Sax v Dempsey Wood Civil Limited

[2013] NZHC 1126

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-8007 [2013] NZHC 1126

BETWEEN  PETER SAX AND LINDSAY FRANCIS GRACE AS TRUSTEES OF THE PETER SAX NO. 2 TRUST

Plaintiffs

ANDDEMPSEY WOOD CIVIL LIMITED Defendant

Hearing:         On the papers

Counsel:         B. Vautier - Counsel for Plaintiff

E. St John - Counsel for Defendant

Judgment:      22 May 2013

JUDGMENT AS TO COSTS OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by me on 22nd day of May 2013 at 3.30 pm under r

11.5 of the High Court Rules.

.............................................................

Registrar/Deputy Registrar

Date: ...................................................

Solicitors:           Glaister Ennor, Solicitors, PO Box 63, Auckland

Alan Jones Law Partnership, PO Box 32249, Auckland

PETER SAX AND LINDSAY FRANCIS GRACE AS TRUSTEES OF THE PETER SAX NO. 2 TRUST V DEMPSEY WOOD CIVIL LIMITED HC AK CIV-2011-404-8007 [22 May 2013]

Introduction

[1]      This is a decision on a disputed issue of costs and disbursements.

[2]      The matter was before His Honour Associate Judge Faire for a costs decision when, on 7 May 2013 he issued a Minute for reasons set out therein, recusing himself.

[3]      Thereafter this matter was referred to me to give a decision of this Court on this issue of costs. A number of memoranda from counsel and further affidavits have been filed on the question of costs.  I have now had an opportunity to consider these, together with all the other material on the file for this proceeding, and give my decision on this costs question.

[4]      In this proceeding, Peter Sax and Lindsay Francis Grace as trustees of the Peter Sax No 2 Trust, (the plaintiffs), sought a declaration that a lease they entered into as landlords with Dempsey Wood Civil Limited, (the defendant), as tenant had been properly renewed. The defendant having originally opposed this application, eventually consented to the declaration sought being made.  On 27 September 2012

His Honour Justice Lang made an order by consent granting that declaration. The order declared specifically that there was a valid and enforceable renewal of the lease of the premises in question for a period of 5 years from 1 May 2009.   In making that order, His Honour Justice Lang noted that costs were reserved to be discussed between counsel and, in the event of disagreement, to be referred to this Court for decision.   Disagreement has occurred. The plaintiffs as the successful parties now seek an order for indemnity costs on this proceeding.

Background

[5]      On 29 September 2004, the plaintiffs as landlords and the defendant as tenant entered into a Deed of Lease (the Lease) for the commercial premises in question at Penrose, Auckland for a term of 5 years from 1 May 2004 with a right of renewal for

5 years. In April 2009, the parties’ agents negotiated for a renewal of the Lease. A

document titled “Deed of Variation” resulted, signed by agents for the parties.  It was dated 30 April 2009.

[6]      The dispute arose because the plaintiffs sought to enforce the renewal of the Lease based on that document. The defendant disputed that the document properly recorded any renewal.

[7]      The  plaintiffs  filed  their  statement  of  claim  in  this  proceeding  on  13

December 2011.   On 27 January 2012, the defendant filed a statement of defence denying the claim.  The parties then undertook discovery and inspection and a two day hearing was allocated for 10 December 2012.

[8] About 10 weeks before the allocated trial date, the defendant capitulated and agreed that the Lease had been validly renewed. On 26 September 2012 the parties filed a Consent Memorandum to record this and on 27 September 2012 the declaration noted at [1] above was made. As mentioned, costs were reserved.

[9]      A copy of the Lease in question is before the court. Clause 6 provides:

6.        Costs

THE Tenant shall pay the Landlord’s solicitors reasonable costs of and incidental to the preparation of this lease and any variation or renewal or any Deed recording a rent review, and the Landlord’s legal costs (as between solicitor and client) of and incidental to the enforcement or attempted enforcement of the Landlord’s rights remedies and powers under this lease.

[10]     The parties agree that this clause allows the plaintiffs to claim indemnity costs here. The question now before the Court relates to the quantum of that indemnity costs award.

Counsels’ submissions and my decision

[11]     The plaintiffs’ claim here is for their actual costs and disbursements incurred in commencing and pursuing this proceeding which they say amount to $48,800.00 (excluding GST) for costs and $1,546.59 (including GST) for disbursements.

[12]     Specifically,  counsel  for  the  plaintiffs  has  attached  invoices  from  the

plaintiffs’ solicitors Glaister Ennor relating to these claims. Each of these invoices

together with accompanying letters contains narrations for the services provided by

Glaister Ennor to the plaintiffs. The original invoices provided were as follows: (a)  Invoice dated 27 May 2011 for $8,500.00;

(b)       Invoice dated 29 June 2011 for $3,110.00;

(c)       Invoice dated 19 December 2011 for $3,960.00; (d)    Invoice dated 26 January 2012 for $610.00;

(e)       Invoice dated 28 February 2012 for $520.00; (f)        Invoice dated 24 April 2012 for $6,380.00; (g) Invoice dated 29 May 2012 for $3,720.00;

(h)       Invoice dated 28 June 2012 for $2,920.00;

(i)        Invoice dated 30 August 2012 for $1,970.00;

(j)        Invoice dated 27 September 2012 for $3,610.00; (k)   Invoice dated 4 December 2012 for $4,600.00.

[13]     These amounts total $39,900.00.  Counsel for the plaintiffs has advised that the figures include a 6% charge for internal disbursements. In addition, however, the plaintiff claims $1,528.69 for general disbursements which are listed.

[14]     Since December 2012, counsel for the plaintiffs advises that the plaintiffs have also been invoiced a further $8,900.00 for costs and $17.90 for disbursements for attendances in relation to the costs claim currently before the court. Adding these amounts represents the total costs claim of $48,800.00 and the total disbursements claim of $1,546.59.

[15]     The Court is also advised that the Glaister Ennor solicitors, who worked for the plaintiffs on this proceeding and the file related to it, were:

a.        A managing partner, with a charge out rate of $510; b.           A litigation partner, with a charge out rate of $450; c.     A consultant, with a charge out rate of $420;

d.        A senior associate, with a charge out rate of $410;

e.        A staff solicitor, with a charge out rate of $210.

[16]     The power to award indemnity costs is provided for in r 14.6(1)(b) High

Court Rules which states:

14.6      Increased costs and indemnity costs

(1)        Despite rules 14.2 to 14.5, the court may make an order –

(b)       that the costs payable are the actual costs, disbursements, and witness  expenses  reasonably  incurred  by  a  party  (indemnity costs).

[17]     And, it is clear from r 14.6(4)(e) High Court Rules dealing with indemnity costs that:

(4)       The Court may order a party to pay indemnity costs if –

......................…

(e)      the party claiming costs is entitled to indemnity costs

under a contract or deed …  ”

[18]     Noting however that r 14.6(1)(b) recorded above provides that, for the Court to  order  indemnity costs,  those  costs  need  to  be  the  actual  costs,  properly and reasonably incurred by a party, there is an argument open that as the indemnity costs claimed by the plaintiffs in any event must be objectively reasonable, this might result in certain cases in plaintiffs being unable to obtain a total indemnity for all costs actually incurred by them.

[19]     On this aspect, McGechan on Procedure summarises the position as follows:1

The position is well summarised in Black v ASB [2012] NZCA 384 at [77]-[99]. The main points are:

(i)         The position is distinctly different from orders under either of r 14.6(4)(a)

or (b).

(ii)       The word reasonable in r 14.6(1)(b) does not import a discretion in the usual sense: Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887. The principle that one party may contractually bind itself to pay the others full solicitor/client costs is established: ANZ Banking Group (NZ) Ltd v  Gibson  [1986] 1

NZLR 556 (CA). As the Court of Appeal noted in Beecher v Mills [1993] MCLR  19  “…anything  less  than  a  full  indemnity  for  costs  properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible. In the absence of a contrary indication it is not to be assumed that the parties intended such a result…”.

(iii)      Assessing  whether  the  indemnity  costs  claimed  under  a  contract  are reasonable involves the Court making an objective assessment of whether the tasks undertaken were reasonably necessary and were covered by the contract, whether the charge rate(s) was reasonable, and whether any other

general contract law principles should deny the claimant its prima facie right to judgment: Frater Williams at 191,887, endorsed in Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].

(iv)      The time and other pressures on Judges and Associate Judges leave “room for robust judgment as to the costs considered reasonable in all the circumstances”: Frater Williams at 191,887. If the liable party seeks a detailed vetting of the reasonableness of the costs, then it should ask the Judge to make the order for indemnity costs subject to taxation, or seek agreement that the costs be referred to a suitably qualified practitioner to vet their reasonableness. A third, but potentially problematic avenue is for the liable party to refer the fee note to the New Zealand Law Society under the complaints procedure in s 132(2) of the Lawyers and Conveyancers Act

2006. All  three  avenues  and  the  potential  problems  with  the  last  are summarised in Black v ASB at [82]–[99]. In Fernyhough v The Freight People Ltd [2012] NZHC 2638 at [53]–[56] the Court, unable to determine whether the entire costs claimed were within the indemnity, referred them to taxation before the Registrar.

[20]     In Crown Money Corporation Ltd v Grasmere Estate Trustco Limited HC, Auckland, 21 November 2008, CIV-2008-404-3801, Associate Judge Faire:

in relation to a similar situation involving a stipulation of solicitor-client costs in a contract stated:

[9]       The costs, however, must be objectively reasonable:   Frater Williams & Company Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 New Zealand ConvC 191,873 at 191,887. Fisher J explained inquiry as follows:

The Court must decide what tasks attract a costs indemnity on a proper construction of the contract, whether the task undertaken in the instance case was one of those contemplated in the contract, whether the steps taken were reasonably necessary in pursuance of that task, whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor-client costs, and whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.

[10]     His Honour emphasised that the task undertaken is not the discretionary approach akin to the Court’s assessment of party-and-party costs.  In short, this is not the exercise of a discretion but, rather, it is an objective assessment of what solicitor-client costs are properly attributable to the exercise contemplated in the contract and which are charged at a level which would be regarded as acceptable.

[21]     And,   in   Black   v   ASB,   the   Court   of  Appeal   noted   in   determining reasonableness:2

Assessing whether the indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of these matters: (Frater Williams at 191,887, endorsed by this Court in Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].)

(a)        what  tasks  attract  a  costs  indemnity  on  a  proper  construction  of  the contract;

(b)        whether the tasks undertaken were those contemplated in the contract;

(c)        whether the steps undertaken were reasonably necessary in pursuance of those tasks;

(d)        whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and

(e)        whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.

[22]     The  defendant  submits  that  the  costs  claimed  by  the  plaintiffs  here  are excessive and cannot be said to be reasonably incurred. The defendant notes that the case did not reach trial, it says there was only one witness the plaintiffs would have had to deal with, and it claims there was sparse (tailored) discovery. Either too much time was spent by the plaintiffs’ solicitors on the matter or solicitors with too high a charge out rate were used.

[23]     On these aspects, it relies on an affidavit dated 15 April 2013 of Mr Jason Keith Goodall (Mr Goodall), who the defendant maintains should be regarded as an expert here.  Mr Goodall it seems is an intermediate level barrister of some 9 years legal office experience, the last 4 years as a barrister sole. Mr Goodall deposes in his affidavit that he has reviewed the pleadings and documents and states that this case was one within his range of experience. He considered the case was simple, with a single issue to be determined – whether there was a binding agreement to renew the Lease. The number of documents was limited he said due to tailored discovery, and there was no need he claimed for expert evidence. Mr Goodall said he would charge

$350.00 an hour plus GST, and on this basis estimated a cost for the proceedings of between $10,675.00 and $12,075.00. He then allowed a further 5 hours (at $1750) for  communications,  leading  to  a  cost  of  $12,426  to  $13,825  (a  midpoint  of

$13,125). This amount, the defendant submits, is much less than what the plaintiffs claim here.

[24]     The defendant also endeavoured to submit that in Aladdin’s Motor Inn Ltd v Bowcorp Holdings Ltd [2012] NZCA 532 the Court of Appeal said that the appropriate amount of indemnity costs would be 1.5 times scale costs. On this basis, it calculates scale costs at approximately $15,920.00 and, under the Court of Appeal’s approach, that would mean indemnity costs should only be $23,880.

[25]     Next, the defendant takes issue with the 6% internal office disbursements fee simply added by Glaister Ennor, they say as their “standard practice” to the costs element  of  each  invoice.    It  is  argued  that  this  is  not  a  reasonable  cost  or disbursement which a third party can be called upon to pay. The fee is not a true disbursement.

[26]     Finally, the defendant contends that the plaintiffs have no right to claim costs on the current costs proceeding. In addition, the amount claimed the defendant says is excessive. It relates to research done on whether the defendant should have to pay costs under r 14.6(4), which was a pointless exercise when the plaintiffs already had a contractual entitlement.

[27]     In response, the plaintiffs maintain that all the costs sought here are proper and were reasonably incurred. The plaintiffs maintain the defendant waited until the proceeding had been set down and the plaintiff’s evidence was almost due to be served before capitulating.   It acted frivolously and unnecessarily in defending the proceedings.

[28]     The plaintiffs, while not producing expert evidence of their own, challenge the evidence of Mr Goodall here. They say Mr Goodall has not seen the correspondence between the parties’ solicitors, and between the plaintiffs and their solicitors, so he does not know what advice was sought or given. Mr Goodall’s analysis  assumes  minimal  contact  and  does  not  include the  costs  of instructing solicitors – which it is said should be recoverable when the plaintiff is entitled to indemnity costs under the Lease contract. The amount estimated by Mr Goodall it is said is unreasonably low, and specifically allocated too little time for the preparation of evidence.

[29]     The plaintiffs also seek to distinguish Aladdin’s Motor Inn Ltd because they say the costs in that  case related solely to  costs on appeal, not  costs from the proceeding in the High Court. The 1.5 times measure too it is said does not allow for different charge out rates, and this fails entirely to take account of the actual position. Furthermore, the defendant’s calculation of scale costs the plaintiffs say is wrong and excludes 1.4 days.

[30]     And,  the  plaintiffs  argue  further  that,  in  any  event  they  should  not  be penalised for the method their solicitors choose to charge for internal disbursements.

[31]     On all of this, it is clear that indemnity costs are determined with reference to actual costs, but may be less than the actual costs if the court considers they were not reasonably incurred. In Bradbury v Westpac Banking Corporation (2008) 18 PRNZ

859 (HC) at [204], the court found that costs are reasonably incurred if a reasonable observer would expect those costs for litigation of that type and extent.

[32] It is appropriate here to turn first to consider whether the charge-out rates of the various lawyers from Glaister Ennor engaged for the plaintiffs are reasonable. Those parties and their charge-out rates are listed at [15] above. The rates range from $210.00 per hour for a staff solicitor to $450.00 per hour for a litigation partner and $510.00 per hour for a managing partner in the firm which is a medium-sized central Auckland city firm. In my view those rates are within a generally acceptable range and are reasonable in all the circumstances here, noting too that the costs in question in this case were incurred in High Court litigation.

[33]   Next and secondly, I need to consider whether in making an objective assessment, the tasks undertaken by the plaintiffs’ counsel and lawyers here were reasonably necessary.  By way of background in this case, the Lease was renewed by the parties by a signed Deed of Variation of Lease for five years from 1 May 2009 at a new annual rental of $90,871.00 plus GST.     As noted above the defendant contended initially that the Lease had not been renewed but later capitulated and accepted this was not the case.  Over the five year renewal period at $90,871.00 rent per annum (presumably also including 30% of property outgoings as provided for in the  Lease)  the  foregone  rent  alone  would  have  been  something  in  excess  of

$450,000.00.

[34]     These proceedings were not in fact issued until 13 December 2011 but even from that date alone, the foregone rent would have amounted to something in excess of $200,000.00.  The amounts at issue in this proceeding were therefore reasonably significant, leaving aside any questions as to the additional effect on the value of the

plaintiffs’ building if the defendant tenants had simply vacated as they threatened to

do.

[35]     In addition, it is clear to me from the material before the Court that the plaintiffs as the instigators of this claim were required through their counsel to carry out significant work to progress the proceeding.   This obviously included usual discovery arrangements and the preparation of evidence for trial.   Significantly, it was well after the trial date in this proceeding had been set and matters were advancing towards trial that the defendant capitulated and for the first time acknowledged liability here.

[36]     As the decision in Frater Williams & Co Limited v Australian Guarantee Corp (NZ) Limited referred to at para [19] above notes, in cases like the present one before me, time and other pressures on Judges in this Court leave “room for robust judgment as to the costs considered reasonable in all the circumstances”.  With this in mind, I find here that the tasks outlined in some detail in the material provided by the  plaintiffs  for  this  costs  consideration  in  a  general  sense  must  be  seen  as reasonably necessary here and performed at appropriate levels, such that the overall charges for this work were reasonably incurred.   I conclude here that a reasonable observer would expect costs of the general magnitude charged for litigation of this type.

[37] In reaching this conclusion, I choose not to adopt the evidence of Mr Goodall provided for the defendants as outlined at [23] above. As I understand the position Mr Goodall claims that only 1 hour for preparation of evidence should be allowed here which as I see the position, is totally inadequate. That Mr Goodall’s charge-out rate may be less than the senior litigators at Glaister Ennor does not in my view decide this question. And Mr Goodall has also appeared to make minimal allowance for the likely attendances required as between the plaintiffs and their counsel here, given what was no doubt the crucial nature of this dispute to the plaintiffs.

[38]     I can only conclude that Mr Goodall’s evidence here may well be seen as

partisan and for this reason also I give it limited weight here.

[39]     Adopting the robust judgment as to costs referred to in Frater Williams & Co Limited v Australian Guarantee Corp (NZ) Limited noted above, I am of the view that the work undertaken by the plaintiffs’ counsel here was reasonably necessary and the charge-out rates applied generally were appropriate.

[40]     Next, I address the defendant’s arguments based on the decision of the Court of Appeal in the Aladdin’s Motor Inn Ltd, noted above.   In that case the Court of Appeal as I see it applied the calculation of 1.5 times scale costs purely because the party receiving those costs suggested it.   That case in my view simply cannot be considered a binding precedent as to how indemnity costs should be calculated.   I also place it to one side here.

[41]     I need now to turn to deal specifically with the two specific issues I note at [22] and [23] above, these being first, the question of the 6% internal disbursements charge added to the costs claim and secondly, the plaintiffs’ claim for costs on the costs application itself.

Internal disbursements

[42]     On this aspect, McGechan on Procedure notes at HR 14.12.01(4):3

The  principle  is  that  office  overheads  (such  as  online  legal  research)  usually absorbed by a party’s solicitors are not recoverable: Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Wellington CIV-2006-485-1600, 1 July 2011 at [61] and [70]. Office expenses (such as photocopying, binding, tolls and courier charges) that were “necessary and specific to the litigation” were allowed in Mawhinney v Waitakere CC HC Auckland CIV-1999-404-1850, 26 September 2007 at [12], which was followed in Bryant v Satara Co-operative Group Ltd HC Napier CIV-2011-441-

715, 30 January 2012 at [25].

[43]     In Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Gisborne CIV-2006-

485-1600, 1 July 2011 Justice Dobson said:

Shell has claimed $2,914.41 for local travel expenses including taxi charges. These appear to have been incurred when its solicitors worked into the later evening and were required to take taxis home. There does not appear to be a similar item claimed on behalf of OMV to which Todd objects.

Both Todd and Shell cited the decision of Fisher J  Russell v  Taxation Review

Authority (2000) 14 PRNZ.

Todd relied on the observation of Fisher J to the effect that the fee portion of legal bills customarily extends to various aspects of a practitioner's office infrastructure

3 McGechan on Procedure, above n1, at [HR14.12.01(4)].

such as the costs of secretarial services and computers and office consumables. Todd treats  these  costs  as  having  the  same  character.  For  its  part,  Shell  cited  a qualification at the conclusion of the judgment where Fisher J observed that he would not try to be too prescriptive for other cases. He observed:

“It must always be open to a party to show that in the circumstances of the particular case an item claimed as a disbursement was specific to the particular litigation, was necessary, would normally be charged to the client as a separate disbursement, and was reasonable in amount …  ”

Todd also cited a specific example in which taxi fares and local travel costs were not recoverable as disbursements on the basis that they are not ordinarily charged for separately from professional services.

The  principle is  that  matters of  office  overhead usually absorbed by a  party's solicitors will not be recoverable. Here, Shell's solicitors separately identified the cost of providing taxis for legal staff working long hours, in part to comply with their client's request to do so. In other solicitor/client relationships, that may not have occurred and without in any way denigrating the substantial pressures to meet timetabling requirements for completion of very substantial discovery tasks, this form of  disbursement is  a  reflection of  the  manner  in  which Shell's  solicitors organised its completion. Without suggesting it should be of general application, in the context of this case I disallow Shell's claim for such charges.

[44]     In Affco New Zealand Ltd v Anzco Foods Waitara Ltd (No 2) (2005) 17

PRNZ 676 a similar percentage fee (called a service fee) was not allowed as a disbursement under the definition contained in r 48H (now r 14.12):

The plaintiff seeks recovery of what is described as a service charge of $4,855.66 being 2.5 percent of their costs account. The defendants say that a service charge is not contemplated by the Rules and is not payable. The service charge is said to be for such matters as photocopying expenses, facsimile charges, toll charges, courier charges, internet charges and the like. It seems that some of the larger law firms in New Zealand as between themselves and their clients are providing for a percentage recovery  of  what  has  been  generally  identified  as  “office  disbursements”  as described above. It seems that law firms have identified that it is economically sensible to charge these as a percentage, if their clients agree, rather than try and identify them individually in relation to each client matter. Out of pocket expenses such as Court charges, registration and filing costs, accommodation costs and the like are charged as incurred.

The  plaintiff  invites  me,  therefore,  in  this  case  to  find  that  such  a  charge  is authorised by the High Court Costs Rules and should be payable by the defendants. In support of this submission the plaintiff submits that r 48H(2) entitles such a payment to be authorised by the Court. Rule 48H(1) and 48H(2) provide as follows:

“[48H. Disbursements

(1)       In this rule, ‘disbursement’, in relation to a proceeding,—

(a)       means an expense paid or incurred for the purposes of the proceeding   that   would   ordinarily   be   charged   for separately from professional services in a solicitor’s bill of costs; and

(b)        includes—

(i)         fees of Court for the proceeding:

(ii)        expenses for serving documents for the purposes of the proceeding:

(iii)       expenses for photocopying documents required by these rules or by a direction of the Court:

(iv)       expenses   of   conducting   a   conference   by telephone or video link; but

(c)        does not include counsel’s fee.

(2)        A disbursement  may  be  included  in  the  costs  awarded  for  a proceeding to the extent that the disbursement is—

(a)        of a class that is either—

(i)         approved by the Court for the purposes of the proceeding; or

(ii)        specified in subclause (1)(b); and

(b)        specific to the conduct of the proceeding; and

(c)        necessary for the conduct of the proceeding; and

(d)        reasonable in amount.

(3)        A Judge or Master may direct a Registrar to exercise the powers of

the Court under this rule.] ”

The only case where counsel have been able to identify the authorisation of a “lump sum” for disbursements is Aotearoa International Ltd v Paper Reclaim Ltd 30/8/04, Nicholson J, HC Auckland CP117/01 and in particular at para 74 of that judgment where the Judge said:

“[74]     Mr  Judd  challenged the  claim of  $2,251.51 for  fax, tolls, courier and internet. In response, Mr Grant advised that the internet charge was $4.00 for a company search and that the courier costs were $233.50 paid largely for service and delivery of documents to Paper Reclaim’s solicitors and counsel. Particulars were not given of the fax and toll disbursements claimed. I allow $2,000 for the fax, tolls, courier and internet disbursement item as expenses paid for the purpose of the proceeding in terms of r 48H(1)(a). ”

That case involved quite a different situation than the present. In Aotearoa International (above) it was a case of a best estimate of actual expenses. In this case the plaintiff maintains that identifying particular disbursements is not necessary because they maintain that a 2.5 percent change bears some relationship generally to actual charges.

I am not prepared to make an order in terms of r 48H that a legitimate disbursement is Bell Gully’s 2.5 percent service charge is a legitimate basis for charging disbursements. Sub-rule (1) defines what disbursements are in relation to a proceeding. They are  “expense” payable and  “incurred for the purposes of the proceeding”. A service charge as such is not an expense payable or incurred for the purpose of a proceeding in the sense that it is not adequately or appropriately identified as such. By its very nature, a percentage fee may or may not involve actual expenses paid or incurred. Because the Rules authorise only reimbursement of expenses paid or incurred for the purpose of the proceedings, a percentage charge cannot, in my view, be justified by r 48H. Nor in my view does 48H(2) assist the plaintiff. While the disbursements that may be included in the costs award are broadly described there, they must still in my view comply with the definition of disbursement in r 48H(1)(a). The examples given in r 48H(1)(b) reinforce my view. They are illustrations of actual expenses incurred.

While I accept the submission of Bell Gully that the amount claimed here, $4,855.66 may have been exceeded by actual disbursements incurred, I am not prepared to allow a percentage service charge as appropriate.

[45]     And, in Transactor Technologies Ltd v Marketsmart International (NZ) Ltd

(No 3) (2010) 19 PRNZ 891, the Court said:

A service charge calculated on a percentage basis does not provide any means of assessing the reasonableness of the charge.

[46]     As r 14.6(1)(b) requires all costs to be reasonably incurred, this applies to disbursements even on an indemnity basis.  Applying the clear principles from the authorities noted above, the 6% automatic “internal disbursements” charge in my view is inappropriate in a costs award here and is disallowed. Instead the plaintiffs need to identify specifically what internal disbursements (if any) were paid relating to the proceeding and to have these approved by the Registrar.  Calculation of the deduction to be made from the plaintiffs’ costs claim as a result of this ruling will follow.

Costs on the costs application

[47]     There is no question that the Court has jurisdiction to make an award of costs of this kind — Parsot v Greig Developments Limited (2008) 18 PRNZ 995 at [23].

[48]     In Body Corporate Administration Ltd v Metha HC Auckland CIV 2009-404-

6656, 15 February 2013, the Court said:4

It is now well established that costs may be awarded in respect of an application for costs. An application for costs is to be treated no differently for costs purposes from an ordinary interlocutory application, so costs may be awarded according to scale or on an increased or indemnity basis as appropriate.

[49]     Here the amount charged by counsel for the plaintiffs since 6 December

2012,  representing  costs  on  work  relating  to  the  costs  application  itself,  totals

$8,900.00.  The earlier invoice dated 4 December 2012 outlining a fee of $4,600.00 also appears to deal principally with this question of costs and the drafting of a costs memorandum.   These amounts together total $13,500.00 and in my view are excessive under the circumstances here.  It is said by counsel for the defendant in his

18 April 2013 memorandum filed in this Court that the breakdown of these costs records almost 4 hours in simply discussing costs and then what is said to be 6 ½

hours for “research” and the preparation of a costs memorandum.

4 At [83].

[50]     Whilst  I accept  that  some  award  to  the  plaintiffs  for  costs  on  the  costs application itself is warranted in this case under all the circumstances prevailing, I am of the view that a total charge of $3,000.00 in place of the charges noted above totalling $13,500.00 is appropriate. A reduction from the total costs claimed of some

$10,500.00 is to be made therefore.

Conclusion

[51]     As  I  have  noted  above,  the  total  costs  claim  made  by  the  plaintiffs  is

$48,800.00.

[52]     As noted at para [50] above, from this amount is to be deducted $10,500.00 with respect to the plaintiff’s claim for costs on the costs application itself.   This leaves a balance amount of $38,300.00.   As this included the 6% internal disbursement charge which I have disallowed, the sum of $2,165.00 representing approximately 6% of this amount is also to be deducted.

[53]     That  leave  a  balance  of  indemnity costs  which  are  now  awarded  to  the plaintiffs against the defendant on this proceeding of $36,135.00.

[54]     An order to this effect is now made.

[55]     As  to  the  plaintiff ’s  claim  for  disbursements,  this  is  necessarily  to  be reconsidered in the light of matters outlined in this judgment and then I directed that such claim is to be referred to the Registrar of this Court for approval.

‘Associate Judge D.I. Gendall’