Todd Pohokura Limited v Shell Exploration NZ Limited HC Wellington CIV-2006-485-1600
[2011] NZHC 758
•1 July 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2006-485-1600
BETWEEN TODD POHOKURA LIMITED Plaintiff
ANDSHELL EXPLORATION NZ LIMITED First Defendant
ANDOMV NEW ZEALAND LIMITED Second Defendant
Judgment: 1 July 2011
JUDGMENT OF DOBSON J (Costs)
[1] The principal judgment in these proceedings was reissued on 13 July 2010, following an earlier issue to counsel affording an opportunity to comment on references to commercially sensitive matters. The judgment granted the parties six months in which to pursue informal resolution of costs. The parties took that time, and including the Christmas vacation this meant that memoranda on behalf of Shell and OMV seeking costs were only filed on 11 and 14 February 2011 respectively. A memorandum on behalf of Todd was filed on 15 March 2011, and responses to it on behalf of Shell and OMV were filed on 29 April and 29 March 2011 respectively.
[2] By the time the memoranda in reply were received, I had indicated my intention to deal with the issue on the papers. Although the issues raised are important, they could not claim priority, with the judgment having little impact on the on-going conduct of the parties pending resolution of an appeal to the Court of Appeal. I understand that appeal is set down for two weeks in August 2011. I have now had the opportunity to thoroughly consider the entitlement of the successful
defendants to costs and disbursements.
TODD POHOKURA LIMITED V SHELL EXPLORATION NZ LIMITED HC WN CIV-2006-485-1600 1 July
2011
Scale costs
[3] Both Shell and OMV seek costs on a 3C basis, plus a 70 per cent uplift from the amount calculated by reference to that scale. Todd opposes both the bases on which Shell and OMV have calculated the scale entitlement, and any uplift. On the scale costs, Todd disputed the number of days included by Shell and OMV in their calculation as to the length of hearing, also the appropriateness of an allowance for third counsel for each defendant, and challenged the appropriateness of allocating costs to Shell on a 3C basis for the interlocutory step of providing answers to interrogatories.
[4] Sitting hours were managed flexibly to accommodate contingencies as they arose, both for the parties and the Court. The Court sat for a half day, by prior arrangement, on Saturday, 27 March and on other occasions started early and/or sat late, as well as finishing early, to varying degrees. Shell and OMV have claimed for hearing time of 41.5 days whereas Todd argues that the occasions on which the Court sat for less than full days ought to reduce the hearing time to 39.5 days.
[5] Having reflected on the pattern of sitting hours and the relatively short notice at which the Court sometimes sat for less than full days, I am satisfied that certifying for 41.5 days is appropriate. Where the Court sat sometimes for less than a full day, the nature of on-going commitments for counsel were often virtually the equivalent of being in court.
[6] My view is similar on the appropriateness of an allowance for third counsel. Todd’s objection is that there were material periods during the hearing when either or both of Shell and OMV were not in fact represented by three counsel in Court. Appearances were recorded for six counsel each for Todd and Shell, and five for OMV. I am satisfied that work as junior counsel would have been continuing on all occasions when Shell and OMV were not represented by three counsel in Court. Indeed, given the revolving nature of the appearances by third counsel, I can be satisfied that Shell and OMV were deploying their legal teams to best advantage and Todd’s objection does not warrant any reduction from the standard certification for a third counsel.
[7] Todd also pursued a particular objection to the claim on behalf of Shell for a band C time allowance for the answering of interrogatories. The allowance is four days and Todd argued that Shell’s task in this aspect of the case was relatively uncomplicated and uncontroversial, and that this aspect ought to be classified as category 2B.
[8] I do not consider that distinguishing that interlocutory step for costs categorisation purposes is warranted. It may be that in this regard Shell is more fully compensated than it is for other steps in the proceedings, but given the scale of the proceedings, the lesser award proposed by Todd is not appropriate.
[9] Accordingly, I certify for the extent of scale costs on a 3C basis as sought by each of Shell and OMV.
Increased costs
[10] There is larger scope for debate on Shell and OMV’s claims for an award of increased costs, beyond the entitlement for 3C scale costs. Both Shell and OMV pursue this claim under r 14.6(3)(a) and (b) of the High Court Rules. Those provisions give the Court a discretion to order increased costs if the nature of the proceeding or a step in it is such that the time required by the parties claiming costs would substantially exceed the time allocated under band C, and where the party opposing costs has contributed unnecessarily to the time or expense of the proceedings or steps in it.
[11] As to the first of these grounds, Shell and OMV used the extent of work required to provide discovery as an example of where the time actually required very substantially exceeded the time allocated for that step under the 3C scale. The time allocated under the scale is six days, together with three days for producing documents for inspection and then six days for the inspecting of other parties’ documents. Shell’s Memorandum states that the time spent reviewing and listing its documents took over 100 days. It projects that the costs actually incurred could be approximately $230-$250,000, whereas the 3C scale allows $14,220. A similar contrast for the task of initial inspection of Todd’s documents suggests costs of some
$95,000 compared with the allowance under the scale of $14,220. OMV’s submission was less precise in making such a comparison, simply observing that each party took over three months to produce their original affidavits of documents.
[12] In terms of the scale of the proceedings, OMV submitted that the events forming the basis of Todd’s claims spanned seven years from 2002 to 2009, relating to the management of what OMV characterised as now being New Zealand’s largest gas field. The proceeding itself ran for almost four years, Todd amended its Statement of Claim three times, with the last Statement of Claim containing 11 causes of action involving several discrete areas of law. The competition law claims required complex market and economic evidence, and (depending on variables) the damages claimed by Todd may have amounted to sums up to $1 billion. The trial had been scheduled for six weeks and ultimately was heard over some nine weeks.
[13] In response to these points, Todd submits that the costs model in the scale already makes appropriate allowance, for instance by the multiplier of the number of days in Court reflected in the extent of time allowed for preparation. Todd submitted that 80 per cent of the scale costs sought by Shell and OMV are calculated relative to the actual length of the court hearing.
[14] Given the breadth and complexity of the issues argued by Todd, there is no way that the allowance of 83 days for preparation of each defendant’s case constitutes anywhere near a reasonable contribution to the extent of work that would inevitably have been involved. I am satisfied that a reasonably significant uplift is warranted under r 14.6(3)(a). The extent of it will take into account the manner in which I deal with claims for disbursements that reflect outsourcing components of the discovery obligations, which might conventionally be covered by the costs allowance.
[15] It is also appropriate to reflect on Shell and OMV’s claims for a discrete uplift by virtue of Todd’s claimed conduct which contributed unnecessarily to the time and expense of the proceedings. There is no doubt that this was the litigious equivalent of trench warfare: well-resourced combatants taking every point and not skimping on any initiatives that might provide tactical or substantive advantage.
[16] At least as between Todd and Shell, this approach was reflected in relatively strong, if not combative, personalities of those most closely involved. As on previous occasions, it is neither necessary nor desirable to attribute responsibility to one side or the other for the ―no holds barred‖ approach that has afflicted the litigation. Nor is it appropriate to take into account criticisms by Shell and OMV that reflect adversely on Todd’s motives for the range of arguments pursued, and the manner in which that was done.
[17] There is, however, a range of factors about the predictable consequences of the way in which aspects of Todd’s case were pursued, that can relevantly be assessed under r 14.6(3)(b). First, Todd opposed Shell and OMV’s initiatives to have the contractual interpretation issue resolved as a separate one prior to trial. In the outcome, that would have resolved many of the issues that, as the whole case was advanced at once in relation to eleven causes of action, had to be addressed on terms that were contingent on the Court’s primary finding on the interpretation of the contract.
[18] Secondly, Shell and OMV justifiably criticise Todd’s refusals to provide complete discovery. Pre-trial arguments about it continued during the early stages of the trial. The forms of less redacted Todd documents on which its executives were finally cross-examined were highly material to the factual findings in the case. Given the clear materiality of the portions Todd sought to redact, there was no justification for withholding them.
[19] In circumstances where any damages would depend on Todd establishing that it would have sold more gas, cross-examination on those documents influenced the findings that, at the relevant times, Todd was in fact more likely to have been holding back gas across its portfolio.
[20] In the present context, I put to one side the finding that the logical commercial conduct for a party in Todd’s position would have been to enter into a gas balancing agreement. However, as Shell submits, the effect of numerous of the findings in the judgment is that Todd had a form of remedy in its own hands in that it
could have obtained more gas on terms that were without prejudice to the outcome of its proceedings.
[21] Given, in particular, the importance of the interpretation of the contract contrary to Todd’s view of it, and these other matters, my review of the manner in which Todd pursued its claims leads to a conclusion that this did add materially to the cost of the proceedings, in ways that were unnecessary.
[22] I emphasise that this finding is not influenced by the criticisms of Todd’s motives for running the proceedings in the way it did, as advanced in the Memoranda for Shell and OMV. In the end, I consider that an uplift from 3C scale is warranted by 30 per cent for the additional scope of the work, and a further
10 per cent on account of the mode of conduct of Todd’s case unnecessarily contributing to the expense of it.
[23] I acknowledge that a somewhat larger uplift for the scope of the work would have been warranted, but for the fact that I intend allowing as disbursements some outsourcing of the costs of the extensive discovery process. That approach is of greater advantage to OMV than it is to Shell but, from an overall perspective, I am satisfied that that outcome is appropriate.
Unresolved issue on interlocutory costs
[24] The overall effect of various costs orders made at interlocutory stages remains unresolved as between Todd and Shell. Although the arithmetic is complicated somewhat by the offsetting effects of judgments in favour of both parties, the essential issue is whether a costs order made in favour of Todd by MacKenzie J on Todd’s successful opposition to one of Shell’s earlier applications for further discovery, remains in force.
[25] Shell appealed MacKenzie J’s decision and the gravamen of its concerns were rationalised in the course of the hearing before the Court of Appeal. From Todd’s perspective, it consented to a further discovery order because Shell’s
―hopelessly broad and ill-defined‖ application was sensibly confined, implicitly
because of the influence of questions from the Court of Appeal Judges.
[26] From Shell’s perspective, the orders it ultimately obtained, albeit by consent, vindicated its decision to appeal MacKenzie J’s ruling. The Court of Appeal disposed of the matter orally on the day, 21 April 2008, with the only reference to costs apparently being that ―costs will lie where they fall‖.
[27] Thereafter, Todd and Shell were unable to agree as to whether the Court of Appeal order in respect of costs was intended to relate only to the appeal, or to also have the effect of cancelling the costs order made in the High Court in favour of Todd.
[28] In May 2009, Shell sought clarification on the point from the Court of Appeal. In a Minute for the Court issued by Justice Baragwanath on 25 May 2009, he observed that the Court was functus officio and that any application to modify the terms of the oral judgment would have to be made formally. He then offered his provisional reaction to the issue Shell had raised, in the following terms:
(i) To the extent that the decision of the High Court was challenged this
Court became seized of the matter;
(ii) Costs we ordered to lie where they fell;
and therefore there can be no outstanding issue of costs in either Court.
[29] Shell has interpreted that observation as confirming the cancellation of the costs order made by the High Court. For its part, Todd treats this as an entirely inadequate basis on which to attribute to the Court of Appeal any positive reversal of the order made by MacKenzie J. It argues that the Court of Appeal Minute should be treated as dealing only with costs in that court.
[30] The effect of Baragwanath J’s Minute is to acknowledge that the Court of Appeal had become seized of the matter, and had made a decision that costs in relation to the matter should lie where they fell. The final observation acknowledges that the Court had turned its mind to costs in both courts, not just in the Court of Appeal. It must follow from that that the order made back in April 2008 that costs
were to lie where they fell is to be treated as applying to both the appeal in the Court of Appeal, and to the altered effect of the High Court ruling.
[31] Accordingly, the process of offsetting earlier interlocutory costs orders in favour of both parties should ignore the obligation on Shell arising from MacKenzie J’s decision because the Court of Appeal order has cancelled its effect.
Disbursements
[32] It is convenient to deal with the extent to which Shell and OMV’s claims for disbursements have been disputed by Todd, in the sequence those disputed aspects of the claimed disbursements were dealt with in Todd’s Memorandum of 15 March
2011.
[33] In r 14.12, disbursements are defined to mean: 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. [34]
The rule then gives an inclusive list of categories recognised
as
disbursements and in r 14.12(2) specifies:
14.12 Disbursements
…
(2) A disbursement must, if claimed and verified, be included in the costs awarded for a proceeding to the extent that it is—
(a) of a class that is either—
(i) approved by the court for the purposes of the proceeding; or
(ii) specified in paragraph (b) of subclause (1); and
(b) specific to the conduct of the proceeding; and
(c) reasonably necessary for the conduct of the proceeding; and
(d) reasonable in amount.
[35] The Court of Appeal has considered the application of what is now r 14.12 (previously r 48H) in Air New Zealand Ltd v Commerce Commission, where the Court observed:1
To our minds, r 48H is clear. There is no reference in it to the losing parties being required to make only a contribution, whether two-thirds or otherwise. All disbursements are treated the same under r 48H, and full recovery is in theory possible. The protection against unreasonable claims for disbursements is set out in subcl (2). But provided those criteria are met, the winning party is prima facie entitled to recover the actual expenses. There is no suggestion in the rules that the principle contained in r 47(d) has any application outside its area of legal costs recovery.
Fees for experts
[36] The first category disputed by Todd was certain of the fees claimed by Shell and OMV for experts retained in relation to the case. Whilst Todd accepted fees Shell and OMV had paid to Messrs Hunt, Derman, Barker and Bamberger, Todd took issue with the fees claimed in relation to Messrs Bansal, Sundakov, McBride, Nicholson and Hausman.
Mr Bansal
[37] During his contribution to the preparation of Shell’s case, and when giving evidence, Mr Bansal continued to be employed by another Shell entity. His employing company has charged the Shell defendant company for costs incurred in Mr Bansal’s travel and accommodation, and a charge, which appears to have been levied at the rate of US$450 per hour, for all the time he spent preparing for, and giving, evidence. It is not clear to what extent, if any, Mr Bansal assisted more generally in preparation of Shell’s defence. Todd accepts that the out-of-pocket expenses, incurred in relation to Mr Bansal’s travel and accommodation, are properly claimed as a disbursement. It disputes that any charge for Mr Bansal’s time could be recoverable as a disbursement. He was called as a factual witness, and was cross- examined extensively about his responsibility for the conduct of Shell’s dealings
with Todd in relation to Pohokura, through a part of the relevant period in question.
1 Air New Zealand Ltd v Commerce Commission [2007] NZCA 27, [2007] 2 NZLR 494 at [48].
[38] I am satisfied that the charges for Mr Bansal’s time met by the New Zealand Shell entity paying an overseas Shell company are not recoverable as a disbursement for his contribution as a factual witness. His contribution was, in the overall sense, internal to Shell, reflecting the personal responsibilities Mr Bansal had at the relevant time for directing this aspect of Shell’s New Zealand operations.
Mr Sundakov
[39] Next, Todd objects to meeting the costs of Mr Sundakov, a New Zealand-based economist who was engaged jointly by Shell and OMV to provide an early evaluation of Todd’s competition law claims. Todd argued that the
―high level‖ domestic market analysis provided by Mr Sundakov could reasonably be expected to have been replicated by independent analyses carried out by other experts, the cost of whom is accepted by Todd. In one sense, at least, as the complexity of the competition law aspect of Todd’s case increased, Shell and OMV elected to respond by retaining higher levels of expertise from international economists. Within the confines of this litigation, I am satisfied that that is an election, the cost of which should be borne by Shell and OMV. Accordingly, the fees paid to Mr Sundakov are not recoverable as a disbursement.
Mr McBride
[40] Todd also objects to fees paid to Mr Douglas McBride who was retained principally to address good oil field practice. This was to respond to matters raised by witnesses proposed for Todd, whose briefs included opinions on this matter. Ultimately, following a ruling that the evidence from Todd’s proposed witnesses would be inadmissible, the need for Shell and OMV to call Mr McBride also fell away.
[41] Todd does not rely simply on the fact that Mr McBride was not called. It has accepted amounts paid to Mr Derman as appropriate disbursements, even although he was eventually not called in similar circumstances.
[42] Rather, Todd argues that the expertise for which Mr McBride was retained was in technical areas that were unnecessary to meet Todd’s case. That is denied on behalf of Shell and OMV. Their view is that the matters on which an opinion was sought from Mr McBride were necessary to meet the case they reasonably perceived Todd to be running. I accept Shell and OMV’s view in relation to this potential witness and rule that the fees paid to Mr McBride are recoverable.
Mr Nicholson
[43] Todd similarly challenges the recoverability of fees paid to Mr Paul Nicholson whose opinion Shell and OMV sought on the nature and function of gas balancing agreements. Mr Nicholson has expertise on that topic, and has apparently published writings on it. When retained by Shell and OMV, they perceived Todd’s case to involve contentions on how gas balancing agreements between venturers should work, requiring an independent expert to counter the views that were anticipated. At a later stage of preparation of the case, it became apparent that detailed argument that had been anticipated as likely on the point would not be required. When that point was reached, Shell and OMV had incurred just short of
$13,000 in retaining Mr Nicholson.
[44] Reflecting on the strength with which conflicting views were held by the parties on the desirable content of gas balancing agreements, I am satisfied that Shell and OMV could reasonably have perceived that retention of an expert, such as Mr Nicholson, was appropriate. Accordingly, I find this disbursement was specific to the conduct of the proceeding and reasonably necessary for the conduct of Shell and OMV’s defence. Accordingly, the fees paid to Mr Nicholson are recoverable as a disbursement.
Professor Hausman
[45] The last of the experts retained for Shell and OMV whose fees and out-of-pocket expenses are contested by Todd is Professor Gerry Hausman. He and Dr Bamberger comprised the two expert economists who participated on behalf of Shell and OMV in a hot tub form of provision of evidence, in response to the three
expert economists called by Todd. The costs paid to Mr Hausman for which Shell and OMV seek reimbursement amount to $935,812.85. Todd’s objection is that these fees are neither reasonable nor proportionate in the circumstances of the proceedings, and Todd proposes that only 50 per cent of Professor Hausman’s fees should be recoverable as disbursements. Todd also submits that the econometric analysis that was distinctive to Professor Hausman’s evidence was flawed, not materially relied on at trial and not materially relied on in the Court’s judgment. It also argues that the extent of fees and disbursements compare substantially adversely with those paid to the other international economist, Dr Bamberger, whose fees and expenses are not challenged by Todd.
[46] It is somewhat invidious to assess whether the amounts paid by Shell and OMV for both these economists represented ―reasonable value‖. On the approach of the Court of Appeal in Air New Zealand v Commerce Commission,2 full recovery is theoretically possible, subject to the Court being satisfied that it is reasonable in amount.
[47] A direct comparison of the extent of work done by Dr Bamberger and Professor Hausman is not possible. OMV has exhibited invoices from Dr Bamberger which suggest that he charged an hourly rate of US$675 (a local comparison is Mr Sundakov’s invoices suggesting charges at NZ$450 per hour). No invoices were provided by Shell from Greylock McKinnon Associates, the economic consultancy providing Professor Hausman’s services. The list of monthly invoices for his services suggest work in the last quarter of 2009 charged at approximately $505,000, and work between January and April 2010 charged at some $429,000. It may be that Professor Hausman spent materially more time on the assignment than Dr Bamberger, but it is also likely that he charged for his services at a materially higher rate than Dr Bamberger.
[48] In terms of relative pre-eminence in their fields, and seniority, Professor Hausman called for Shell, and Professor Sweeney called for Todd, seem to be entitled to a higher level of recognition by their peers and those knowledgeable in their discipline, than the remaining three economists who gave evidence. The
Court’s judgment eschewed any ranking in weighing their competing views. As we
observed:3
All of the economists were eminently qualified to express the opinions they did. Whilst other economists and commentators on their discipline might rank the relative level of pre eminence some of them undoubtedly enjoy in their respective fields, the views we have come to do not depend on attributing weight to the opinion any of them offered, by reference to reputation. Rather, we have formed views on the various economic issues debated, as best we can, solely on their merits.
[49] Shell’s reply to Todd’s arguments on this expense included the point that Todd has not disclosed the costs it incurred with Professor Sweeney, to enable a comparison between the costs of the two most senior economists. I am implicitly invited to infer from that that Professor Sweeney’s charges are likely to be comparable, so that Todd has no relevant comparison to support its argument that Professor Hausman’s charges are not reasonable in amount. There is no suggestion that Professor Hausman charged for this assignment on any other than his usual terms, so the issue is whether retaining him was reasonable.
[50] This was extremely thoroughly contested litigation. It would be more difficult in this than in most commercial litigation to claim that an opponent had resorted to reliance on a more highly skilled expert than was a proportionate response to the case being faced. In the end, a response by Shell and OMV to the thoroughness of Todd’s case did justify Shell retaining the economist it considered to be the best for the assignment involved. Had Todd’s Commerce Act claims succeeded, I would have expected them to seek full reimbursement for Professor Sweeney’s expenses.
[51] Accordingly, I allow the whole of Professor Hausman’s fees and expenses as
a disbursement.
Overseas travel and accommodation costs
[52] Both Shell and OMV claim relatively substantial amounts for their own personnel plus members of the respective legal teams travelling internationally for
the purposes of interviewing experts and briefing evidence from them. In Shell’s
case, $50,924.78 is claimed for:
Mr Chris Street, an in-house Shell lawyer;
Mr Murray Jackson, a major factual witness for Shell in the proceedings; Mr Taylor of counsel; and
Mr Neil Anderson of Chapman Tripp who was involved in preparation of
Shell’s defence on the competition law aspects of the proceedings, by virtue of an on-going retainer in that area for Shell.
[53] OMV has claimed on a similar basis for Mr Stephens of Simpson Grierson and Mr Burt, a principal factual witness for OMV, to travel to New York for the same reason, a total of $29,232.
[54] Todd opposes liability for the full amount of these disbursements, contending that it should only be liable to make a ―fair and reasonable contribution‖. That phrase is taken from the costs judgment of Gendall J in Commerce Commission v Ophthalmological Society of New Zealand Inc.4 However, as submitted for OMV in its Memorandum in Reply, that observation of Gendall J relates to the overall purpose of the costs regime, and is not authority for apportioning the extent of particular categories of disbursement. The Court of Appeal has made clear in Air New Zealand v Commerce Commission that full reimbursement is appropriate for
disbursements reasonably incurred.
[55] The rationale offered for both Shell and OMV is that it was cost effective to go to these overseas experts, rather than to pay to have them come to New Zealand for briefing purposes. In addition, in some cases, the extent of commitments of the experts was such that the additional time commitment of travelling may have
precluded using them at all.
4 Commerce Commission v Ophthalmological Society of New Zealand Inc HC Wellington CIV-
1997-485-34, 30 June 2004 at [11].
[56] In the case of Shell, there could be an argument that it was not strictly necessary for its in-house counsel, Mr Street, and the executive most familiar with the relevant facts, Mr Jackson, to both attend on the experts. However, given the scale of issues arising in the case and the need for continuity of oversight, I am not prepared to disallow the costs for one of those individuals as going beyond what would be reasonable.
[57] Accordingly, the disbursements claimed by both Shell and OMV for overseas travel and accommodation are approved as claimable disbursements.
Taxis and local travel charges
[58] 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.
[59] Both Todd and Shell cited the decision of Fisher J in Russell v Taxation Review Authority.5 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 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:6
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…
[60] 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.7
5 Russell v Taxation Review Authority (2000) 14 PRNZ 515.
6 At [28].
7 Mawhinney v Waitakere City Council HC Auckland CIV-1999-404-1850, 26 September 2007 at
[13].
[61] 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.
Electronic support for discovery and inspection
[62] OMV has sought recovery of invoices totalling $86,477.54 for electronic support from Streamline Litigation Support, to input electronic documents and hard copies into a database using summation software, coding of the documents and creating electronic briefcases to facilitate inspection. OMV argues that the costs are necessary and reasonable in the circumstances of a very large discovery where most of the information was in electronic form. An analogy is drawn with an allowance of some $30,000 in Commerce Commission v Ophthalmological Society of New Zealand Inc for assistance with the preparation, indexing and tabulation of
bundles of documents.8 OMV contends that the circumstances of the Streamline
expense in the present context are comparable.
[63] Todd has listed these costs with Streamline in the ―not agreed‖ category for OMV, but has not advanced any particular reasons why the claimed disbursements should not be allowed. Presumably, Todd characterises this cost as a contemporary form of office overhead which, on the approach adopted by Fisher J in Russell, a party to litigation ought to expect its solicitors to absorb within their office overheads.
[64] This point is one of some general interest. The cost of complying with discovery obligations in complex commercial cases, and then efficiently keeping
8 Commerce Commission v Ophthalmological Society of New Zealand Inc HC Wellington CIV-
1997-485-34, 30 June 2004.
track of discovered and inspected documents through subsequent stages of the litigation, is a formidable challenge. Disproportionate costs for this aspect of litigation have been identified as discouraging formal, principled resolution of genuine disputes that involve burdensome volumes of documentary records.
[65] Rules on the scope and manner of completing discovery need to keep pace with the form in which records are kept. Innovation in that regard ought to be encouraged, and can justify reimbursement of disbursements reasonably incurred in such attempts. In other contexts, it may be necessary for a claimant to establish that the extent of such contractual costs represented an efficient solution in terms of cost, and caution is required in not giving credit twice, under both the costs allowance and recognition of such outsourcing costs. Here, OMV’s predicament satisfies me on those concerns.
[66] Claiming for such a disbursement that reflects outsourcing parts of a very substantial discovery task, and streamlining inspection and subsequent document management through the litigation, should reasonably be offset against what might otherwise be a claim in the fees component of a costs claim, for increased allowance for an unusually large discovery and inspection task. I have anticipated that in this case, and having done so consider that the disbursement for electronic discovery support is justified as having been specific to the conduct of the proceeding, and reasonably necessary for the conduct of OMV’s defence. The claimed disbursement is accordingly allowed.
Legal temps assisting with initial discovery
[67] Shell’s solicitors incurred charges of some $20,600 plus GST with Hughes Castell for temporary legal assistance, retained during April to June 2007, in completing the initial discovery for the proceedings on Shell’s behalf. Outsourcing of part of that substantial task is justified on account of its size, and the requirement for timely completion. In many instances of litigation on a smaller scale, this type of expense would be treated as covered by the fee component of a costs award. However, the scale of the task in the present proceedings, and the approach I have considered appropriate in relation to OMV’s alternative mode of tackling some
aspects of the discovery task, satisfy me that these amounts are appropriately recognised as a disbursement for Shell. As with OMV, the allowance in this regard has had an impact on my assessment of the entitlement to increased costs in relation to the discovery stage of the proceedings.
On-line legal research fees
[68] The schedule of Todd’s objections headed ―Shell – Not Agreed‖ includes 11 items relating to searches or external library, or acquisition of journals that total the sum of $724.67 addressed by Shell under this heading.
[69] There is similar objection to a sum of $776.25 claimed by OMV in relation to searching and obtaining cases from Westlaw and LexisNexis UK where the requisite information is said not to have been available locally.
[70] Todd submits that practitioners are expected to absorb the cost of legal research into the fee portion of their bill, citing Fisher J’s decision in Russell. On its own terms, that approach is subject to exceptions. However, given the scale of resources the substantial firms acting for Shell and OMV were committing, and no doubt charging for, when they incurred these relatively modest disbursements for research other than from within their own sources, they were costs of a type that would ordinarily be absorbed in office overheads. Accordingly, those items are not allowed as disbursements.
Photocopying expenses
[71] Todd’s lists of disbursements agreed and not agreed in respect of Shell specifies that none of the photocopying expenses claimed by Shell are agreed, and five items all described as ―external photocopying‖ totalling $1,640.57 are not agreed. Todd has submitted that photocopying is only recoverable to the extent that it was required by the High Court Rules or a direction of this Court, or if it can be proven to be necessary and specific to the litigation. It criticises Shell for failing to provide any reasonable breakdown of the various purposes for each of the expenses incurred.
[72] So far as OMV’s photocopying claim is concerned, Todd has agreed on the recoverability of eight invoices which appear to be all such charges claimed on behalf of OMV.
[73] Shell’s Memorandum in response did not respond to the challenge to particularise the connection between the proceedings and the photocopying charges. I am left to infer that, in a case of this scale, that extent of photocopying was necessary for the proceedings. Relative to the cost of one copy of the common bundle at some $7,600, I am satisfied that photocopying expenses of not less than
$1,200 plus GST would have been incurred by Shell’s advisers which were necessary in direct connection with these proceedings. That is the extent I allow for external photocopying in relation to the five items in the ―Shell Not Agreed‖ schedule to Todd’s memorandum.
Other items
[74] Of the remaining items in that list of disbursements, I allow ―Adjustable Shelving Services‖ ($350 plus GST) but otherwise disallow items that I have not specifically addressed, ie the December 2009 charge for stationery – CDs of $27.63 and the November 2006 charge for accommodation/meals of $621.88.
Summary
[75] I uphold Shell and OMV’s calculation of the extent of costs on a scale 3C
basis. I order increased costs of 40 per cent of that amount.
[76] As to Shell and OMV’s claims for disbursements, they are allowed except to
the extent that Todd’s objections to them are upheld in the following respects:
the time element of charges for Mr Bansal;
fees paid to Mr Sundakov;
on-line research fees (Shell $724.67; OMV $776.25);
Shell’s claim of $2,914.41 for taxis and local travel charges;
Shell’s claims for external photocopying is limited to $1,200 plus GST;
stationery/CDs claimed by Shell - $27.63;
Shell’s claim for accommodation and meals from November 2006 of
$621.88.
[77] Shell and OMV have substantially succeeded in making out their claims to costs and disbursements. I award each of them $1,200 in relation to the costs memoranda.
Dobson J
Solicitors:
Russell McVeagh, Wellington for the plaintiff
Minter Ellison Rudd Watts, Wellington for the first defendant
Simpson Grierson, Wellington for the second defendant
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