make a deduction by way of partial compensation to the plaintiffs for the extra work they were put to. The allowance I make is $2,000.
[51] In summary, with the $2,000 allowance, I fix the costs for non-party discovery payable by the plaintiffs to Mr Sukkel and his company at $16,366.55.
[52] I do not normally make orders for costs on costs applications. I regard this case as inappropriate to make an order for costs because both sides have had mixed success. The plaintiffs have had to pay more than they expected and Mr Sukkel and his company have received less than they expected. There are no winners and
therefore no orders for costs.
Solicitors:
…………………………………..
Associate Judge R M Bell
MinterEllisonRuddWatts (PDM Johns), Auckland, for Plaintiff Douglas M A Burgess, DB Law, Auckland, for Defendants Counsel:
David Connor, Barrister (Jaynen Mangal) Auckland, for Defendants
13 Dunedin Catering Supplies v Mr Chips Ltd, above n 5.
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