MAC MOTORS LTD v BUTCH PET FOODS LTD [2019] NZCA 148

MAC MOTORS LTD v BUTCH PET FOODS LTD [2019] NZCA 148 [9 May 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA745/2017[2019] NZCA 148BETWEEN MAC MOTORS LIMITEDAppellantAND BUTCH PET FOODS LIMITEDRespondentHearing: 2 April 2019Court: Gilbert, Wylie and Thomas JJCounsel: M Wilkinson, Director of AppellantP T Finnigan for RespondentJudgment: 9 May 2019 at 3 pmJUDGMENT OF THE COURTA The appeal is dismissedB Costs on the appeal are to lie where they fall.____________________________________________________________________REASONS OF THE COURT(Given by Thomas J)[1] In assessing the reasonableness of a successful party's expert witness costs,should the Court take into account that the successful party was not represented bycounsel? This question of law was the basis of Brewer J's decision to grant leaveto appeal from his judgment, which had reduced a District Court award ofdisbursements to Mac Motors Limited (Mac Motors). Mac Motors, representedprincipally by its director, Michael Wilkinson,1 had successfully defended a claimagainst it in the District Court where the respondent, Butch Pet Foods Limited (BPF),claimed Mac Motors had negligently repaired the gearbox or clutch assembly unit ofa Hino truck.2[2] As Mr Wilkinson represented Mac Motors, any award against BPF was limitedto disbursements. In the District Court, Judge M E Sharp awarded $83,037 as againstMac Motor's claim of $109,487.73, the bulk of which related to the costs of expertwitnesses.3[3] BPF appealed the dismissal of its claim and the award of disbursements.Again, Mac Motors was represented by Mr Wilkinson. Brewer J dismissed BPF'ssubstantive appeal but reduced the disbursements award to $52,291.4 Mac Motorsthen applied for leave to appeal.5[4] Brewer J considered there is an argument that a self-represented party shouldbe entitled to greater assistance from an expert witness than would otherwise bethe case. He concluded this was a matter of some general or public importancejustifying a second appeal, given the increasing number of self-represented partiesappearing before the courts. For that reason, he granted leave on the question of lawset out above.6Background[5] Mac Motors is a company that carries out motor repairs. BPF owned aHino truck that suffered a mechanical failure after having travelled 293,193 km.In November 2012, Mac Motors repaired the Hino truck. The repairs included workto the clutch and gearbox.1 Mr Wilkinson's fellow director, Mr Evans, also played some part in representing Mac Motors.The requirement that a company be legally represented (other than in exceptional circumstances)does not appear to have been addressed; see Re G J Mannix Ltd [1984] 1 NZLR 309 (CA).2 Butch Pet Foods Ltd v Mac Motors Ltd [2017] NZDC 2826 [substantive judgment].3 Butch Pet Foods Ltd v Mac Motors Ltd [2017] NZDC 8891 [costs judgment].4 Butch Pet Foods Ltd v Mac Motors Ltd [2017] NZHC 2473 [High Court appeal judgment].5 Senior Courts Act 2016, s 60(1).6 Butch Pet Foods Ltd v Mac Motors Ltd [2017] NZHC 3133 [High Court leave judgment] at [9].[6] In February 2013, the Hino truck was being driven on the Papakura-ClevedonHighway when there was a failure of either the gearbox or the clutch assembly unit.Between the date of the repair and the date of breakdown, the Hino truck had travelledonly a further 18,172 km.[7] The issue before the District Court was the cause of the failure. The claim wasfor $32,545.77. Mac Motors denied liability on the basis BPF's employees causedthe failure through driver abuse.[8] Mac Motors had engaged Dr Jonathan Smith, a metallurgist, of OptimechInternational Ltd and Mr Timothy Smithson, an engineer, of Assessco General &Marine as expert witnesses. Judge Sharp preferred their evidence over that of BPF'sexpert and concluded the failure likely resulted from driver abuse.[9] In the High Court, Brewer J identified the four factual issues for determinationin the appeal and addressed each separately, undertaking a detailed analysis ofthe evidence.7 He was satisfied Judge Sharp had identified the key areas of disputeand comprehensively explained why she preferred the expert evidence on behalfof Mac Motors. The evidence did not persuade Brewer J that the Judge was wrong.He referred to Judge Sharp's finding that the science presented by Mac Motors'experts was unassailable.[10] Brewer J, however, took a different view from the District Court onMac Motors' claim for disbursements in respect of its two expert witnesses, Dr Smithand Mr Smithson. He concluded that the District Court was incorrect in the extentto which it allowed payment of experts for time they spent outside of giving evidenceand reasonable preparation time.Application to adduce further evidence[11] Mac Motors applied for leave to adduce further evidence on appeal, namelyaffidavits from its two experts, Dr Smith and Mr Smithson.8 BPF opposedthe application. The two affidavits address the witnesses' respective expertise and7 High Court appeal judgment, above n 4, at [19].8 Court of Appeal (Civil) Rules 2005, r 45.otherwise are more in the nature of submission, seeking to justify their respectiveinvoices. We accept Mr Finnigan's submission for BPF that the evidence isinadmissible, it being neither on questions of fact nor meeting the tests of freshnessand cogency.9In assessing the reasonableness of a successful party's expert costs, shouldthe Court take into account that the party was not represented by counsel?[12] Rule 14.12(2) of the District Court Rules 2014 provides:14.12 Disbursements(2) A disbursement may be included in the costs awarded for a proceedingto the extent that the disbursement is—(a) of a class that is—(i) approved by the court for the purposes ofthe proceeding; or(ii) specified in subclause (1)(b); and(b) specific to the conduct of the proceeding; and(c) necessary for the conduct of the proceeding; and(d) reasonable in amount.[13] The rule is both the starting point and finishing point in any consideration ofan award of disbursements in the District Court.[14] The correct approach to costs was recently addressed by the Supreme Court inMcGuire v Secretary for Justice, where the Supreme Court allowed an appeal from aCourt of Appeal decision that had taken a different approach to the settled law as towhether a litigant in person, who was also a lawyer, could recover costs.10 Until theCourt of Appeal judgment in Joint Action Funding Ltd v Eichelbaum,11 the recoveryof costs by a litigant in person who was also a lawyer was considered an exception tothe primary rule that a successful litigant in person was entitled to recover9 See Lundy v R [2013] UKPC 28, [2014] 2 NZLR 273 at [120].10 McGuire v Secretary for Justice [2018] NZSC 116.11 Joint Action Funding Ltd v Eichelbaum [2017] NZCA 249, [2018] 2 NZLR 70.disbursements but not costs. The Court of Appeal had considered that the lawyer inperson exception was inconsistent with the costs regime in the High Court Rules 2016(which closely mirrors the District Court Rules) and decided no award of costs couldbe made to a lawyer acting in person.[15] William Young J, writing for the Supreme Court, described a change inthe Rules as amounting to a policy decision that would be "towards the outer edge ofthe proper judicial function".12 He concluded:[88] if there is to be reform to the law as it stood before Joint ActionFunding, this should be effected otherwise than by the courts. This could bedone by the legislature although we think that such reform is probably withinthe competence of the Rules Committee. In either case, reform would occuronly following appropriate consultation. In the meantime, what we havedescribed as the primary rule, the lawyer in person exception andthe employed lawyer rule are to be applied. [16] McGuire v Secretary for Justice was decided after Brewer J granted leaveto appeal and posed the question of law the subject of this decision.[17] The Supreme Court has now made it clear that any departure from the Rules(whether District Court or High Court) is not part of the proper judicial function.If there is to be a change to provide that an assessment of disbursements should takeinto account that the successful party is a litigant in person, then that is a matter forthe Legislature or probably, as the Supreme Court suggests, the Rules Committee, afterappropriate consultation.[18] That, then, is our reasoning behind our answer "no" to the question posed byBrewer J. That is not, however, the end of the matter. Leave for a second appealhaving been given, we must now consider Mac Motors' appeal against the reductionin disbursements awarded to it in the usual way.13 This requires us to begin with a briefreview of Judge Sharp's decision on disbursements and then to consider Brewer J'sapproach on appeal.12 McGuire v Secretary for Justice, above n 10, at [87(d)].13 Senior Courts Act, s 60; and Andrew Beck and others McGechan on Procedure (online ed,Thomson Reuters) at [SC60.04(3)].District Court judgment on costs[19] Judge Sharp addressed r 14.12 of the District Court Rules, noting that fora disbursement to be recoverable, it must be of a class approved by the Court forthe purposes of the proceeding; specific to the conduct of the proceeding; necessaryfor the conduct of the proceeding; and reasonable in amount. She reminded herselfof the Court of Appeal guidance on experts' fees in the case of Air New Zealand Ltd vCommerce Commission:14[62] A party can recover in respect of an expert witness only for the timehe or she spends giving evidence and the time he or she spends in preparingthat evidence. In addition, a party could properly claim for time spent by itsexpert in critiquing other parties' experts so as to assist counsel to understandthe issues and opposing contentions and to assist counsel incross-examination. But experts do not draft pleadings and do not write legalsubmissions. Any claim for time spent on those tasks would not fall withinthe criteria in [r 14.12(2)]. [20] Judge Sharp considered each invoice of the two experts. She disallowedDr Smith's first invoice as it did not meet the criteria of an approved class, specificityand necessity.[21] In respect of Dr Smith's second invoice, she awarded $7,000 of the $10,401claimed because the claim did not meet the criteria in r 14.12(2). Although Dr Smithcharged for three days in Court, he only testified for half a day. The Judge acceptedBPF's objection that it was unreasonable to require it to pay for charges merelydescribed as "court work".[22] In respect of Dr Smith's third invoice, Judge Sharp made some minoramendments (including in respect of an interest charge of over $3,000) and allowedthe sum of $35,550, as against the $40,357.32 claimed.Mr Smithson[23] Of Mr Smithson's eight invoices, Judge Sharp did not materially reducethe claim in respect of six of them. One she disallowed entirely because it was aninterest charge imposed on unpaid accounts.14 Air New Zealand Ltd v Commerce Commission [2007] 2 NZLR 494 (CA).[24] Mr Smithson's second invoice for $29,125.30 was reduced by the Judge to$19,862. She disallowed the sum of $4,800 on the basis it appeared to be a referenceto preparing pleadings or submissions. She also disallowed $1,037.50 in respect ofa peer review by a person who did not give evidence. She disallowed certaindisbursements claimed, for example a charge of seven hours for an overnight stayin Auckland. She allowed $4,800 for time Mr Smithson spent in Court critiquingBPF's evidence for Mac Motors.[25] In her conclusion on the experts' fees, the Judge said:[18] The successful defendant has persuaded the Court on the balance ofprobabilities that the sum of $83,037 is an allowable disbursement to be paidby the plaintiff. Whilst the defendant's experts' time for Court attendances,reviewing and critiquing witnesses and preparing briefs of evidence is higherthan usual in a civil proceeding, this is due to both the complexity of the issuesinvolved and that the defendant was represented by its two lay directors.[26] This final comment demonstrates an error in approach, which warrantedthe reassessment carried out by Brewer J. We now turn to consider Brewer J'sapproach on appeal and his decision to reduce the award of expert fees from $83,037to $52,291.High Court judgment on costs[27] Brewer J referred to BPF's submissions and its primary objection to the claimfor Mac Motors' experts' entire time, particularly sitting in Court and at counsel's tableassisting the two directors. BPF contended this was tantamount to claiming legal costsand outside the principles governing entitlement to disbursements for experts, whichare limited to giving evidence and reasonable preparation time. Brewer J noted thatno submissions had been filed on behalf of Mac Motors. Unfortunately, that was notcorrect. Submissions had been filed but these had not been brought to Brewer J'sattention.[28] The submissions on behalf of Mac Motors emphasised that Judge Sharp hadalready reduced the expert witness costs by $26,450. Mr Wilkinson noted thatMac Motors is a small two-man operation and had suffered considerable stress andfinancial difficulties defending what he described as a "meritless and vindictivecase".15[29] Brewer J did not interfere with the reductions Judge Sharp made to the experts'fees. There was no cross-appeal in respect of those reductions and they wereundoubtedly correct.[30] In respect of experts' fees, Brewer J's view was:[172] An expert is engaged because they have specialist expertise in an area.In preparing their report, an expert may reasonably seek some peer review toensure their evidence is properly focused and within proper parameters.An expert can also reasonably be used to peer review the reports of otherexperts in their field who will be called by their instructing party to giveevidence. The reviewing expert would need to be familiar with the otherexperts' reports in any event. However, because an expert is supposed to havethe expertise to give evidence in his or her field, peer review should be a minoraspect of their preparation time.[173] As to time spent in Court, an expert witness is just that, a witness.He or she is not a litigation advisor. Generally, a party can charge for the timean expert called by them is in Court to give evidence. Often, it is reasonablefor an expert to be in Court to listen to the evidence of opposing experts andto assist the party calling them to prepare for cross-examination.However, advice on cross-examination can be given from pre-trial perusal ofreports, and any unexpected evidence can be referred to the expert viathe transcript. Therefore, it will not usually be reasonable for a party to chargefor an expert being present in Court throughout the trial.Dr Smith[31] Brewer J reduced the award in respect of Dr Smith's second invoice from$7,000 to $4,300. The claim related mostly to Dr Smith's attendance for three days inCourt, during which time he gave evidence for half a day. Brewer J concluded it wouldbe reasonable to award costs in respect of Dr Smith's time giving evidence andcritiquing BPF's expert witnesses.[32] Brewer J reduced the sum awarded in respect of Dr Smith's third invoice fortwo reasons. First, in respect of a claimed payment for peer review on the basis that15 Mr Wilkinson submitted that BPF's appeal against the disbursements award in the District Courtwas out of time. BPF had filed a notice of appeal on 13 March 2017, prior to Judge Sharp's costsdecision, which was delivered on 5 May 2017. The notice of appeal had signalled the potentialfor the appeal to include costs issues. Whether or not there were any procedural issues with BPF'sdisbursements appeal, the matter was dealt with in the High Court and any issue is moot.a party cannot charge for time spent by an expert contributing to a peer review bysomeone not involved in giving evidence. This was undoubtedly correct. He did allowthe charge for time Dr Smith spent in discussions with Mr Smithson.Secondly, Brewer J allowed 70 hours, as against the 111.5 hours charged for, in respectof a further appearance in Court and out-of-Court analysis. He regarded the numberof hours charged as unreasonable, given the nature and complexity of the issues.Mr Smithson[33] Brewer J said he would reduce Mr Smithson's hourly rate from $300 to $240on the basis the claimed hourly rate of $300 was excessive and unreasonable.The adjustments to the invoices do not reflect that change, however. In respect ofthe fourth invoice, where Judge Sharp had reduced the award to $6,250, Brewer Jfurther reduced the award to $6,000 "given my reduction of Mr Smithson's hourlyrate". The reduction does not equate to a reduction in Mr Smithson's hourly rate from$300 to $240. The same comment applies to the small reductions made to invoicessix, eight, nine and ten.[34] In respect of the fifth invoice, Mr Smithson charged for eight hours per daywhen he was in Court. BPF's challenge was on the basis Mac Motors was not entitledto recover for all those hours, which included Mr Smithson sitting in Court critiquingevidence. Brewer J said:[191] I agree broadly with the Appellant's submission. The Respondentmay recover for the time charged by Mr Smithson for giving evidence(plus reasonable waiting time). Likewise, a reasonable charge may be madefor time spent by Mr Smithson for assisting the Respondent to understandthe evidence of the Appellant's experts and so prepare cross-examination.But, as I have said, much of that should be done pre-trial on the basis ofthe reports. In some cases having an expert observe the trial for significantperiods may be reasonable. However, I have no submissions fromthe Respondent as to why Mr Smithson sat through the trial.[192] Mr Smithson gave evidence for one day over a three day period, whichinvolved five-and-a-half hours. I do not regard his claim for 64 hours forCourt time and preparation as reasonable given the nature and complexity ofthe issues. I will permit the Respondent to charge for a total of 32 hours(which includes eight hours for attendance at Court – including waiting time).The fifth invoice is reduced to $13,178.[35] We are unable to reconcile the Judge's decisions to allow 32 hours only andreduce the charge out rate with the resulting financial calculation of $13,178.We address this further below.[36] Brewer J disallowed the $4,000 awarded in the District Court in respect ofthe seventh invoice as it was an advance for two future hearing dates. As no finalinvoice was supplied for that future work, he disallowed the claim.Were the disbursements claimed by Mac Motors for its experts' fees reasonable?[37] There is no real dispute that the experts' fees incurred by Mac Motors were ofa class approved by the Court, specific and necessary for the conduct ofthe proceeding.16[38] Brewer J undertook a careful analysis of the expert evidence, which wasthe basis for Judge Sharp's dismissal of the claim, and he supported thatdecision. In that context, he considered the disbursements. Given Brewer J'sthorough approach to the evidence, he was well-placed to make an assessment ofthe reasonableness of the experts' costs.[39] Generally, we see no basis to interfere with Brewer J's assessment in respectof the allowance he made for the time experts attended in Court. In our view,his approach was correct. That is, generally a party can recover the costs charged forthe time its expert is in court giving evidence. Often it will be reasonable for the expertto be in court to listen to the evidence of opposing experts and to assist in preparationfor cross-examination. In some cases, depending upon the nature of the case, it mightbe reasonable for an expert to be present for significant periods of the trial.[40] We have considered Brewer J's decision to reduce Mr Smithson's charge-outrate. BPF had criticised the charge-out rates of both Mac Motors' experts inthe District Court but Judge Sharp neither addressed that submission nor made anyalteration to the charge-out rates. Brewer J accepted BPF's submission thatMr Smithson's hourly rate of $300 was excessive and unreasonable, noting Dr Smith,16 Indeed, Mr Wilkinson informed us that he had been directed at a pre-trial conference to engageexperts for the purposes of his defence.who was arguably more qualified, charged between $225 and $240 per hour. On thatbasis, Brewer J said he would reduce Mr Smithson's hourly rate to $240.[41] The fact that Dr Smith has a lower hourly charge-out rate and is perhaps morequalified than Mr Smithson does not, of itself, mean that Mr Smithson's hourly rate isunreasonable. There was no dispute that Mr Smithson was an appropriately qualifiedexpert. In his report filed in the District Court, Mr Smithson detailed his extensive47 years' experience as an automotive machinist and engineer. It does not appear thatBPF proffered any evidence to support its submission that Mr Smithson's charge-outrate was unreasonable, for example by an affidavit addressing charge-out rates forcomparable experts. In the absence of any such evidence, arguably Mr Smithson'scharge-out rate should not have been reduced.[42] However, as we have already observed, the reduced rate Brewer J said he hadadopted was not reflected in the award in respect of each invoice. His reductions infact resulted in relatively minimal change. Brewer J was clearly more focused onthe reasonableness of the sum in fact awarded in respect of each invoice rather than itsprecise calculation.[43] Our difficulties in reconciling Brewer J's calculation in respect ofMr Smithson's second invoice, where Judge Sharp had allowed $19,862 and Brewer Jallowed $13,178, was in any event to Mac Motor's advantage. It seems that Brewer Jdid not fully carry through his stated intention to halve the hours awarded and reducethe charge out rate. In our assessment the amount in fact awarded by Brewer J wasreasonable in circumstances where expert evidence was critical to the case. We aresatisfied that, whether or not counsel was instructed, the person representingMac Motors would have required substantial assistance in understanding andcritiquing the expert evidence presented at trial. The actual amount allowed byBrewer J was consistent with his reasoning.[44] Brewer J made an assessment of the expert fees to be awarded to Mac Motorsafter properly directing himself on the relevant considerations, in particular the extentto which a successful party is entitled to recover its expert witness costs.The reductions he made to the disbursements awarded in the District Court were asa result of a correct application of the Rules. We are not satisfied there was anymaterial error and we see no basis to interfere with Brewer J's conclusion.Result[45] For the reasons given, the appeal is dismissed.[46] The answer to the question of law referred to us is that, in assessingthe reasonableness of a successful party's expert witness costs, the Court should nottake into account that the successful party was not represented by counsel.[47] The High Court allowed leave to appeal on the basis the question of law hadsome general or public importance given the increasing number of self-representedparties appearing before the courts. Given that context, we conclude it is appropriatethat costs should lie where they fall, with the result each party must bear their owncosts and disbursements associated with the appeal.Solicitors:Romaniuk & Associates Law Office, Auckland for Respondent