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06 Jul 2017
Appeal Status
Not appealed

High Court costs - accountancy fees were not properly claimable as a disbursement

2017 case note - Court allowed the plaintiff's disbursements as claimed save for the plaintiff's accountancy fees - change of costs' classification.

Patty Tzu Chou Lin v Commissioner of Inland Revenue [2017] NZHC 1548


On 12 May 2017 the High Court ("Court") gave judgment for the plaintiff and found that the Commissioner of Inland Revenue's ("the Commissioner") assessments and default assessments in respect of the plaintiff's income tax were incorrect. This judgment is currently under appeal.

The plaintiff subsequently sought costs on a category 3 basis in accordance with the High Court Rules 2016. The Commissioner disagreed with the calculation and allocation of costs.

The Court awarded the plaintiff costs on a category 3B basis, save that band C would be applied to the preparation of briefs and preparation for hearing. The Court also allowed the plaintiff's disbursements as claimed save for the plaintiff's accountancy fees which the Court said were not properly claimable as a disbursement.


Accountancy fees cannot be claimed as a disbursement by a successful party in a proceeding unless it can be shown that they are specific to the conduct of the proceeding, reasonably necessary for the conduct of the proceedings and reasonable in amount.


The plaintiff sought category 3 costs against the Commissioner of $92,070 plus disbursements of $24,374.30.

The Court determined the issue of costs on the papers.


Category 2 or category 3?

On 29 February 2016 the parties filed a joint memorandum in advance of the first case management conference advising that the proceeding should be classified as a category 2 proceeding for costs purposes.

On 3 March 2016 the Court, satisfied with the contents of the joint memorandum, issued a Minute but did not record an allocation of the costs' category. On this basis, the plaintiff said that no costs category had ever been assigned.

The plaintiff submitted that the Court could appropriately categorise the proceeding as a category 3 (the current daily rate for Category 3 proceedings is $3,300 and $2,230 for Category 2 proceedings) as the view of the parties in the joint memorandum was irrelevant.

The plaintiff said that the proceeding should be classified as category 3 because of the complexities involved.

Furthermore, even if the parties' previous view in classifying the proceeding as category 3 was relevant, the plaintiff said that the parties understated the appropriate costs category and that the Court was free to allocate the proceeding an appropriate category at this stage.

The Commissioner responded that any change to the classification of a proceeding should be made at the point when it is apparent that the existing classification is not appropriate. In this case the change was raised for the first time in the plaintiff's costs submissions (post judgment). The Court agreed that the plaintiff was effectively requesting a change of costs' classification.

The main issue was whether "special reasons" existed to justify post hearing re-categorisation of costs from category 2 to category 3.

The Commissioner did not disagree with the plaintiff's assessment of the factors for why category 3 would be appropriate but contended that was nothing to justify a change which would amount to a "special reason" (Rule 14.3 High Court Rules 2016 and Body Corporate No 189855 v North Shore City Council (Costs) HC Auckland CIV-2005-404-5561, 2 October 2008 and J L Tindall & Ors v Far North District Council (unreported HC AK CIV 2003-488-000135 25 May 2005))

The Court said that one of the fundamental principles applying to determination of costs is that the award should reflect the complexity and significance of the proceeding.

In the usual course, and particularly in light of policy considerations, the Court said that it is unlikely that special reasons would be found where there is only a change of opinion regarding the adequacy of the initial categorisation.

However, in the circumstances of this case, the Court held that the way in which the proceeding developed does amount to special reasons and therefore category 3 would be appropriate.

Increased time bands

The plaintiff sought an increased time band from B to C in respect of preparation of briefs, preparation for hearing and supplementary submissions.

The Commissioner opposed the increase, noting there was no factual evidence at the hearing and, given the only evidence was expert evidence, the Commissioner did not accept that the plaintiff's counsel was required to undertake significant attendances in preparing the brief. Rather, the Commissioner submitted that minimal input would have been required having also pointed out that the plaintiff's principal counsel was an experienced tax barrister.

The main issue was whether "a comparatively large amount of time for the particular steps is considered reasonable" in which case band C should be allocated, or whether a "normal amount of time is considered reasonable", in which case band B should be allocated (Rule 14.5(2) High Court Rules 2016).

The Court was satisfied that a comparatively large amount of time would have been required for preparation of the expert brief and for the hearing. However, the Court was not satisfied that a large amount of time would have been required for the supplementary submissions.

The Court allocated band C for the preparation of briefs and preparation for hearing only and band B for all other matters.

Disbursements: accountancy fees

The Commissioner objected to the plaintiff's claim for the accountancy fees charged by her accountant.

The plaintiff claimed these fees as a disbursement, being a necessary and reasonable expense paid by her specifically for the purposes of the proceeding (Rule 14.12 High Court Rules 2016).

The Court held that these fees do not fall under HCR 14.12 and therefore need to be approved by the Court.

The Court agreed with the Commissioner's approach that, given the plaintiff engaged counsel with specialist skill in tax law, and was represented by two counsel at the hearing, with a highly qualified expert, there was no need to have the assistance of a chartered accountant.

On that basis the Court held that these fees were not properly claimable as a disbursement.


The plaintiff was awarded costs on a category 3B basis, save that band C was to be applied to the preparation of briefs and the hearing.

The plaintiff was awarded disbursements as claimed with the exception of the accountancy fees which were disallowed.

Rule 14.2, 14.3, 14.5, 14.12 High Court Rules 2016