Edel Metals Group Limited v Geier Limited [2019] NZHC 2538 (7 October 2019)

Last Updated: 1 January 2020

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2014-404-000201 [2019] NZHC 2538

BETWEEN	EDEL METALS GROUP LIMITED Plaintiff
AND	GEIER LIMITED First Defendant MICHAEL JOHN JACOMB, TRENA KATHLEEN JACOMB and PETER REGINALD RICHARDSON as trustees of the Genset Trust Second Defendants

Hearing:	(On the papers)
Judgment:	7 October 2019

COSTS JUDGMENT OF VENNING J

This judgment was delivered by me on 7 October 2019 at 2.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors: Lowndes Jordan, Auckland

Kendall Sturm & Foote, Auckland

Counsel: D McLellan QC, Auckland N W Ingram QC, Auckland

EDEL METALS GROUP LIMITED v GEIER LIMITED [2019] NZHC 2538 [7 October 2019]

[1] As a result of a Court of Appeal decision it falls to this Court to fix the quantum of costs reasonably incurred by Michael Jacomb, Trena Jacomb and Peter Richardson, as Trustees of the Genset Trust (Genset Trust) in defending a claim brought against them by Edel Metals Group Limited (EMG).

Background

[2] EMG’s claim against the Genset Trust was struck out by the High Court. Fogarty J ordered EMG and Mr Sorensen, EMG’s sole director, to pay actual costs and disbursements reasonably incurred by the Genset Trustees.¹ Fogarty J later quantified the costs payable at $952,935.29.² A joint memorandum of counsel was filed correcting that figure (on the arithmetic) to $847,031.79.

[3] Other costs were left unresolved. They included costs leading up to and including the hearing on the application to strike out and the costs incurred following the first hearing and leading up to the quantification of the indemnity costs.

[4] EMG and Mr Sorensen disputed liability for indemnity costs and appealed.

[5] In a judgment delivered on 12 November 2018 the Court of Appeal accepted Fogarty J’s findings that the circumstances were such as to engage the Court’s jurisdiction to award indemnity costs under r 14.6(4)(a) of the High Court Rules 2016.³ The proceedings were improperly commenced and continued by EMG. The Court also confirmed the Judge was correct to make an indemnity costs order against Mr Sorensen as a non-party. As EMG’s sole director Mr Sorensen was responsible for the claim being advanced. The claim had no realistic prospect of success and was ultimately abandoned.

[6] However the Court allowed the appeal on the basis that the Judge had failed to carry out a “careful review” of the costs claimed or, if he had, he did not provide a

¹ Edel Metals Group Ltd v Geier Ltd [2017] NZHC 225.

² Edel Metals Group Ltd v Geier Ltd [2017] NZHC 1833.

³ Edel Metals Group Ltd v Geier Ltd [2018] NZCA 494.

record of the process that he followed as opposed to Harrison J’s approach in Bradbury v Westpac Banking Corp.⁴

[7] The Court of Appeal doubted that taxation by the Registrar would be appropriate in this case. It also rejected the suggestion the matter be referred to the Law Society. The Court of Appeal referred the matter back to this Court to reconsider and fix the amount properly claimable as indemnity costs reasonably incurred giving appropriate reasons for its decision.

[8] The Court of Appeal’s concluding observations on the point were:⁵

[67] Before leaving this issue we add these observations. Although we are allowing the appeal we are not to be taken as determining that the costs sought by the Genset Trustees are in fact unreasonable. Nor do we underestimate the time and costs involved in ensuring that the interlocutory processes necessary in a case of this nature are appropriately attended to, having regard to the conduct of those associated with the management of EMG. But it will be apparent from our reasoning that we are simply not satisfied that Fogarty J adequately addressed the issue of whether the costs were reasonable. It will now be for the High Court to do so, in accordance with a process that it considers appropriate. Whether for that purpose either party will seek to rely on expert opinion or the Court will look for such assistance is a matter to be determined by that Court. But the sums at stake warrant a more thorough approach than can appropriately be conducted by this Court on appeal.

[9] As Fogarty J has retired the task of fixing costs falls on another Judge of the Court.⁶

[10] Counsel for the parties have exchanged extensive memoranda on the issue of costs and are agreed that the issue may be dealt with on the papers.

[11] In the course of the exchange of minutes and memoranda on this matter counsel also accepted the Court’s invitation to deal with all issues of costs, including the application for strike out and the strike out hearing, and costs incurred subsequently leading up to the second judgment of Fogarty J which had not previously been addressed.

4. Edel Metals Group Ltd v Geier Ltd at [60] citing Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.

⁵ Edel Metals Group Ltd v Geier Ltd [2018], above n 3.

⁶ HCR 14.9.

[12] The Genset Trustees now claim the following:

(a) $634,423.08 (including GST) for costs and disbursements incurred, up to but not including, the application to strike out and the related costs application;

(b) $341,929.28 (including GST) for costs and disbursements relating to the applications for strike out and indemnity costs;

(c) $39,578.40 (including GST) for costs after the first hearing up to the filing of the costs memorandum.

[13] The total amount now sought by Genset is $1,015,930.76, including GST and disbursements.

[14] For EMG and Mr Sorensen Mr McLellan QC submits that a reasonable award for indemnity costs for all relevant steps in the proceeding would not exceed $275,000 (including GST).

[15] The difficulty in fixing costs at this time is that no other Judge has the knowledge that Fogarty J had. It is of some assistance that counsel have agreed the charge-out rates. Counsel for EMG and Mr Sorensen confirmed they accept senior counsel Mr Ingram QC’s charge out rate and do not challenge his instructing solicitors charge out rate, save to observe that a number of the tasks apparently carried out by the instructing solicitor, (a partner in the firm) could have been carried out by an employed solicitor at a lesser rate. It is also of assistance to refer to the approach taken by Harrison J in Bradbury v Westpac⁷ which was endorsed by the Court of Appeal, both in the appeal in that case and in the appeal judgment in this case.

[16] As Harrison J observed, even where indemnity costs are ordered, the actual costs, disbursements and associated witness expenses, must still be reasonably incurred by a party.⁸

⁷ Bradbury v Westpac Banking Corp [2008] NZHC 751; (2008) 18 PRNZ 859 (HC), [2008] BCL 630.

⁸ HCR 14.6(1)(b).

[17] There is a tension in determining whether costs are reasonably incurred, particularly where the plaintiff’s claim may be hopeless. Harrison J noted the tension in assessing Westpac’s claim for indemnity costs in that case. As he observed, one could rhetorically ask why:⁹

when a case was so obviously hopeless from the start, did the bank not adopt a minimalist but nevertheless effective approach towards expenditure on legal costs?

He then answered that rhetorical question by noting that the Bank had to take the claims against its senior management seriously and it was required to commit substantial resources to respond to the numerous interlocutory steps.¹⁰ Similarly in the present case, the claim advanced against the trust was a substantial claim for in excess of $5,900,000, with the possibility of further calls for similar amounts. The Genset Trust was required to take it seriously.

[18] Harrison J then observed:

[204] There is a powerful policy argument for imposing liability on plaintiffs for all costs incurred by defendants in opposing a hopeless proceeding brought for an ulterior purpose and designed throughout to put the other side to the maximum expense, embarrassment and inconvenience. It could legitimately be said that all costs incurred in defending that strategy were reasonable regardless of the actual amount. ...

[19] But he then went on by reference to the rules to note that:

[205] On the other hand, the phrase ‘reasonably incurred’ envisages a degree of judicial oversight of awards of indemnity costs. The discretion must be exercised in a manner which delivers a just and fair result. The scales of principle, while finely balanced, are ultimately tipped in B&M’s favour by my conclusion that Westpac’s fees are of a magnitude which an objective observer would not have expected for this litigation, however egregious the firm’s conduct may have been. That observation is not meant as a criticism; the bank is entitled to incur whatever level of legal costs it considers appropriate. But standing back and adopting an overview for the purpose of assessing B&M’s liability, I am not satisfied that all Westpac’s actual costs were reasonably incurred.

[20] Harrison J emphasised that the concept of reasonableness was an objective criterion which is necessarily fact and circumstance specific. The process is

⁹ Bradbury v Westpac Banking Corporation, above n 7, at [199].

¹⁰ At [201].

necessarily imprecise and unscientific but must represent a review of all relevant steps.¹¹ The ultimate result must be just and fair but what is reasonable is to be determined so as not to defeat the purpose and spirit of a rule which provides a right to recover actual costs. The resulting figure must reflect an overall evaluation of what costs are reasonably incurred.¹²

[21] Harrison J identified the Court should follow a three step process:¹³

(a) determine whether a particular item of expenditure was reasonably incurred – for example, preparation of a statement of defence;

(b) fix what would be a reasonable allocation of actual costs, measured by reference to an appropriate time taken and allowing for the significance and complexity of the category of work; and

(c) quantify the costs by reference to a median hourly rate reasonably applicable to it.

[22] While accepting the above principles Mr Ingram QC submitted that care should be taken not to distort the process by taking preconfigured steps and “slicing and dicing” bills of costs to fit those steps. In his submission that would run the risk of depriving the process from fulfilling the requirements of the rule, namely to take the costs incurred as the starting point and then assessing the costs for reasonableness. He submitted that the assessment should not be limited to such steps that are, for example, identified by the schedule of scale costs.

[23] I acknowledge the force of Mr Ingram’s submission up to a point. HCR 14.1 provides that all matters of costs are at the discretion of the Court, including costs incidental to a proceeding. The award of indemnity costs need not be limited to the formal steps in the proceeding. Nevertheless the steps in the proceeding and time allowances generally allowed for those steps are a helpful starting point. Mr Ingram’s point can be addressed by making an allowance for additional time for the general

¹¹ At [206].

¹² At [207].

¹³ At [209].

attendances and research as part of the relevant steps provided for in the schedule to the High Court Rules.

[24] Mr Ingram also made the point that, for example, isolating discovery as a single step distorts the reality that a number of issues may have arisen in relation to discovery so that the discovery process involved several steps and a number of different attendances. But ultimately the time spent and thus the costs incurred must still have been reasonably incurred.

[25] While the invoices rendered by Mr Ingram and Kendall, Sturm and Foote (KSF) have been produced to the Court, they do not readily correlate to the steps taken in the proceeding. As one might expect, there is a large degree of overlap of the work over the period for which different invoices were issued. In other words, work on a particular step (such as drafting and finalising a memorandum) appears on several invoices.

[26] The approach I have adopted is to review the file, including all the documents filed by the parties. I have then sought to reconcile that as best as possible with the steps provided for by the schedule to the rules. I have then reviewed the detail of the invoices provided to the Court for the work carried out on behalf of the Genset Trustees. I have then sought to allocate a reasonable amount of time to the steps in the proceeding, and then include an additional reasonable amount of time for incidental attendances and research not otherwise included in the scheduled steps, taking into account the complexity of the case. I have uplifted the time allowed on the scheduled steps to take this additional allowance into account. Applying the agreed charge-out rate to that time then leads to a figure for actual costs reasonably incurred.

The claim for $634,423.08

[27] A useful and principled starting point is to consider the time provided by band
C. Time band C applies where a “comparatively large amount of time” is considered reasonable for the relevant step.

[28] Applying the approach Harrison J took, I accept that all of the steps taken up to the application for strike out were necessary. The issue is the extent of time applied
by both Mr Ingram and KSF to the step(s). As the hourly rates are accepted, the issue is the assessment of time the Court considers reasonable and appropriate, allowing for the significance and complexity of the work required. For all the various steps in the proceedings up to the application for strike out, time band C would allow approximately 371 hours.

[29] From the invoices rendered, Mr Ingram spent approximately 410 hours and Mr Foote 590 hours, a total of 1,000 hours to respond to EMG’s claims during the relevant time period. Mr Ingram has prepared a schedule which sets out the additional work he says was required by both him and KSF (because of EMG and Mr Sorensen’s actions). In some instances the combined amounts claimed exceed what could be said on any view of it to be reasonable. I cannot accept, for instance, that preparation for a first case management conference required an additional 38 hours of time over and above the seven hours permitted by band C (in total 45 hours). I have allowed 28 hours in total. I have carried out a similar review exercise for all relevant steps.

[30] That leads to an allocation of 790 hours approximately in total for Mr Ingram and his instructing solicitor’s work when band C would have permitted 371. The time allowed is over two times band C and in my assessment, is reasonable for the work required of senior counsel and KSF for the identified steps. It also includes an allowance for additional time for research and general attendances. It appears from the invoices that there was a noticeable amount of duplication of effort between senior counsel and KSF on a number of occasions.

[31] That leads to a costs award of $523,595 (including GST) together with disbursements for the relevant work as is set out in Annexure A.

The claim for $341,929.28

[32] The application to strike out was advanced on the basis of a failure to pay security for costs. It was a relatively straightforward application.

[33] The real focus of the application was the related application for indemnity costs and for costs against Mr Sorensen personally.
[34] The approximate total hours allowed for steps on a time band C basis for all steps in relation to filing an interlocutory application for strike out and costs orders through to and including the hearing of the application is approximately 64 hours.

[35] From the invoices submitted, the time claimed by Mr Foote of KSF for his work in relation to all those steps was 376 hours approximately. In addition Mr Ingram billed an additional 187 hours approximately. In total 563 hours or close to nine times the time allowed by band C was applied to the application. On my review of what was required at the time those hours cannot be considered reasonable. The resulting fee is, in the words of Harrison J, of a magnitude which an objective observer would not have considered reasonable. Even accepting the importance of the application, the substantial affidavits filed and the need to prepare fully for it an allowance of no more than five times time band C is the most that can be said to be reasonable for the research, preparation of the application and drafting and finalising the affidavits.

[36] On my review of the invoices, a significant amount of time claimed in relation to research cannot be justified. The law was not that difficult.

[37] The hours spent by KSF and senior counsel works out to an approximate 67/33 split of the time between them. I have applied that approximate split to the time reasonably spent on the allocated steps. The result leads to a total of $146,222.50 (including GST) for this particular part of the proceeding.

[38] These calculations and allowances are also set out in Annexure A.

The claim for $39,578.40

[39] The Genset Trustees also claim $39,578.40 for costs after the first hearing. I accept the force of Mr McLellan’s submissions that is an excess amount of time for preparing what was essentially a further memorandum in relation to the quantum issue of costs. I agree that the points made in the memorandum in relation to GST and interest were relatively straightforward and uncontroversial and should have involved limited research.
[40] I allow 10 hours each for KSF and senior counsel in relation to that claim which leads to a total of $13,225 including GST.

Disbursements

[41] In addition to the costs, disbursements total $10,280.95 as per Annexure B. They are properly recoverable in full.

Result

[42] The Genset Trust is to have costs and disbursements against EMG and Mr Sorensen in the sum of $693,323.45 made up of:

(a) $523,595.00 for costs incurred, up to but not including, the application to strike out and the related indemnity costs application;

(b) $146,222.50 for costs relating to the applications for strike out and indemnity costs;

(c) $13,225.00 for costs after the first hearing up to the filing of the costs memorandum;

(d) Disbursements of $10,280.95.

[43] The Registrar is to allocate a telephone conference during November on the related file CIV-2014-404-2914.






Venning J

ANNEXURE A
Item	Description	Scale (at band C)		Actual		Amount
		Scale days (C)	Scale hours (C) (1 day = 7 hrs)	Ingram QC actual hours allowed ($700 p/h plus GST)	KSF actual hours allowed ($450 p/h + GST)	Ingram QC $	KSF $
2	Commencement of defence by defendant	6.0	42.0	40.0	40.0	$ 28,000.00	$ 18,000.00
4	Counterclaim	4.8	33.6	40.0	27.0	$ 28,000.00	$ 12,150.00
3	Reply to defence to counterclaim	2.4	16.8	13.0	20.0	$ 9,100.00	$ 9,000.00
36	Notice for further particulars (if equivalent of filing interlocutory application)	2.0	14.0	14.0	14.0	$ 9,800.00	$ 6,300.00
10	Preparation for first case management conference	1.0	7.0	20.0	8.0	$ 14,000.00	$ 3,600.00
11	Filing memorandum for first case management conference	1.0	7.0	35.0	10.0	$ 24,500.00	$ 4,500.00
13	Appearance at first case management conference	0.7	4.9	5.0		$ 3,500.00
	Appearance of second counsel	0.4	2.5		2.5		$ 1,125.00
36	Joint memorandum to correct minute (if time equivalent to notice of appearance)	0.2	1.4	1.0	2.0	$ 700.00	$ 900.00
9	Reply to plaintiff's amended reply and statement of defence	2.0	14.0	6.0	12.0	$ 4,200.00	$ 5,400.00
11	Memorandum for second case management conference	1.0	7.0	20.0	5.0	$ 14,000.00	$ 3,825.00
13	Appearance at second case management conference	0.7	4.9	5.0		$ 3,500.00
	Appearance of second counsel	0.4	2.5		2.5		$ 1,125.00
29	Sealed order for discovery against Donald Gibson	0.2	1.4	1.0	2.0	$ 700.00	$ 900.00
36	Memorandum re application by Fairfax Media to access court file (if time equivalent to notice of appearance)	0.2	1.4	0.5	1.0	$ 350.00	$ 450.00
11	Memorandum for third case management conference	1.0	7.0	15.0	5.0	$ 10,500.00	$ 2,250.00
13	Appearance at third case management conference	0.7	4.9	5.0		$ 3,500.00
29	Sealing varied order for discovery against Gibson and order for corrective affidavit of documents and timetable directions	0.2	1.4	1.0	2.0	$ 700.00	$ 900.00
22	Filing interlocutory application for tailored discovery against Mr Sorensen	2.0	14.0	12.0	16.0	$ 8,400.00	$ 7,200.00
36	Filing memorandum on progress with timetable as ordered by Judge (if time equivalent to conference memorandum)	1.0	7.0	5.5	8.5	$ 3,850.00	$ 3,825.00
36	Filing memorandum re plaintiff seeking timetable extension following plaintiff's default (if time equivalent to conference memorandum)	1.0	7.0	5.5	8.5	$ 3,850.00	$ 3,825.00
22	Filing interlocutory application for tailored discovery by Ken Wikeley	2.0	14.0	12.0	16.0	$ 8,400.00	$ 7,200.00
36	Filing affidavit of service on J Sorensen of counterclaim and interlocutory application (if time equivalent to sealing order)	0.2	1.4	1.0	2.0	$ 700.00	$ 900.00
36	Filing affidavit of service on Wikeley of counterclaim and interlocutory application (if time equivalent to sealing order)	0.2	1.4	1.0	2.0	$ 700.00	$ 900.00
36	Joint memorandum for timetable orders (if time equivalent to notice of appearance)	0.2	1.4	1.0	2.0	$ 700.00	$ 900.00
36	Amended statement of defence (to be allocated)			4.0	6.0	$ 2,800.00	$ 2,700.00
24	Synopsis of submissions of tailored discovery by Sorensen			4.0	6.0	$ 2,800.00	$ 2,700.00
24	Synopsis of submissions re opposed interlocutory application for tailored discovery by Wikeley	3.0	21.0	17.0	25.0	$ 11,900.00	$ 11,250.00
36	Filing memorandum re plaintiff 's timetable breach (if time equivalent to conference memorandum)	1.0	7.0	5.5	8.5	$ 3,850.00	$ 3,825.00
11	Memorandum for fourth case management conference	1.0	7.0	6.0	4.0	$ 4,200.00	$ 1,800.00
29	Sealing orders for tailored discovery	0.2	1.4	1.0	2.0	$ 700.00	$ 900.00
11	Filing updated memorandum for fourth case management conference	1.0	7.0	5.5	8.5	$ 3,850.00	$ 3,825.00
11	Filing memorandum for case management conference	1.0	7.0	5.5	8.5	$ 3,850.00	$ 3,825.00
20	List of documents on discovery	7.0	49.0	40.0	60.0	$ 28,000.00	$ 27,000.00
21	Inspection of documents (plaintiff)	6.0	42.0	34.0	50.0	$ 23,800.00	$ 22,500.00
21	Inspection of documents (Gibson Band B)	1.5	10.5	10.0	12.0	$ 7,000.00	$ 5,400.00
Sub totals			371.70	392.0	398.5	$ 274,400.00	$ 180,900.00
	Combined counsel and KSF Fees allowed (GST exc)						$ 455,300.00
	Combined counsel and KSF Fees allowed (GST inc)						$ 523,595.00

Item		Scale (at band C)		Actual		Amount
		Scale days (C)	Scale hours (C) (1 day = 7 hrs)	Ingram QC actual hours allowed ($700 p/h plus GST)	KSF actual hours allowed ($450 p/h + GST)	Ingram QC $	KSF $
22	Filing Interlocutory application for strike out and costs orders	2	14	25	45	$17,500.00	$20,250.00
36	Filing memorandum re timetabling for interlocutory application for strike out and costs orders (if time equivalent to notice of appearance)	0.2	1.4	2.50	5.00	$1,750.00	$2,250.00
36	Filing second memorandum re timetabling for interlocutory applications (if time equivalent to notice of appearance)	0.2	1.4	2.50	5.00	$1,750.00	$2,250.00
24	Preparation of written submissions on interlocutory application for strike out and costs orders	3	21	35.00	70.00	$24,500.00	$31,500.00
25	Preparation of bundle for hearing	1	7	4.00	10.00	$2,800.00	$4,500.00
36	Filing memorandum updating Court as to costs (if time equivalent to conference memorandum)	1	7	4.00	10.00	$2,800.00	$4,500.00
26	Appearance at hearing by counsel	1	7	8.00		$5,600.00	$0.00
27	Appearance by second counsel	0.5	3.5		8.00	$0.00	$3,600.00
29	Sealing judgment	0.2	1.4	1.00	2.00	$700.00	$900.00
Subtotal			63.70	82.00	155.00	$57,400.00	$69,750.00
	Combined counsel and KSF Fees allowed (GST exc)						$127,150.00
	Combined counsel and KSF Fees allowed (GST inc)						$146,222.50
Total	Combined counsel and KSF Fees allowed (GST inc)						$ 669,817.50
	Additional costs after first hearing (GST inc)					$13,225.00
	Disbursements					$10,280.95
	Total Costs and Disbursements awarded						$ 693,323.45

ANNEXURE B

	Internal Disbursments	External Disbursements
	$ 450.00	$ 540.00
	$ 385.00	$ 41.71
	$ 130.00	$ 95.45
	$ 400.00	$ 137.98
	$ 240.00	$ 124.75
	$ 250.00	$ 217.25
	$ 75.00	$ 200.00
	$ 165.00	$ 69.46
	$ 545.00	$ 218.25
	$ 620.00	$ 101.03
	$ 150.00	$ 203.50
	$ 235.00	$ 116.84
	$ 75.00	$ 19.55
	$ 80.00	$ 19.55
	$ 55.00	$ 254.55
	$ 155.00	$ 19.55
	$ 140.00	$ 860.66
	$ 550.00	$ 52.87
	$ 110.00	$ 640.00
	$ 115.00	$ 3,932.95
	$ 45.00
	$ 400.00
	$ 150.00
	$ 5,520.00
Plus GST	$ 828.00
Subtotal	$ 6,348.00
External	$ 3,932.95
Total disbursements	$ 10,280.95