IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2018-404-2308
[2019] NZHC 1002	

UNDER	the Insolvency Act 2006	
IN THE MATTER OF	an application for bankruptcy of CHRISTOPHER MICHAEL SAUNOA	
BETWEEN	COMMISSIONER OF INLAND REVENUE
Judgment Creditor	
AND	CHRISTOPHER MICHAEL SAUNOA
Judgment Debtor	

Hearing:	On the papers	
Appearances:	Mark Hartfield for the Judgment Creditor	
Judgment:	9 May 2019	

COSTS JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 9 May 2019 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules.
…………………………………
Deputy Registrar

Solicitors:
Inland Revenue, Legal Services, Takapuna, for the Judgment Creditor

COMMISSIONER OF INLAND REVENUE v SAUNOA [2019] NZHC 1002 [9 May 2019]

[1]	On 26 March 2019, I made an order adjudicating Mr Saunoa bankrupt. He did not oppose the application. I reserved costs and asked the Commissioner to provide information how she calculated her actual costs.

[2]	The Commissioner seeks costs of $821.00 plus disbursements of $839.17. If the Commissioner had instructed outside counsel to appear, the standard costs order under the current scale would be $3,122.00 plus disbursements. Until last year, the Commissioner claimed scale costs.

[3]	The Commissioner appreciates that her actual costs are less than scale. Under r 14.2(1)(f) of the High Court Rules, an award of costs should not exceed the costs incurred by the party claiming them. The practice of awarding the Commissioner standard costs when she is represented by in-house counsel came to an end with Associate Judge Matthews’ decision in Commissioner of Inland Revenue v New Orleans Hotel (2011) Ltd.1 In Joint Action Funding Ltd v Eichelbaum,2 the Court of Appeal held that a lawyer who appeared for himself in a proceeding could not claim costs. In Commissioner of Inland Revenue v New Orleans Hotel (2011) Ltd, Associate Judge Matthews applied the Court of Appeal’s reasoning to hold that a party represented by in-house counsel could also not claim costs. Following that decision, orders for costs were no longer made in favour of the Commissioner in bankruptcy or liquidation proceedings, when she was represented by in-house counsel.

[4]	There was a further change with the decision of the Supreme Court in McGuire v Secretary for Justice.3 The Supreme Court held that the Court of Appeal’s decision in Joint Action Funding v Eichelbaum was wrong, and restored the earlier rule that lawyers who appeared on their own behalf could claim costs. The result of the Supreme Court’s decision in McGuire v Secretary for Justice is that a party represented by in-house counsel is entitled to recover costs.

[5]	Following the Supreme Court’s decision, the Commissioner reconsidered the basis on which she claims costs in bankruptcy and liquidation proceedings. She

1	Commissioner of Inland Revenue v New Orleans Hotel (2011) Ltd [2018] NZHC 971.
2	Joint Action Funding Ltd v Eichelbaum [2017] NZCA 249; [2018] 2 NZLR 70.
3	McGuire v Secretary for Justice [2018] NZSC 116, (2018) 24 PRNZ 350.

accepted that her actual costs are usually less than scale costs. She claimed costs for in-house counsel at $78.00 per hour, and for other staff (“business support officers”) at $50.00 per hour. In this proceeding, on 26 March 2019 she sought costs of $949.50.

[6]	I asked the Commissioner to provide further information how the hourly rates are established. In response, the Commissioner has provided a memorandum. She seeks reduced costs of $821.00 (plus disbursements). The Commissioner has reassessed the average hourly costs for her solicitors and business support officers:

[a]	Business support officer	$50.00 an hour

[b]	Solicitor Level 1	$60.00 an hour

[c]	Solicitor Level 2	$73.00 an hour.

[d]	Solicitor Level 3	$91.00 an hour.

Counsel advises that the corporate finance department of the Inland Revenue has calculated these hourly rates, using these cost factors:

[a]	Overhead costs, which include costs of accommodation, phone, computer hardware/software.

[b]	Operating costs, which include travel, equipment, consumables and printing.

[c]	Salary costs.

[d]	ACC and superannuation contribution costs.

These are said to be conservative because they do not take into account unproductive time such as leave entitlements and costs of management. Counsel submits that lawyers and business support officers maintain time records in relation to each litigation file. When an Inland Revenue lawyer appears, time recording will allow for travel time to and from court, time in court, and reporting back. That is in turn divided

by the number of files the lawyer appears on. Allowance is also made for work by a business support officer after a hearing. The costs claimed are calculated by applying the total time by the applicable hourly rates.

[7]	In this case, the Commissioner has claimed for an in-house lawyer for 2 hours at $73.00 an hour and for a business support officer for 13.5 hours at $50.00 an hour.

[8]	The Commissioner has not provided details how the corporate finance department established the average hourly costs for each grade of lawyer and for business support officers. I do not regard that as necessary for present purposes When compared with costs calculated according to the categorisation of proceedings under 14.3, the daily recovery rates under r 14.4 and the determination of reasonable time under r 14.5, the rates claimed by the Commissioner are clearly reasonable. There is no reason to suspect that the Commissioner has over-claimed. The figures are conservative, if anything. Accordingly, I am satisfied with the way in which the Commissioner has calculated actual costs. I award costs to the Commissioner of
$821.00 and disbursements of $839.17.

[9]	I note two further matters. The disbursements are exclusive of GST as the Commissioner considers that she is carrying on a taxable activity in gathering taxes.

[10]	In the general run of cases, the Commissioner’s actual costs are likely to be less than scale. But in some cases the Commissioner’s costs may exceed those that would be awarded according to scale. The Insolvency Act 2006 allows for recovery of actual costs in those circumstances. Section 274 says:

274	Priority of payments to preferential creditors
(1)	The Assignee must first pay, in the order of priority in which they are listed,—
…
(b) the reasonable costs of a creditor in procuring the order of adjudication, including the reasonable costs incurred between lawyer and client in procuring the order, inclusive of and subsequent to the preparation and filing of the creditor’s application for adjudication; …

[11]	For liquidation applications, Schedule 7 cl 1(1)(c) of the Companies Act 1993 is to similar effect.

………………………………..
Associate Judge R M Bell