Increased costs and disbursements awarded against Commissioner
2014 case note – CIR ordered to pay increased costs to cover exceeded time allocation, witness expenses, litigation, travel and other expenses.
The Commissioner of Inland Revenue ("the Commissioner") was ordered to pay increased costs on the basis that the nature of the proceeding was such that the time required substantially exceeded the standard time allocations, and because the Commissioner's conduct was considered to have contributed unnecessarily to the time or expense of the proceeding. The Commissioner was also ordered to pay disbursements for witness expenses, litigation support services, and various travel and accommodation expenses.
Impact of decision
Rule 14.12 of the High Court Rules ("HCR") does not restrict claims for witnesses' expenses to that of expert witnesses only.
On 12 November 2013, Andrews J found for Trustpower Limited ("the disputant") in the substantive proceeding. Accordingly, the disputant was entitled to claim costs against the Commissioner (Trustpower Limited v Commissioner of Inland Revenue  NZHC 2970,  2 NZLR 502 (HC)). The disputant claims a total of $1,448,213 (comprising $1,021,631 in costs and $426,582 in disbursements). The Commissioner has accepted liability for, and has paid, a total of $639,967, comprising costs of $477,290 and disbursements of $162,677.
Increased costs pursuant to r 14.6(3)(a) of the HCR
The Commissioner accepted that increased costs are appropriate under r 14.6(3)(a) of the HCR due to the fact that the nature of the proceeding, and the steps in the proceeding, are such that the time required substantially exceeds the time allocated under band C of Schedule 3 of the HCR. However, the Commissioner contended that a smaller increase than that sought by the disputant should be allowed.
Discovery and Agreed Statements of Facts
Andrews J accepted the disputant's submission that discovery in this proceeding required a very substantial amount of work, far in excess of the seven days provided for under the scale, and accordingly considered that discovery was clearly a huge and complex task.
Andrews J considered that a realistic and pragmatic approach was required, as an award of costs without uplift would not "reflect the complexity and significance of the proceeding" (r 14.2(b)). Her Honour accordingly concluded that the reasonable time for completing discovery in this proceeding was 70 days, which results in an award of $205,800.
Counsel for the disputant submitted that preparation of the agreed statements of facts was a very involved and extensive process.
Andrews J accepted that the agreed statements of facts were prepared with the Commissioner's knowledge and involvement, that they were of value to the parties and the Court and that preparation thereof is a "step in the proceeding", which is not specifically mentioned in schedule 3 of the HCR and therefore should be allocated a time for that work.
Andrews J concluded that a reasonable time allocation for preparing agreed statements of facts is 40 days, which results in an award of $117,600.
Preparation for briefs of evidence
The disputant sought a time allocation of 39.85 days, being half of the time actually spent, minus the five days allowed under band C of Schedule 3 of the HCR.
Counsel for the Commissioner submitted that no time allocation should be given to the briefs of evidence of Dr Harker and Mr Kedian due to the fact that draft witness statements for each of them had been provided to the Adjudication Unit of Inland Revenue, essentially submitting that the briefs of evidence were duplication.
Concerning the evidence of Dr Harker and Mr Kedian, counsel for the disputant submitted that while the briefs of evidence were consistent with earlier draft statements, substantial further work was required to brief and prepare evidence to respond to the Commissioner's change in position from asserting at the adjudication stage that the disputant was committed to each of the four projects to asserting at trial that the resource consents applied for by the disputant during the feasibility process were stand-alone capital assets.
Andrews J held that there was no duplication of work and that the briefs of evidence of Dr Harker and Mr Kedian required a substantial amount of work, as well as those of Mr Campbell and Mr Palmer, which were necessary for the disputant to meet its burden of proof.
Andrews J accordingly made the following time allocations: Dr Harker, 7 days; Mr Kedian, 7 days; Mr Campbell, 7 days; Mr Palmer, 5 days; and Mr Hagen, 3 days. This is a total of 29 days, which amounts to $85,260.
Preparation for trial
The disputant sought an order for costs for 53.1 days, being half the time actually spent, less the five days allocated under the scale.
Counsel for the disputant submitted that significant work was required in terms of preparing for trial. She further submitted that the number of documents included in the common bundle, as well as the need to deal with issues raised by the Commissioner's expert witnesses in their briefs of evidence, impacted on the time spent preparing for trial. Counsel for the Commissioner submitted that 20 days was a reasonable allocation for trial preparation.
Andrews J considered that the determinations required in this proceeding were fact-specific and accordingly found, without concluding that the reasonable time allocation for preparation for trial should be arrived at as if there were four trials, that preparation in this case was extensive.
Andrews J held that the nature of the proceeding was such that the time required by the disputant substantially exceeded the time allocated under band C and accordingly awarded 30 days, which amounts to $88,200.
Increased costs pursuant to r 14.6(3)(b) of the HCR
In addition to an order pursuant to r 14.6(3)(a) of the HCR, the disputant also sought an order for increased costs on the grounds that the Commissioner contributed unnecessarily to the time and expense of the proceeding by:
- taking an overly expansive and undiscriminating approach to the factual matters she chose to put in dispute and failing to accept incontrovertible facts;
- intending to call evidence as to the resource management consenting processes when the disputant, observing that the issue is fact-specific, informed the Commissioner that an expert witness was unlikely to add any value; and
- raising novel and un-foreshadowed arguments in the evidence of Mr Hucklesby, which made it necessary for the disputant to call evidence from Mr Freeman, the senior audit partner at PricewaterhouseCoopers ("PwC").
Even though counsel for the Commissioner rejected all of counsel for the disputant's criticisms, Andrews J accepted that the Commissioner's approach warranted an additional uplift. Andrews J held that determination of the central issue as to whether the expenditure on the resource consents was capital or revenue, did not require the Commissioner to put the disputant to proof on the majority of the allegations in the disputant's Statement of Claim. Andrews J further considered that the breadth and extent of discovery was considerably greater than necessary (so too was the common bundle) and accordingly awarded an uplift of 10 per cent on discovery, preparing the agreed statements of facts and briefs of evidence, as well as preparing for trial.
Disbursements pursuant to r 14.12 of the HCR
Mr Freeman gave expert evidence as an auditor and accountant. Counsel for the Commissioner submitted that the claim for reimbursement of his fees should be disallowed because:
- Mr Freeman was not required to prepare a brief of evidence; and
- Mr Freeman's evidence was unnecessary due to the fact that Mr Hagen was also called by the disputant to give expert accounting evidence.
Andrews J held that Mr Freeman's evidence was reasonably necessary as it was her view that Mr Freeman's evidence focused on establishing the independence of two opinions provided to the disputant concerning issues raised by the Commissioner. This put in issue whether the disputant's accounting treatment of obtaining resource consents was correct. Andrews J allowed the expenses of $48,690.
Mr Kedian, formerly General Manager, Generation, of the disputant, gave extensive factual evidence as to the disputant's business, the feasibility analysis process and the four projects.
Counsel for the Commissioner submitted because r 14.12 of the HCR only allows for expert witnesses' fees to be claimed as a disbursement, Mr Kedian's fees could not be allowed because he was a witness of fact.
Andrews J, referring to Harper v Beamish HC Napier CIV-2009-441-636, 27 March 2012 and Body Corporate 396711 v Sentinel Management Ltd  NZHC 2556, held that there was nothing express or implicit in r 14.12 which allows recovery of expert witnesses' fees only. Her Honour also rejected counsel for the Commissioner's submission that Mr Kedian "could readily have been subpoenaed". His evidence was extensive and the Court, as well as the parties, was substantially assisted by it.
Litigation Support services
The disputant has claimed recovery of $112,268, which counsel for the Commissioner submitted could not be claimed as a disbursement because:
- if the work had been done internally, a disbursement could not have been claimed; and
- charges relating to extracting documents for listing (which cannot be claimed as a disbursement) are different from the process of listing them.
Andrews J concluded that the engagement of PwC was in relation to work that was distinct from that undertaken by the disputant. Her Honour was accordingly satisfied that the disbursement was for the purposes of the proceeding, specific to and reasonably necessary for the conduct of the proceeding, and reasonable in amount. Bearing in mind the award that had already been made, Andrews J concluded that the Commissioner should pay $56,134 of PwC's litigation support.
Counsel's travel and accommodation expenses
Andrews J held that Mr Harley's travel and accommodation expenses were incurred for the purposes of the proceeding, and were specific to, and reasonably necessary for, the conduct of the proceeding. The expenses were also reasonable in amount and her Honour accordingly allowed the disbursement of $35,307.
High Court Rules