Pangani Properties Ltd v Lloyd
[2019] NZHC 863
•17 April 2019
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV 2016-454-126
[2019] NZHC 863
BETWEEN PANGANI PROPERTIES LIMITED
Plaintiff
AND
G R LLOYD
First Defendant
AND
P J L NEVILL
Second Defendant
Hearing: On Papers Counsel:
J V Ormsby and S Meares for Plaintiff A B Darroch for Defendants
Judgment:
17 April 2019
JUDGMENT OF ELLIS J (COSTS)
[1] This judgment is consequential on my substantive judgment of 6 August 2018,in which I found that, in the course of acting in relation to the sale of a commercial property in Palmerston North, the defendants (who are real estate agents) had breached fiduciary duties owed to their client, Pangani Properties Ltd (Pangani).1 I held (inter alia) that their breach had caused Pangani to lose the opportunity of declining to extend the due diligence period in relation to a conditional sale of the property to Zambora Ltd (Zambora) and, instead, pursuing a lease of its property to New Zealand Post Ltd (NZ Post).
1 Pangani Properties Ltd v Lloyd [2018] NZHC 1982. This judgment needs to be read in conjunction with that substantive judgment; I do not intend to repeat the facts or my findings in any detail here.
PANGANI PROPERTIES LTD v G R LLOYD [2019] NZHC 863 [17 April 2019]
[2]I made orders that the defendants pay to Pangani:2
(a)$63,150, being the net commission received by the defendants on the sale of Pangani’s property;3
(b)equitable compensation in the sum of $650,000 for loss of chance (being the value I placed on the lost chance of pursuing the lease); and
(c)equitable compensation in the sum of $100,000 in relation to the costs incurred by Pangani investigating and pursuing a complaint of fiduciary breach before the Complaints Assessment Committee (CAC) established under the Real Estate Agents Act 2008.
[3] I said that interest should run on the equitable compensation at a rate of five per cent from a date or dates to be agreed by counsel. At Mr Ormsby’s request I also reserved the question of costs.4
[4] The question of interest has been resolved between counsel and so now needs to be recorded. There are outstanding disputes about costs and disbursements which need to be resolved. It is those issues with which this judgment principally deals.
Interest
[5] Although there was not immediate agreement between the parties about the dates from which interest should run, it is now agreed that:5
2 At [173].
3 It was accepted at trial that the GST component of the commission, which was paid to the Commissioner of Inland Revenue, could not be disgorged.
4 The inference being that there was pre-trial correspondence relevant to that issue, as indeed there was (discussed below).
5 The rate of five per cent is the rate contained in s 87(1) of the Judicature Act 1908 (these proceedings having been commenced prior to 1 January 2018).
(a)interest on the loss of chance compensation runs from 6 May 2015; and
(b)interest on the compensation for CAC costs runs from the date the relevant invoices were paid (as set out in Appendix B to Mr Ormsby’s memorandum dated 20 December 2018).6
[6]I make orders accordingly.
Costs
[7] As already noted, there are aspects of Pangani’s claim for costs and disbursements which remain contested.
[8] I begin by recording that Mr Darroch’s starting position was that I should defer any decision on the disputes pending the outcome of the defendants’ appeal to the Court of Appeal, which is scheduled for hearing in June this year.
[9] Tempting as that suggestion may be, a pending appeal is not, ordinarily, a reason not to make costs orders at first instance. I do not see any reason to depart from the usual practice.
[10]The outstanding issues relate to:
(a)the appropriate band allocation for certain steps in the proceeding;
(b)allowance for second counsel; and
(c)the effect of Calderbank letters exchanged between the parties prior to trial.
[11]I address each in turn.
6 Although I do not have completely up to date calculations, the interest payable on the $650,000 compensation is likely to be around $120,000 and the amount payable on the $100,000 compensation is likely to be a little over $20,000
Band allocation
[12] The parties agreed at the first case management conference that the proceeding could be placed in Band B of costs category 2 “for the time being”. While it is unusual for the core categorisation to change subsequently, it is less uncommon for the allocated band to be adjusted for different steps in the proceeding. The band allocation should reflect a determination of what is a reasonable amount of time for a particular step.7
[13] In this case, the plaintiffs now seek band C allocation for all steps subsequent to the first case management conference. The defendants maintain that band B continues to be appropriate for all.
[14]The relevant steps are:
(a)memorandum for case management conference dated 18 July 2017;
(b)appearance at case management conference on 24 July 2017;
(c)timetable memorandum dated 7 November 2017;
(d)timetable memorandum dated 1 February 2018;
(e)pre-trial memorandum dated 14 March 2018;
(f)discovery document list;
(g)inspection of documents;
(h)preparation of briefs;
7 Band B allocation is appropriate where “a normal amount of time is considered reasonable”. Band C allocation is appropriate where “a comparatively large amount of time for the particular step is considered reasonable”. See r 14.5 of the High Court Rules 2016 (HCR).
(i)preparation of list of issues, authorities and common bundle; and
(j)preparation for hearing.
[15] The difference between Band B and Band C costs for these items is a not inconsiderable $41,924$4.
[16] Pangani asserts that each of these steps involved more than the “normal” amount of time. More specifically, Mr Ormsby said:
(a)the number of documents in discovery was significant;
(b)a significant amount of correspondence was required following the initial tranche of discovery due to questions about the adequacy of the defendants’ discovery;
(c)the defendants provided several additional tranches of documents that were not provided initially and had to be later reviewed;
(d)preparation of evidence for the plaintiff required a significant amount of work given the complexity of the case and number of witnesses required (eight factual and two expert witnesses for the plaintiff); and
(e)the required preparation for hearing was significant given the number of witnesses and significant and complex legal issues involved.
[17] As well, Pangani says that increased costs and/or Band C allocation is appropriate because of the defendants’ “last-minute admissions of key elements of the claim” which had previously been denied.8 This is a reference to the amended statement of defence filed on the first day of trial. In it, they formally admitted one breach of their fiduciary duty, namely their failure to disclose NZ Post’s interest in leasing Pangani’s property at a time when Pangani would otherwise have had the
8 This language refers to rr 14.6(3)(b)(iii) of the HCR.
opportunity to pursue that interest (rather than agreeing to extend the due diligence period for a conditional purchaser).
[18] Mr Ormsby said this admission was significant because it should have (but due to its timing, did not) saved Pangani the expense and effort of proving the breach and, in particular, the timing of the defendants’ knowledge about the interest by NZ Post. There was, he said, no reason why this admission could not have been made earlier; the CAC decision had already found a breach of duty.
[19] On the material before the Court I am not satisfied that the complexity justifying Band C costs has been established in relation to any of the steps identified above. To take the most easily quantifiable items, the affidavit of documents provided by Pangani listed 120 documents. The defendants’ list contained 242 documents. By today’s standards those are very small lists, even if follow-up was required, and further documents provided subsequently.9 The standard Band B time allocation of two and a half days seems adequate for the discovery and inspection tasks.
[20] As well, the reality was that the plaintiffs have received specific and considerable compensation for their costs in relation to the CAC proceedings. In some (although not all) ways those proceedings would have been something of a “dry run” for the High Court matter. This was not a case where trial preparation required counsel to start from scratch.
[21] Nor am I persuaded that the late admission warrants either an uplift or band adjustment here. While at first glance it might seem significant, I am not persuaded that it was, in fact. As noted earlier, the CAC had already held that the defendants had breached their duty in this way. Moreover, as Mr Darroch says, there was a discussion at the time of the amendment (at the beginning of trial) during which it was agreed that the admission was unlikely to reduce the length of the hearing or have any other substantive impact. As he said, the extent and circumstances of the breach required exploration in any event.
9 No detail about that has been provided.
[22] The starting point is, therefore, that costs are payable on a 2B basis for all steps.10
Second counsel
[23] It follows from my conclusions above that there was nothing that made this trial out of the ordinary. As Mr Darroch very fairly acknowledged, there can be no doubt that Ms Meares presence contributed to the smooth running of the hearing and I am sure she added considerable value to the plaintiff’s case. That said, however, the trial was run in the “modern” way.11 And although I found (and so accept) that some of the legal issues were difficult, they concerned an area of the law with which Mr Ormsby is very familiar.12 Moreover, the defendants were represented by only one counsel.
[24]I decline to certify for second counsel.
Calderbank letters/increased costs
[25] The Court can make an order for increased costs pursuant to r 14.6(3)(b)(v) of the High Court Rules 2016 (HCR) if a party fails, without reasonable justification, to accept an offer of settlement of a kind referred to in r 14.10. The reasonableness of a party’s rejection of such an offer must be assessed at the time of rejection, not against the subsequent result.13 Rules 14.10 and 14.11 make it clear that the effect of a Calderbank offer remains a matter for the discretion of the Court.
[26] In assessing the reasonableness (or not) of the defendants’ refusal of those offers, the starting point is the relief sought by the plaintiff in its statement of claim at the time the offer was made. Here, it was:
10 But note my conclusion below, at [56].
11 See the discussion by Chambers J in Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd (2001) 15 PRNZ 155 (HC) at [17] – [22].
12 He was, for example, counsel in the Supreme Court in Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.
13 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548 19 August 2010.
(a)equitable compensation in the amount of $871,622.50 (a figure based on the profit ($799,000) that would allegedly have been obtained from pursuing and securing a lease with NZ Post, together with the GST inclusive commission ($72,622.50) received by the defendants on the sale of the property on behalf of the plaintiff); or
(b)an unspecified amount of equitable compensation for loss of chance;
and
(c)equitable compensation by way of account of profits (namely the commissions received on subsequent transactions);
(d)interest; and
(e)costs.
[27] So, in terms of the pleading at the relevant time, the “worst case” scenario for the defendants would have been an order that they pay compensation of $871,622.50, plus interest.14
[28] In this case, there were four pre-trial, “without prejudice except as to costs” settlement offers made by the parties:
(a)5 April 2017 – offer by defendants to pay $121,250;
(b)26 July 2017 – offer by plaintiff to accept $920,000;
(c)2 March 2018 – offer by defendants to pay $300,000; and
(d)7 March 2018 - offer by plaintiff to accept $855,000.
14 I put costs to one side, for the moment.
[29]The first offer (made by the defendants on 5 April 2017) was a payment of
$121,250, based on the disgorgement of the original commission ($66,250), together with “a further contribution of $55,000 towards [Pangani’s] legal and other expenses”. The letter rejected the possibility of the success of the claim for equitable compensation, saying that the law in the area was “not straight-forward” and maintaining that:
The reality of this option requires Pangani to establish that it would have cancelled the conditional agreement with Zambora; acquired the adjoining land at a price beyond Mr Olsen’s stated maximum; and then effectively 'won' the NZ Post tenancy in a very competitive process. It is not appropriate to suggest it was able to take all of the upside in this opportunity (and more) and yet not accept the risks and contingencies which exist. Any attempt to pursue this option is undermined by the way Pangani approached the opportunity to re-develop the site for Steel & Tube. This national tenant also wanted a similar sized property which necessitated the acquisition of the adjoining site and a commitment to carry out significant renovations.
[30]The plaintiff counter-offered on 26 July 2017 by saying it would accept
$920,000. In the letter in which the counter-offer was made, Mr Ormsby explained the basis for the plaintiff’s claim for equitable compensation in some detail. The letter pointed out that:15
Your clients are liable to account for all loss naturally flowing from the breach of duty to disclose NZ Post's interest. Questions of foreseeability are not as relevant for breach of fiduciary duty as they are with tortious claims. Notably, “The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight.” With the benefit of hindsight, we can see what potential value Pangani could have realised if they cancelled the ASP and secured NZ Post as a tenant.
Securing NZ Post as a tenant and the consequent profits was not a mere possibility - it would have been a natural consequence of the cancellation. Indeed, the work required to secure NZ Post as a tenant only required a required a rudimentary understanding of Property development (given that Mr Doyle allegedly had no previous development experience and yet was still able to secure NZ Post). Pangani would have undoubtedly had the required property development experience and they demonstrably had the financial means to realise that development.
Your clients’ argument that Pangani would not have secured NZ Post as a tenant amounts to saying that the disclosure of the NZ Post interest would have made no difference to the loss suffered.
15 (citations omitted) (emphasis in original).
It is not an answer to the measure of loss to say that the loss would have occurred even if the disclosure was made. The Brickenden rule provides that when a fiduciary commits a breach of duty through non-disclosure of material facts “he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction ... once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.” There has been some recent modification to the authority such that there is a “narrow escape route” for fiduciaries, where they can attempt to prove (with the onus on them) that the loss would have occurred in any event without breach on the fiduciary’s part. However, we doubt that your clients will be able to show that the loss would have occurred in any event for the reasons set out above. Even if there is any doubt as to whether Pangani would have cancelled the ASP, that doubt will be resolved against your clients.
[31]Ultimately, however, Pangani said:
Given the CAC finding, your clients’ acceptance that they failed to disclose NZ Post’s interest, and the matters addressed above, our client is confident that its claim will be successful at trial.
The anticipated profits from the development are clearly shown in the expert report ($799,000 has been claimed, being the midpoint of the range in the report). Even if there is a question as to whether Pangani would have been able to secure NZ Post as a tenant, we are confident that Pangani can show it had the experience and wherewithal to do so.
Pangani has also claimed the commission on the Zambora sale and subsequent commissions (totalling $352,622.50).
Scale costs to date are $18,955.
For the purposes of settlement, Pangani is prepared to discount a settlement sum for irrecoverable trial costs and it acknowledges that it faces some risk in requiring your clients to disgorge the subsequent commissions that it received on the NZ Post Lease and MC Capital sale (given that your clients would not have received the full amounts in their personal capacity, and the Colliers entity that received the subsequent commissions is either wound up or not the same Colliers entity that was involved in the Zambora sale).
Accordingly, our client is willing to settle the proceedings on the basis that your clients will pay $920,000. The offer is subject to the terms in para 21 (b) to (d) of your letter, and is open for acceptance until 11 August 2017.
[32] It may usefully be observed at this point that the reference here to Pangani “also” claiming subsequent commissions of almost $300,000 (once the original commission was subtracted) was not, strictly, correct. Disgorgement of the subsequent commissions was only ever pleaded in the alternative to the loss of profits claim (together with an unquantified loss of chance). So, to the extent the $920,000 was intended to represent any form of compromise (ie a reduction from the total amount
the defendants were at risk of being ordered to pay under the claim as pleaded), it was overstated.
[33]The defendants did not reply to the second letter within the stipulated time.
[34] The defendants letter of 2 March 2018 is quite brief. It reiterates the uncertainties around what Pangani would have done had it known of the NZ Post interest prior to the extension of the due diligence period. Then, Mr Darroch said:
Our original offer was for $121,250 (including GST if any). Pangani made a counteroffer of $920,000. This is at a level which necessarily includes all or most of the profit earnt by Mr Doyle but without accounting for the risk and uncertainty involved.
The actual legal costs incurred will continue to be largely unrecoverable by either party. To avoid these costs, and to acknowledge the error made by our clients in failing to keep Mr Olsen informed, the following offer is made:
(a)We will pay Pangani $300,000 (inclusive of GST if any).
(b)This payment is in full & final settlement of all issues related to the sale of Malden Street in 2013. It would be paid within 21 days of acceptance.
(c)The offer is made without acceptance or admission of liability.
(d)The amount of the payment is to be confidential to the parties and their advisers but this confidentiality may be waived by our clients at their total discretion if the Claim continues to a hearing.
(e)Further, if confidentiality is maintained through the hearing, then the offer is made on a without prejudice save as to costs basis.
[35]The offer was said to be open for five working days.
[36] The plaintiff’s reply of 7 March 2018 rejected the offer and proceeded undertake a “loss of chance” analysis, beginning as follows:16
Assuming that the Court looks at quantum on the basis of loss of chance (which we do not agree that it will), your current offer suggests that there was only a 10% chance that Pangani would have cancelled the Zambora agreement:
16 (citations omitted) (emphasis in original).
= 10% x $799,00017 + $11,328.29 interest + approx. $30,000 costs as at today's date + $176,311.25 for commissions18
= approx. $300,000
10% is a gross under-estimate of the chance based on the evidence:
a.As per Mr Olsen's reply brief, the defendants’ version of events regarding Mr Olsen's willingness to purchase Mr Jones’ property is demonstrably wrong;
b.Mr Olsen was ready to cancel - His diary notes show a clear contemporaneous record that interest from a potential tenant like NZ Post would have meant that Pangani cancelled the agreement;
c.The NZ Post interest is not equivalent to the Domett Fruehauf interest - Mr Nevill expressly told Mr Olsen that Domett Fruehauf was not worth pursuing. NZ Post is a blue chip government tenant. At the time the Zambora agreement was entered into Domett Fruehauf's interest can be described as waning at best.
d.The enquiry is what Pangani would have done at the time, and the mere expression of interest by NZ Post would have been enough for Mr Olsen to cancel. We expect you will hang your hat on the fact that NZ Post described Malden Street as “Plan C”. It is facetious to say that NZ Post's interest was not serious given that NZ Post did in fact end up choosing the Malden Street property. As per our previous letter regarding settlement, questions of foreseeability are not as relevant for breach of fiduciary duty as they are with tortious claims. Notably, “The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight."”
[37]The letter went on:
In our view the Court will look at the issue of whether Pangani will have cancelled on a mere balance of probabilities. We consider that Pangani will be able to show that it was more likely than not that it would have cancelled the Zambora agreement. Accordingly if the matter proceeds to trial, the defendants face potential liability of over $1,285,962.21 plus disbursements:
= $917,000 + $132,650.96 interest + approx. $60,000 costs +
$176,311.25 for commissions + disbursements
= $1,285,962.21 + disbursements
17 This amount reflected the lost profits pleaded in the statement of claim and was the “midpoint of the profits Pangani would have made if it secured NZ Post as a tenant” based on the evidence of the plaintiff’s original accounting expert, Mr Broom, who did not give evidence at trial.
18 This figure assumed a “50% recoverability of the subsequent commissions on the basis of account of profits”.
[38] It can be interpolated here that the adoption of the higher $917,000 starting point is explained in the letter as being based on the “midpoint of the profits Pangani would have made if it secured NZ Post as a tenant” based on the evidence of Mr Hempleman, who was the accountant called by Pangani at trial. The use of that amount is, however, somewhat mystifying given that, as noted earlier, Pangani’s pleaded loss of profits was only $799,000, based on the evidence of their original accounting expert.
[39]And then:
Even if the Court looks at quantum on the basis of a loss of a chance, we consider that the discount will be minimal given the strength of the evidence. Assuming say a 25% discount for uncertainties, the defendants’ liability as at today's date is around $993,549.47 plus disbursements.
= 75% x $917,000 + $99,488.22 interest + approx. $30,000 costs +
$176,311.25 for commissions + disbursements
= $993,549.47 + disbursements
[40] Mr Ormsby agreed that it was pragmatic to settle the proceedings to avoid the time and cost involved with proceeding to trial but said: “even if the defendants’ argument around discounting for uncertainty (which is denied), Pangani’s previous offer of $920,000 would have been beneficial to your clients”. The letter concluded by advising that Pangani was willing to settle the proceedings if the defendants would pay the company $855,000.
[41] The calculation set out at [39] comes closest to the relevant damages award made in my substantive judgment. To reiterate:19
(a)the claim for the disgorgement of the original commission (which had been admitted by the defendants) was accepted;
(b)the claim for lost profits was rejected;
19 The additional compensation relating to the CAC costs in the amount of $100,000 should, for present purposes, be disregarded because no claim for the CAC costs had been made at the time of the Calderbank offers.
(c)an award of compensation for loss of chance in the amount of $650,000 was made; and
(d)the claim for an account of subsequent profits was rejected;
[42] In total, therefore, there was an award of $650,000 plus interest (which has now been calculated to be around $120,000). Costs will, of course, be determined in this judgment. But putting that to one side, the difference between the awarded amount and the amount referred to in [39] is largely explicable by:
(a)my adoption of a starting point (ie the total amount of lost profits) that was closer to the pleaded amount,20 rather than the higher $917,000 sum used in Mr Ormsby’s calculation;
(b)my assessment of the relevant chance at 80 per cent rather than 75 per cent;
(c)my exclusion of any of the subsequent commissions on the grounds that they could only be recoverable as an alternative to equitable compensation; and
(d)the necessary increase in the interest amount over time.
Was the defendants’ rejection of the Calderbank offers reasonable?
[43] In my view the defendants were not unreasonable in rejecting the plaintiff’s two offers. Although my judgment does, in large part, vindicate the position taken by Mr Ormsby in the letters, the issues were not entirely straightforward. I would certainly not go so far as to say that the defendant’s position was obviously without merit.
20 For the reasons explain at [139] – [148] of my substantive judgment: Pangani Properties Ltd v Lloyd, above n 1.
[44] At best, the plaintiff’s offers amounted to ‘walk-away’ offers, which effectively valued the defendants’ defence, their prospects of success and the plaintiff’s litigation risk all at nil.21 And at worst, the calculations on which the offers were based involved an overstatement of the quantum of damages claimed in the plaintiff’s own pleading.
[45]I decline to order any increased costs based on the Calderbank letters.
Disbursements
[46] The contest over disbursements has now narrowed to a dispute over the following three items:
(a)the private investigator fee ($12,963.54);
(b)fees of $6,648.70 charged by Pangani’s solicitor, who was also a factual witness at trial; and
(c)accommodation and other expenses totalling $7,420.08 incurred by Pangani’s three directors during the trial;
Principles
[47] Disbursements are provided for in r 14.12 of the HCR. A disbursement is defined as meaning:
… an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs.
[48]Disbursements must be included in costs awarded if they are:
(a)approved by the Court for the purposes of the proceeding;
(b)specific to the conduct of the proceeding;
21 See the discussion in Easton Agriculture Ltd v Manawatu-Whanganui Regional Council
HC Palmerston North CIV 2008-454-31, 22 December 2011 at [17].
(c)reasonably necessary for the conduct of the proceeding; and
(d)reasonable in amount.
[49]It is against those rules that I must measure each of the disputed items.
Private investigator’s fees
[50] Pangani claims a fee of $12,963.54 which it says it incurred as a result of employing a private investigator to interview and obtain statements for:
(a)Mr Morris, who was the National Property Manager for Operations at NZ Post who made contact with the defendants and who subsequently engaged in negotiations over the lease of (what had been) Pangani’s property;
(b)Mr Jones, who owned the neighbouring land and who was represented by the defendants in negotiations for the sale of it to Zambora for the purposes of the lease to NZ Post; and
(c)Mr James Hughes, who was the central regional manager at Steel & Tube Ltd, the tenant of Pangani’s property at the time of the sale.
[51]No invoice or breakdown of the charges has been provided.
[52] Each of the three men to whom I have just referred gave evidence at trial, and briefs of evidence were prepared in advance for Messrs Morris and Hughes. As I think is plain from my substantive judgment, the evidence of both Mr Morris and Mr Jones was important.
[53] Mr Ormsby says that the ability to claim an investigator’s fees incurred in the obtaining of evidence has been recognised by this Court in Advanced Hair Studio (Europe) Ltd v Clarke.22 That case was, however, rather different from the present, as is clear from the following passages from the decision of Associate Judge Osborne (as he then was). He said:
[5] The plaintiff has included within its claimed disbursements a payment of $935.99 paid to a private investigator for attending to the filing and service of the interlocutory application and for collecting evidence at the second defendant’s premises, reporting on the same, and completing an affidavit. Of that total, the defendants accept that a sum of $90.00 (for service of the application) and $14.57 (for mileage, postage and communications) are appropriately recoverable disbursements.
[6] While counsel for the defendants submits that the defendants should not have to pay for the investigator’s professional fees relating to the collection of evidence and reporting to the plaintiff’s counsel, and says such disbursements are not provided for in the High Court Rules, in my judgment they are within the definition of “disbursement” under r 14.12(1)(a). The evidence obtained by the private investigator in this case was necessary in order to establish the nature of the business that was being conducted by the defendants. The evidence was being prepared for the purposes of the proceeding. The investigator’s fee is within the context of r 14.12(1)(a) an expense which would ordinarily be charged for separately from legal professional services.
[54]The relevant differences between that case and the present include:
(a)the quantum of the fees incurred (the costs presently at issue are approximately 14 times as much as the fees in Advanced Hair);
(b)the nature of the evidence said to have resulted from the private investigator’s activities and to which the costs related, namely:
(i)the investigator’s own affidavit evidence about the findings of his investigation into a relevant matter (Advanced Hair);
(ii)evidence that was briefed and given by three other witness (present case).
22 Advanced Hair Studio (Europe) Ltd v Clarke HC Dunedin CIV-2009-412-615,11 September 2009.
[55] The significance of the second point of departure is that, as Mr Darroch says, it is more difficult to say that the expense here is something other than one which would ordinarily be incurred for legal professional services. Indeed, preparation of briefs of evidence is specifically included in the sch 2 cost items and is separately claimable on that basis. For that reason, I consider that the private investigator’s fees here do not fall within the definition of “disbursements”.
[56] That said, however, I also accept the validity of Mr Ormsby’s (fall-back) position which was that there should be some recognition of the extra time and effort involved in obtaining third party evidence from afar.23 As I have said, the witnesses were important. I therefore consider that the “starting point” of a 2B costs categorisation for the preparation of briefs should be lifted to 2C (which involves an allocation of 5 days under Band C instead of 2.5 days under Band B).
Fees of Ms Thomas
[57] Ms Thomas is a solicitor from the Auckland firm, Morrison Kent, who acts as Pangani’s solicitor on other matters. She acted for Pangani on the sale of the Palmerston North property and provided factual evidence about that at trial. Her fee of $6,648 for the preparation of evidence and attending the trial is claimed as a disbursement.
[58]The defendants accept that Ms Thomas’ travel costs are a claimable
disbursement, but dispute that her professional fees are so payable.
[59] Ms Thomas’ fee for preparing here evidence is, in my view, an expense incurred for the purposes of the proceeding “which would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs”. That is because she was neither the instructing solicitor nor counsel for the purposes of the trial, and her fee is not recoverable through the costs regime. Prima facie, therefore, here fees are a “disbursement”.
23 The witnesses were in Palmerston North and Wellington whereas Pangani, and Pangani’s lawyers,
were in Auckland.
[60] Next, I accept that Pangani needed Ms Thomas’ evidence in order to advance its claim. As Mr Ormsby said, it was important because it went to the timing of Pangani’s decision to extend the due diligence period on the Zambora sale. I record that no issue is taken with the reasonableness of the amount of her fee per se, although Mr Darroch fairly pointed out that her fee has not been itemised.
[61] There is authority from this Court that the costs of a witness who is not an expert, but is a professional entitled to charge for his or her time are recoverable as a disbursement. For example, in Trustpower Ltd v Commissioner of Inland Revenue,
Andrews J said:24
[78] Mr McLellan submitted that as a witness of fact, Trustpower cannot claim Mr Kedian’s fees as a disbursement. He submitted that r 14.12 only allows for expert witnesses’ fees to be claimed as a disbursement. Mr McLellan further submitted that Mr Kedian could readily have been subpoenaed, and thus compelled to attend but not required to prepare a brief of evidence.
[79] Ms Armstrong acknowledged that factual evidence would usually be given by a party, or employees of a party – as here, in the case of Dr Harker and Mr Campbell. However, Mr Kedian had had a crucial role in respect of the projects in dispute. He had authored or received a number of documents relied on by the Commissioner. He was the most appropriate witness to give his evidence. As he was no longer an employee of Trustpower, he was entitled to charge, as a professional, for his attendances, and Trustpower was entitled to recovery under r 14.12.
[80] I reject Mr McLellan’s submission that r 14.12 allows recovery of expert witnesses’ expenses, only. As noted earlier, there is nothing express or implicit to that effect in the rule. In Harper v Beamish, Gendall J observed that, under r 14.12, “witnesses’ expenses, including the fees of expert witnesses, are disbursements.” In Body Corporate 396711 v Sentinel Management Ltd, Woolford J allowed payment of fees charged by a factual witness, noting that “while Mr Plummer was not an expert witness, he was a professional person entitled to charge the plaintiffs for his time.”
[81] I also reject Mr McLellan’s submission that Mr Kedian “could readily have been subpoenaed”. Mr Kedian’s evidence was extensive, and he referred to a large number of documents. His brief of evidence comprised 150 pages. The Court and the parties were substantially assisted by having the brief of evidence. The submission that Mr Kedian “could readily have been subpoenaed” lacks reality.
24 Trustpower Ltd v Commissioner of Inland Revenue [2014] NZHC 3072 (citations omitted).
[82] I am satisfied that Mr Kedian’s evidence was necessary for the conduct of the proceeding. It was referred to extensively in the substantive judgment. Further, I am satisfied that the expenses incurred in relation to Mr Kedian’s evidence were for the purposes of the proceeding, were specific to the conduct of the proceeding, and reasonable in amount. I allow Mr Kedian’s expenses of $67,640.
[62] And as Mr Darroch noted there are cases in which lawyers’ expenses have been claimed as a disbursement (although he sought to distinguish them), namely:
(a)the fee of an independent barrister who attended the execution of Anton Piller orders;25 and
(b)the fee of a solicitor who gave expert evidence about sub-divisional requirements.26
[63] Based on the authorities, I accept that Ms Thomas’ costs are properly claimable as a disbursement here and I allow them accordingly.
Accommodation and expenses of Pangani’s directors
[64] Pangani’s claimed expenses for its three directors (Mr Olsen, Ms Hain and Mr Riechelmann) to give evidence and attend the trial were $7,420.08.
[65] I accept that Pangani’s directors were required to give evidence at the trial. They live in Auckland and the trial was in Palmerston North.
[66] I also accept that the directors were entitled to stay and observe the trial, and had an interest in doing so. But I do not accept that the continued presence of all three of them was reasonably necessary for the conduct of the proceeding. I would, however, be inclined to make some allowance for the presence of Mr Olsen who, as I noted in my judgment, was the driving force of the company. The others were easily contactable by telephone in the event of anything arising that required discussion. The cost of their presence for the duration is properly regarded as an internal cost to the
25 Hoole v Darby HC Auckland CIV 2006-404-5235, 30 March 2007.
26 Linden Estate Ltd (in liq) v Jans (2009) 19 PRNZ 804 (HC).
company. I therefore allow disbursements for approximately one third of the amount claimed, namely $2,475.
Summary
[67]I make the following orders:
(a)interest of five per cent is payable:
(i)on the “loss of chance” equitable compensation from 6 May 2015; and
(ii)on the “CAC costs” equitable compensation from the dates identified in Appendix B to Mr Ormsby’s memorandum dated 20 December 2018;
(b)the defendants are to pay:
(i)The plaintiff’s 2B costs in the proceedings for the items set out in Appendix C to Mr Ormsby’s memorandum dated 20 December 2018, with the exception of the costs relating to the preparation of briefs or affidavits which are payable on a 2C basis. There is to be no allowance for second counsel.
(ii)The disbursements listed in Appendix D to Mr Ormsby’s memorandum dated 20 December 2018 with the exception of the claims for:
Ø the private investigator’s fees (to which the uplift to 2C referred to at (i) of this paragraph relates);
Ø the expenses of Pangani’s directors in attending the trial, which I allow only to the extent of $2,475.
[68] The Calderbank letters do not warrant an award of increased costs, for the reasons I have given.
Rebecca Ellis J
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