McGougan v Depuy International Limited
[2017] NZHC 1534
•5 July 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-001049 [2017] NZHC 1534
BETWEEN MICHAEL JOHN MCGOUGAN AND
BRIAN FREDERICK DINGLE First Plaintiffs
BEVIN MALCOLM SANSON Second Defendant
AND
DEPUY INTERNATIONAL LIMITED First Defendant
ACCIDENT COMPENSATION CORPORATION
Second Defendant
Judgment: 5 July 2017
JUDGMENT OF COLLINS J [Costs]
Introduction
[1] DePuy International Limited (DePuy) seeks a costs award in the sum of
$95,685 in respect of proceedings determined in October and December 2016. The award sought comprises:
(1) $58,956 by way of scale costs on a hybrid 2B/3B basis; and
(2) $36,729 for disbursements.
[2] The plaintiffs dispute the amount and consider the total award should be
$17,155.
MCGOUGAN v DEPUY INTERNATIONAL LIMITED [2017] NZHC 1534 [5 July 2017]
Background
[3] The plaintiffs claim hip replacement products manufactured by DePuy in England were defective and caused personal injury to them in New Zealand. The plaintiffs’ claims are founded in negligence and breaches of the Consumer Guarantees Act 1993.
[4] Two preliminary issues, encapsulated in the following questions, were the subject of the judgments that form the basis of the costs dispute:
(1) Did the Accident Compensation Act 2001 (the Act) bar the plaintiffs’
claims for compensation? (the ACC Issue)
(2)Were the plaintiffs estopped from suing DePuy for compensatory damages by reason of the judgment of Simler J in Allen & Others v DePuy International Limited (Allen (No.2))?1 (the Estoppel Issue)
[5] The ACC Issue was argued on 21-22 September 2016. On 20 October 2016 I issued judgment that the claims for compensatory damages were barred by s 317 of the Act.2 I reasoned that the text and purpose of s 317(1) bars proceedings for compensatory damages in New Zealand courts where the claim arises directly or indirectly out of personal injury covered by the Act, even where the conduct giving rise to the claim occurs outside of New Zealand.
[6] The Estoppel Issue was argued on 12 December 2016 and judgment was delivered on 20 December 2016.3 I determined that 25 of the plaintiffs4 in the proceedings before me were estopped from bringing their claim for compensatory damages in New Zealand because they were privies to the claimants in the Allen (No.2) proceedings. In the alternative, I concluded that it would be an abuse of process to permit the 25 plaintiffs to continue their claims for compensatory damages
in New Zealand.
1 Allen v DePuy International Ltd [2014] EWHC 926 (QB).
2 McGougan v DePuy International Ltd [2016] NZHC 2511, [2017] 2 NZLR 119.
3 McGougan v DePuy International Ltd [2016] NZHC 3170.
4 The three named plaintiffs represented a larger group of 38 New Zealanders who received DePuy hip implants in New Zealand. Twenty-five of the larger group were claimants in proceedings in England, including the three named plaintiffs.
[7] DePuy was the successful party on both preliminary issues. In the second judgment I reserved leave to the parties to file any further memoranda if agreement was not able to be reached in relation to the question of costs.
[8] On 4 May 2017, DePuy filed a memorandum stating that no agreement as to costs had been reached. On 19 May 2017, the plaintiffs’ responded on the issue of costs. Further memoranda were filed on 26 May and 1 June 2017 clarifying DePuy’s involvement in the preparation of the agreed statement of facts.
[9] The Accident Compensation Corporation (ACC) does not seek costs.
The Rules
[10] An award of costs should reflect the complexity and significance of the proceeding.5 Under r 14.3 of the High Court Rules, the relevant categorisations of proceedings are:
Category 2 proceedings Proceedings of average complexity requiring counsel of skill and experience considered average in the High Court.
Category 3 proceedings Proceedings that because of their complexity or significance require counsel to have special skill and experience in the High Court.
…
[11] A step or whole proceeding can be categorised as category 3 when the complexity or significance of the proceeding requires counsel to have special skill and experience in the High Court.
[12] Costs should also be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step in relation to the proceeding or interlocutory application.6 DePuy relies on r 14.5(1)(b) to set out analogous steps to
those contemplated by schedule 3 of the High Court Rules in its costs assessment:
5 High Court Rules, r 14.2(b).
6 Rule 14.2(c).
14.5 Determination of reasonable time
(1) For the purposes of rule 14.2(c), a reasonable time for a step is –
(a) the time specified for it in Schedule 3; or
(b) a time determined by analogy with that schedule, if
Schedule 3 does not apply; or
(c) the time assessed as likely to be required for the particular step, if no analogy can usefully be made.
(2) A determination of what is a reasonable time for a step under subclause (1) must be made by reference –
…
(b) to band B, if a normal amount of time is considered
reasonable …
[13] DePuy claims expert fees as part of its costs award. Disbursements, if claimed and verified, must be included in the costs awarded for a proceeding to the extent that it is:7
(1) of an approved class;
(2) specific to the conduct of the proceedings;
(3) reasonably necessary for the conduct of the proceeding; and
(4) reasonable in amount.
[14] A party is generally entitled to recover the actual fees and expenses of its expert witnesses provided they meet the above criteria.8 A disbursement may be disallowed or reduced if it is disproportionate in the circumstances of the
proceeding.9
7 High Court Rules, r 14.12(2).
8 Air New Zealand Ltd v Commerce Commission [2007] NZCA 27, [2007] 2 NZLR 494 at [47]- [48].
9 High Court Rules, r 14.12(3).
[15] The plaintiffs rely on r 14.7, which provides circumstances in which the court may refuse to make an order for costs, or may reduce the costs otherwise payable under those rules, including if:
(e) the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding …
Issues
[16] There are three issues for me to resolve:
(1) Should DePuy’s costs assessment be allowed?
(2)Should the public interest exception under r 14.7(e) apply and if so, to what extent?
(3) Should expert fees be included in the award and if so, to what extent? [17] I outline the parties’ positions before analysing each issue in turn.
Costs assessment
Submissions
[18] DePuy’s position is that a hybrid approach should be taken by placing the
following steps under category 2:
(1) preparation of statement of defence (on the Estoppel Issue only);
(2)joint memorandum concerning mentions hearing, ACC joinder application and agreed statement of facts;
(3) response to notice to admit facts; (4) agreed statement of facts;
(5) notice to cross-examine;
(6) attendance at telephone case management conference; and
(7) preparation of bundles of authorities.
[19] It says the particular steps which should be placed in category 3 are:
(1)preparation for hearing of the ACC Issue including drafting submissions;
(2)preparation for hearing of the Estoppel Issue including drafting submissions;
(3) preparation of expert evidence;
(4)attendance at hearing of the ACC Issue with an allowance for second counsel; and
(5)attendance at hearing of the Estoppel Issue with an allowance for second counsel.
[20] DePuy notes many of the steps involved more than a “normal” amount of
time. However, DePuy accepts band B is appropriate in respect of time allocations.10
In DePuy’s submission, the preliminary issues involved complex questions of law
requiring the particular skills and experience of counsel.
[21] DePuy accepts that, given the proceeding is extant in relation to the remaining relief sought, no general allowance should be made for a statement of defence. However DePuy submits the estoppel/ abuse of process defence has been finally determined and seeks the standard time allocation for preparation of a statement of defence, discounted by 50 per cent in relation to that aspect of the proceeding.
[22] In respect of the agreed statement of facts, the parties accept the plaintiffs prepared a 17 paragraph draft in relation to the ACC Issue which was negotiated and
10 High Court Rules, schedule 3.
amended into a 19 paragraph agreed statement of facts. DePuy prepared the balance of the agreed statement of facts being paragraphs 21-61 and the 1st – 4th schedules, dealing with the Estoppel Issue. The plaintiffs’ involvement with the amendments was limited.
[23] The plaintiffs’ position is that the entire preliminary issues stage of this proceeding is appropriately classified as category 2B. In the plaintiffs’ submission, the preliminary nature of the proceedings is significant. Costs have been awarded under a category 2B in recent cases of similar or greater complexity at the preliminary stage.11
[24] The plaintiffs submit it is not appropriate for DePuy to recover for: (1) preparation of a statement of defence at this stage;
(2)twice the full amount allowed for preparation of evidence and preparation for trial;
(3) joint memoranda;
(4) notice to cross-examine; (5) notice to admit facts; and
(6)the agreed statement of facts and an affidavit and reply affidavit for an expert. An allocation of five days is said to be excessive.
[25] The plaintiffs submit DePuy should not be able to recover twice the full allowance for trial preparation because the hearing went into a third day and the second preliminary question had to be determined on another date. Six days of preparation for a three day preliminary issues hearing is said to be excessive, especially when:
(1)the hearing in this case related to two narrow and well-defined issues with no cross-examination;
(2)the Schedule only provides for an allocation of three days for preparation for a full three day trial; and
(3) counsel were familiar with the issues given their involvement in the
Allen proceeding in England.
Analysis
[26] The preliminary questions were not interlocutory steps. The questions were determined pursuant to r 10.15, which allows for decisions on questions to be determined separately from the balance of the issues in the proceeding.
[27] Given the complexity and significance of the two preliminary issues, senior counsel with particular skills and experience were instructed. The genesis of the involvement of Prof McLachlan QC and Mr Goddard QC was their involvement in Allen where they acted as experts in relation to related issues in the proceedings before the High Court of Justice, in England and Wales. While the complexity and significance of the proceedings, and not the skill and experience possessed by
counsel is most relevant, the latter is generally some indication of the former.12 On
this basis I am satisfied category 3 is the appropriate classification for both the preparation and appearances at the hearing.
[28] I have determined however costs for the statement of defence ($2,230) should be excluded. I have also excluded the notice to cross-examine from DePuy’s costs assessment ($446) on the basis this is not included in schedule 3 and is itself not significant. I also accept the plaintiffs’ submission that six days preparation for a three day preliminary issues hearing is excessive and have deducted $9,990, which reflects three days preparation. This ultimately means that DePuy is entitled to costs of $46,380 calculated on a hybrid 2B/3B basis.
Public interest
Submissions
[29] The plaintiffs seek a discount under r 14.7(e) on the basis that the ACC Issue concerned a matter of public interest. The plaintiffs say the ACC Issue has arisen a number of times in cognate jurisdictions. It is argued there is a wider public interest in obtaining certainty about the application of the ACC bar from a New Zealand court. The plaintiffs say DePuy’s arguments regarding an abuse of process do not have any bearing on the public interest exception. A discount of 50 per cent is sought.
[30] DePuy submits costs should not be discounted on the basis the ACC Issue concerned a matter of public interest. DePuy submits the proceeding was not one of genuine public interest. The plaintiffs commenced proceedings in England for personal gain, and then initiated the current proceeding for the benefit of themselves and the limited class they represent. DePuy further submits the plaintiffs are precluded from arguing r 14.7(e) should apply due to my finding in the second judgment that the proceedings constituted an abuse of the processes of the Court.
Analysis
[31] The effect of the ACC bar, where the defendant is an overseas entity and the relevant conduct occurred overseas, is a question of wide importance to anyone who is injured by a product manufactured outside of New Zealand. It is also a question that has arisen in overseas jurisdictions, suggesting a broad public interest in obtaining clarification about the scope of the ACC bar. At the same time, the proceedings had particular relevance to the plaintiffs who suffered personal injury as a result of DePuy’s hip replacement products.
[32] It is important not to overlook the inherently broad nature of a Court’s
discretion in relation to costs. Some flexibility must therefore be preserved to meet the requirements of each individual case.13
13 Commerce Commission v Southern Cross Medical Care Society [2004] 1 NZLR 491 (CA) at
[21].
[33] In the circumstances, I consider a discount of one third is appropriate to reflect the public interest component of the ACC Issue.
Expert fees
Submissions
[34] DePuy seeks an award of costs for the expert fees it incurred with Mr Palmer QC. DePuy’s costs were £19,475 which DePuy says equates to NZ$36,729. Mr Palmer worked for 69 hours but only charged for 41 hours of work at his standard rate. DePuy notes it chose not to engage an alternative expert at a far higher hourly rate.
[35] DePuy says it was reasonably necessary to obtain Mr Palmer’s evidence. The Estoppel Issue required an understanding of the nature and effect of the judgment in Allen (No. 2). And only an English expert could properly opine on those matters. DePuy says the fact the plaintiffs chose to instruct Mr Pitt-Payne QC is indicative of the need for it to have obtained expert evidence.
[36] The plaintiffs submit the expert fees should not be recoverable, or only a nominal amount should be approved, because the expert evidence addressed matters that were for the Court to determine and which were appropriately addressed in submissions. The plaintiffs say DePuy has miscalculated Mr Palmer’s fee and that the correct figure in New Zealand dollars is $35,519.74.
[37] The plaintiffs note the expert evidence was only referred to once in the judgment,14 on a point where DePuy was unsuccessful, namely in its submission the
25 New Zealand plaintiffs were parties to Allen (No. 2). The plaintiffs submit at most, 10 per cent of the expert cost claim should be allowed.15 The amount sought is submitted to be unreasonably high given the issues that were addressed and in comparison with an amount approved in a similar context.16 The plaintiffs note the risk they were placed in by failing to respond to Mr Palmer’s expert evidence as the
reason for their election to respond with Mr Pitt-Payne’s expert evidence.
14 McGougan, above n 3, at [51].
15 Citing Prophecy Networks Ltd v Revera Ltd [2015] NZHC 899.
16 Referring to Americhip, Inc v Dean [2015] NZHC 1871 where $19,830.83 was approved.
Analysis
[38] Mr Palmer filed a 38 page “Expert Opinion on English Law” dated 22 June
2016 in relation to the Estoppel Issue. Mr Palmer’s evidence explained the operation of English law in relation to:
(1) what constitutes the “judgment” for the purposes of res judicata;
(2)whether the New Zealand claimants (as distinct from the New Zealand sample claimants) who commenced proceedings in England against DePuy would be regarded as parties to the decision of Simler J in Allen (No. 2) or privies to the parties bound by her decision; and
(3)whether the New Zealand claimants who discontinued their claims after Allen (No. 2) would be permitted to issue fresh proceedings against DePuy or whether any such proceedings would be struck out as an abuse of process.
[39] To the extent Mr Palmer addressed the issue of abuse of process, I agree with the plaintiffs that really involved a question of New Zealand law for the New Zealand Court to determine. In my judgment I relied on the New Zealand Supreme Court judgment Chamberlains v Lai17 in respect of this analysis. Taking into account the extent to which Mr Palmer’s expert evidence was relevant to the proceedings, but also the hours Mr Palmer charged for in respect of his work, I am willing to award $30,000 in respect of his fees. This figure is an evaluative assessment which, in my judgement, best reflects all the relevant circumstances of
this case.
Conclusion
[40] DePuy is entitled to costs of $30,920 and $30,000 in relation to its expert witness fees, making a total of $60,920 for costs and disbursements.
17 Chamberlains v Lai [2006] NZSC 70, [2007] 2 NZLR 7 at [62], referred to at [93] in
McGougan, above n 3.
D B Collins J
Solicitors:
Meredith Connell – Wellington Branch, Wellington for Plaintiffs
Kensington Swan, Auckland for First Defendant
Accident Compensation Corporation, Wellington for Second Defendant
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