THE COMMISSIONER OF INLAND REVENUE V HARBOUR CITY TOW AND SALVAGE (2003) LIMITED HC WN CIV-2006-485-2002

THE COMMISSIONER OF INLAND REVENUE V HARBOUR CITY TOW AND SALVAGE (2003) LIMITED HC WN CIV-2006-485-2002 12 February 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-2002IN THE MATTER OF the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND HARBOUR CITY TOW AND SALVAGE (2003) LIMITED Defendant Judgment: 12 February 2007 In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 3.45pm on the 12th day of February 2007.JUDGMENT AS TO COSTS OF ASSOCIATE JUDGE D.I. GENDALL[1] This judgment relates to costs sought by the plaintiff on liquidation proceedings brought against the defendant. These proceedings were withdrawn by the plaintiff consequent upon payment by the defendant of the debt claimed. [2] As general background to this matter, on 20 July 2006 the plaintiff served a statutory demand upon the defendant for $226,044.40, representing arrears of Goods and Services Tax and PAYE, together with interest and penalties. [3] There was no effective response from the defendant to the statutory demand. On 7 September 2006 the plaintiff filed these proceedings seeking an order to place the defendant company into liquidation. [4] On 19 September 2006 the defendant responded by filing an application to restrain advertising and stay further proceedings relating to the liquidation application. This application was opposed by the plaintiff.[5] The defendant's application for stay and for restraint of advertising was set down for hearing on 6 November 2006. An interim order restraining advertising of the liquidation proceedings was made on 16 October 2006, but only up to 6 November 2006 pending the substantive hearing. [6] On 6 November 2006 the matter was adjourned consequent upon the unavailability of Mr Pratley, counsel for the defendant, through illness. The interim order staying the proceedings and restraining advertising was extended to 20 November 2006 on the basis that the full amount due to the plaintiff was to be paid by that date. If this was not to occur, then the stay was lifted and advertising was to be completed post-20 November 2006, with the liquidation proceeding being set down for substantive hearing on 18 December 2006. [7] Subsequently, on 15 December 2006 counsel advised that the defendant's debt had been paid in full, but that costs would be sought by the plaintiff for both the liquidation proceedings and the defendant's interlocutory application for stay and restraint of advertising. [8] On 18 December 2006 leave was granted to the plaintiff to withdraw this proceeding, and directions were given for the filing by the plaintiff and the defendant of submissions on the issue of costs. [9] Detailed memoranda setting out submissions on that costs question have now been filed by counsel for the plaintiff and counsel for the defendant. [10] The plaintiff is seeking to recover from the defendant costs of $4,330.00, plus disbursements of $450.63. As I understand it, these costs are calculated upon a category 2B scale basis. [11] The defendant opposes any order of costs being made in favour of the plaintiff. The grounds for this are essentially that: a) Rule 47(f) High Court Rules provides that costs awarded are not to exceed actual costs incurred.b) The plaintiff here was represented by in-house counsel. c) There is nothing before the Court in the present case to indicate what the actual costs incurred by the plaintiff through the use of in-house counsel were. d) Therefore, no costs should be awarded in favour of the plaintiff. [12] The starting point in this matter is clearly the widely accepted r47(a) proposition that the plaintiff, having been successful in obtaining payment of the outstanding debt from the defendant by virtue of his pursuing these proceedings, then he should be entitled to an award of costs in the normal course. [13] As I have noted, however, the defendant opposes this essentially upon the basis that there is nothing before the Court here to indicate what the plaintiff's "actual costs" were, given that in-house counsel carried out all work on behalf of the plaintiff, and therefore no award of costs should be made. [14] In support of this suggestion, counsel for the defendant referred to the Court of Appeal decision in Glaister v Amalgamated Dairies Limited [2004] 2 NZLR 606, and in particular paragraph 14 of the Judgment which stated:[14] The new (and statutory) High Court scheme has at its heart the proposition that a successful party should receive a reasonable contribution towards his or her costs, being two-thirds of the costs deemed (under the new scheme) to be reasonable in a proceeding (or for that matter on an interlocutory application), having regard to the complexity and significance of the matters which were at issue and the time which was reasonably required to be taken. Rule 47(c) and (d) expressly uses the term 'consideredreasonable' (emphasis added), and that reference is to the statutory scheme. And, R47(e) expressly provides that what is an appropriate daily recovery rate, and a reasonable amount of time, does not depend on the skill or the experience of the actual solicitor or counsel involved or on the costs actually incurred by the party claiming costs. The only reference which it is necessary to make towards actual costs is to be found in R47(f), namely that 'an award of costs should not exceed the costs incurred by the party claiming costs'. This of course reinforces the thesis underlying the new scheme: that the test is entirely an objective, and not a subjective, one.[15] The defendant's submissions went on to state that at paragraph 16 of theGlaister decision, it was noted that "deemed" costs under the rules (i.e. scale costs)have nothing to do with actual costs, the deemed costs being established on a national basis by the High Court Rules Committee after appropriate consultation. [16] Counsel for the defendant then contended that what is not readily apparent, however, is what is to occur where, as here, actual costs are not known. [17] The defendant's submissions went on to note cases where the Court has ordered costs to be paid at less than scale where actual costs proved to be less than scale – see Chase Securities Limited v GSH Finance Pty Limited (HC AK, CP196/86, 17 December 1986, Doogue J). [18] The defendant submits that the plaintiff in the present matter has not provided any measure of what its actual costs are. The defendant did acknowledge that the plaintiff has met salaries and associated costs (including office overheads) in connection with employing the various legal practitioners who have acted in connection with this matter. He contends, however, that those are private matters, and in the absence of information on actual costs, it appears that because r47(f) does not allow an award of costs in excess of actual costs, then the Court can not determine in the present case what is a "reasonable contribution" to actual costs. Further, the defendant argues that in any event, there is insufficient information before the Court here for it to make a finding of the level of actual costs incurred and therefore there is nothing upon which to base a costs award of "deemed" or scale costs. [19] In response, counsel for the plaintiff submitted that the Commissioner is in no different position here to any other litigant, in that costs may be awarded against him, and likewise he may claim costs against defendants for work done by in-house counsel. [20] The plaintiff refers to the Court of Appeal decision in Henderson Borough Council v Auckland Regional Authority [1984] 1 NZLR 16 which upheld a High Court decision not to make a distinction between in-house counsel and private counsel when deciding whether to award costs. The rationale behind this was thatthe time of a salaried employee was being occupied by the work involved, and Cooke J stated at page 23:It appears to me that the fact that an employed practitioner has acted for the successful party is not a sufficient reason for denying that party an award of party and party costs: after all the time of a salaried employee has been occupied.[21] More recently, in the High Court decision in Commerce Commission v Caltex New Zealand Limited (Costs) (2000) 14 PRNZ 418, Salmon J in considering the submission that the Commerce Commission should not be able to recover costs relating to time spent by its in-house counsel stated at page 421:I accept that there is no reason in principle why the Commission should not be able to recover costs relating to in-house counsel.[22] This sentiment was echoed in the earlier decision in Commerce Commission v Qantas Airways Limited (Costs) (1992) 5 PRNZ 457 (which decision was cited at paragraph 21 in the Commerce Commission v Caltex NZ Limited decision). [23] It needs also to be noted that in the more recent High Court decision inSmithkline Beecham (NZ) Limited v Minister of Health (Costs) (2002) 16 PRNZ 361 costs were allowed for work done by in-house counsel. [24] In line with these authorities, I find that the plaintiff here in bringing these liquidation proceedings is in reality in no different position to that of any other litigant. Costs have been routinely granted to this plaintiff (but in other proceedings) and to other institutional plaintiffs for work done by in-house counsel. In addition, these plaintiffs have also on occasions been subjected to costs orders against them. [25] I note also that so far as the present case is concerned, the plaintiff has a duty imposed by the Tax Administration Act 1994 to collect over time the highest net revenue that is practicable from taxpayers. The plaintiff submits that the cost of doing this should be borne by those taxpayers who do not comply with the law, and if the plaintiff in the present case is not awarded costs against the defendant, then the costs of enforcement here will be borne by taxpayers in general, which isinappropriate. I am satisfied that there is substance in this submission put to me on behalf of the plaintiff. [26] In the further submission dated 25 January 2007 from the plaintiff, counsel for the Commissioner confirmed that she has reviewed the time spent in working on the present proceeding and this totalled 44 hours and 55 minutes in December 2006. [27] She also confirms in this submission that there is no "charge out rate" applied to the work of counsel for the Commissioner, which reflects the general nature of in- house counsel work. Salaries of course are paid to in-house practitioners to avoid paying out-sourced legal fees. [28] As I have mentioned above, the costs here sought by the Commissioner calculated upon a category 2B basis total $4,330 plus disbursements. The plaintiff notes that this figure has been arrived at following the "deemed" costs formula contained in the Schedules to the High Court Rules as dictated by r47(c). AsGlaister notes, these "deemed" rates for costs have been established by the High Court Rules Committee nationally after appropriate consultation. [29] In the present case, the plaintiff seeks to rely upon the costs deemed to be reasonable in terms of the High Court Rules, and submits that it should be allowed to do so. The plaintiff has confirmed that its time involved in working on this proceeding is nearly 45 hours, much of which appears to have involved the plaintiff's necessary response to the defendant's application to stay the proceeding and restrain advertising. This time is substantial. On a normal counsel charge-out rate, even at the most basic level, the costs involved here would have well exceeded the costs sought of $4,330. [30] Finally, it must be noted that r46(1) does contain a general discretion for the Court in awarding costs. This is of course notwithstanding the strong implication in the Rules that the Courts are to apply the costs regime in the absence of some reason to the contrary. Clearly Rules 46 and 47 High Court Rules are complimentary and need to be applied as part of that overarching regime.[31] With all those matters in mind, I am satisfied here that an award of costs should not be denied to the plaintiff because employed practitioners have acted on behalf of the plaintiff who is, after all, the successful party in this litigation. [32] Also, I reject the suggestion from counsel for the defendant that first, there is nothing before the Court to indicate actual costs incurred by the plaintiff, and secondly, that as a result, r47(f) prevents any award of costs being made here. Counsel for the plaintiff has confirmed that nearly 45 hours of practitioner time was involved in this matter. I have no doubt that a reasonable lawyer charge for the cost of this time plus usual office overhead and related expenses would provide an "actual cost" in this proceeding exceeding the $4,330 "deemed" scale costs sought by the plaintiff. [33] Under all the circumstances, I am satisfied that the costs sought by the plaintiff in this proceeding calculated upon a category 2B basis are appropriate. An order is now made that the defendant is to pay to the plaintiff costs of $4,330.00, calculated on a 2B basis, together with disbursements of $450.63. __________________________Associate Judge D.I. GendallSolicitors:Technical and Legal Support, Wellington Service Centre, IRD, Wellington for Plaintiff Lance Pratley, Solicitor, Wellington for Defendant