Body Corporate 406198 v Argon Construction Limited
[2024] NZHC 1037
•1 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001772
[2024] NZHC 1037
BETWEEN BODY CORPORATE 406198 & ORS
Plaintiffs
AND
ARGON CONSTRUCTION LIMITED
First Defendant
AUCKLAND COUNCIL
Second Defendant
Hearing: On the papers Counsel:
D R Bigio KC, R D Butler, S C I Jeffs, I J Stephenson, R J H Scott, H Chung and J C Wedlake for Plaintiffs
W A McCartney and D A Cowan for First Defendant
S C Price, M J Ferrier, C M Fairnie and S H Ji for Second DefendantJudgment:
1 May 2024
Reissued:
10 May 2024
COSTS JUDGMENT OF ANDREW J
This judgment was delivered by Justice Andrew
on 1 May 2024 at 3.00 pm and re-issued on 10 May 2024 pursuant to r 11.5 of the High Court Rules 2016
Registrar / Deputy Registrar Date …………………………….
BODY CORPORATE 406198 & ORS v ARGON CONSTRUCTION LIMITED [2024] NZHC 1037 [1 May 2024]
Introduction
[1] In my judgment on liability dated 30 October 2023,1 I found that the first and second defendants were jointly and severally liable for damages. I entered judgment for the plaintiffs in respect of both the first and second causes of action (i.e. negligence). In my damages judgment of 20 February 2024,2 I ordered that the defendants are to pay damages to the plaintiffs of $4,974,830.11 (subject to minor adjustments and determinations made in the judgment).
[2]This judgment addresses the question of costs.
[3] The plaintiff’s primary position is that, as the successful party it is entitled to costs. They seek costs on a 3B basis in the total sum of $563,254, together with disbursement of $796,837.92.
[4]In March 2023, the defendants made a pre-trial offer to settle in the sum of
$19,230,000 (inclusive of GST) (the Calderbank offer). The position of the defendants on costs is informed both by the Calderbank offer and the submission that the plaintiffs failed in relation to issues which significantly increased their costs and are said to have contributed unnecessarily to the time and expense of the proceedings (i.e. by the plaintiffs’ pursuit of and approach to remedial scope and quantum that lacked merit).
[5]The defendants say on costs:
(a)Costs should lie where they fall from the commencement of the proceeding until 29 March 2023;
(b)From 29 March 2023 onward, the defendants should have 2B costs, with three counsel and a 50 per cent uplift. That is the date the defendants made a Calderbank offer that exceeded the judgment sum. They say the uplift is warranted because the plaintiffs’ failure to engage was unreasonable. The total sum of costs and disbursements sought by
1 Body Corporate 406198 v Argon Construction Ltd [2023] NZHC 3034.
2 Body Corporate 406198 v Argon Construction Ltd [2024] NZHC 237.
The Auckland Council is $439,417.14. The total sum of costs and disbursements sought by Argon Construction Ltd is $408,904.05.
Issues
I need to address the following issues:
(a)Who was the successful party?
(b)As a matter of discretion, how should I approach and deal with the
Calderbank offer?
(c)The appropriate categorisation – whether category 3 or 2?
(d)The calculation of disbursements.
Relevant legal principles
[7] The primary rule is that costs are at the discretion of the Court.3 However, the discretion is not unconstrained and is to be exercised in accordance with Part 14 of the Rules.4
[8] The general principles applying to the determination of costs contained in r 14.2(1),5 are:
(a)The party who fails with respect to a proceeding or an interlocutory application should pay costs to the successful party;
(b)An award of costs should reflect the complexity and significance of the proceeding;
3 High Court Rules 2016, r 14.1.
4 Stokes v Prain [2021] NZCA 683, at [23].
5 Ole Ltd v Benge [2024] NZHC 654, at [12].
(c)Costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application;
(d)An appropriate daily recovery rate should normally be two-thirds of the daily rate considered reasonable in relation to the proceeding or interlocutory application;
(e)What is an appropriate daily recovery rate and what is a reasonable time should not depend on the skill or experience of the solicitor or counsel involved or on the time actually spent by the solicitor or counsel involved or on the costs actually incurred by the party claiming costs;
(f)An award of costs should not exceed the costs incurred by the party claiming costs;
(g)So far as possible the determination of costs should be predictable and expeditious.
[9] Calderbank offers are expressly provided for in r 14.10 (written offers without prejudice except as to costs).6
[10] Subject to the Court’s discretion, r 14.11(3) provides that the party that makes the Calderbank offer is “entitled to costs in the steps taken in the proceeding after the offer is made” if, among other reasons, the offer is for “a sum of money … that exceeds the amount of a judgment obtained.”7
[11]The Law of Costs in New Zealand textbook states that:8
A Calderbank offer creates no entitlement: its effect on the determination of costs is a matter for the discretion of the court, and this discretion overrides the specific provisions of r 14.11. While the court must consider a Calderbank offer to have the effect described in r 14.11, it must consider all relevant circumstances, and these may justify a different approach.
6 High Court Rules, r 14.10.
7 High Court Rules, r 14.11(3).
8 David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at [3.58].
[12] Under r 14.7(f)(v), the Court may refuse or reduce costs to a party claiming costs if the party has contributed unnecessarily to the time or expense of the proceeding by failing without reasonable justification to accept an offer of settlement made under r 14.10.9
[13] The rationale behind refusing or reducing costs to the party who fails, without reasonable justification, to accept an offer of settlement is that:10
The scarce resources of the Courts should not be burdened by litigants who choose to reject reasonable settlement offers, proceed with litigation and then fail to achieve any more than was previously offered.
Analysis and decision
Issue (a) – The successful party
[14] The defendants submit that it is open to the Court to find that they were successful, but they do not put their position that high. They say they do not need to.
They rely on r 14.7.11
[15] I accept the submission of the plaintiffs that they were the successful party. As they submit “limited success” is still “success” for the purposes of costs.12
[16] In this case, I found the defendants liable in negligence for defects 1 and 2. I awarded damages of approximately $4.9 million, albeit a sum substantially short of the total amount sought. At trial both defendants contested liability and contended for smaller damages awards.13
[17] The starting point therefore is that the plaintiffs are the successful party and entitled to costs.
9 High Court Rules, r 14.7(f)(v).
10 BlueStar Print Group (NZ) Ltd v Mitchell [2010] NZCA 385 at [20].
11 In relation to costs and disbursements pre-Calderbank.
12 Weaver v Auckland Council [2017] NZCA 330 at [26].
13 In the case of Argon Construction Ltd, I rejected its principal defence that it did not owe non- delegable duties of care: Body Corporate 406198 v Argon Construction Ltd, above n 1, at [120].
Issue (b) – The effect of the Calderbank offer
[18] The defendants note and submit that in closing submissions the plaintiffs sought damages of nearly $41 million, but they obtained judgment for approximately
$5 million or less than one-eighth of that amount (and just over seven per cent of the amount sought in the ninth amended statement of claim). The damages award also represents approximately only one quarter of the value of the Calderbank offer of approximately $19 million.
[19] The defendants accept that the Calderbank offer was also made to settle defect 7 (not an issue before me but settled prior to trial) and defect 8 (albeit without contribution). However, they submit that that does not change the fact that the Calderbank offer exceeded the amount of the judgment by a substantial margin. They say that even if the full value of the claims for those defects (i.e. 7 and 8) are subtracted from the offer or added to the judgment sum, the offer is still more than three times the judgment.
[20] The plaintiffs accept that Calderbank offers may operate to reduce the costs otherwise payable to the successful party. However, they submit that awarding costs to the unsuccessful parties, even ones who made a valid Calderbank offer, is an unlikely outcome.
[21] The defendants cite only one case, namely Weaver v Auckland Council,14 where such an outcome has occurred. In my view, Weaver is a fundamentally different case from the facts here. Importantly in Weaver, the defendants “effectively” offered to pay the entirety of the plaintiff’s pleaded claim, pre-trial.15 The amount of the pleaded claim was also modest, namely $197,500, and therefore not particularly cost- effective. Furthermore, the trial Judge had urged settlement, pre-trial.16 In the circumstances, it was unreasonable for the plaintiff to have proceeded to trial.
[22] I find that in this case, to award costs to the defendants of any kind, whether scale costs or on an increased basis or otherwise, would be unconscionable and unjust.
14 Weaver v Auckland Council, above n 12.
15 Less interest, costs and disbursements; see Weaver v Auckland Council, above n 12, at [35].
16 Weaver v Auckland Council, above n 12, at [37].
The Calderbank offer made was not for the entirety of the pleaded claim and, as I concluded in my liability judgment, the defendants (but most particularly, the Auckland Council) put the plaintiff to proof on virtually every aspect of the claim. This included the nature and scale of the defects and the fundamental issue of liability.
[23] The critical issue to address is whether the Calderbank offer should operate to reduce costs. The defendants bear the onus of satisfying the Court that it is appropriate to do so. It is clear from r 14.11 that whether a Calderbank offer has any effect is ultimately a highly discretionary matter.17 The case law is clear that the ultimate judgment sum exceeding the amount offered in a Calderbank offer does not mean that the Court is duty bound to award the offer of costs.18
[24] Furthermore, the “reasonableness of a party’s rejection of such an offer must be assessed at the time of rejection, not against the subsequent result.”19
[25] I find that it would be unjust and unreasonable to reduce any costs in this case on account of the Calderbank offer. I find that the plaintiffs, at the time they rejected the offer, cannot be said to have acted unreasonably. The following factors are relevant:
(a)The defendants’ offer of 29 March 2023 was premised on the fact that Mr Early (a then proposed expert witness for the Auckland Council on the issue of remedial scope), was still being called as a witness by the Council. It was therefore fair for the plaintiffs to assume that his alternative scope was a reasonably possible outcome. Mr White, the quantity surveyor expert for the Council, estimated Mr Early’s scope of repairs was approximately $20,590,126 before GST. That materially exceeded the cost of Mr Alexander’s scope as costed by Mr Brock;
17 High Court Rules, r 14.11.
18 Moore v McNabb (2005) 18 PRNZ 127 at [59].
19 Pangani Properties Ltd v G R Lloyd [2019] NZHC 863 at [25], citing New Zealand Sporting Merchandise Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010.
(b)The offer failed to address the question of costs, despite it being clear that significant costs had been incurred by the time the offer was made; and
(c)There was a failure to make any relevant or material admissions or concessions — liability was, in fact, denied at all times.
[26] I reject the defendants’ submission that the plaintiffs’ case lacked merit, seemingly from the outset. The amount of the Calderbank offer, namely $19.2 million, does not bear this out. Rather, that amount tends to indicate relatively significant litigation risk for the defendants, at least at the time that the offer was made.
[27] In contrast to a number of cases where a plaintiff’s rejection of a settlement offer can be regarded as unreasonable, the present case was necessarily one where the plaintiffs and their lawyers were obviously reliant on independent expert advice on the critical issue of scope of repairs.
[28] The case of Bates v Auckland Council20 does not assist the defendants. In that case, the plaintiffs were unsuccessful. It is not a case of a plaintiff achieving limited success. Rather, the plaintiff had to pay costs to a defendant who had made a valid offer to settle beforehand. The plaintiff, Ms Bates, conceded liability to pay costs.
[29] In conclusion, on the issue of the Calderbank offer, I find that the Calderbank offer does not affect my analysis that the plaintiffs were successful. In this case, the Calderbank offer should not operate to reverse liability for costs or give rise to a basis for reducing costs to be awarded to the plaintiffs.
Calculation of costs
[30] The starting point for the calculation of costs is Appendix 1 to the plaintiffs’ submissions of 28 February 2024.
20 Bates v Auckland Council [2022] NZHC 336.
Issue (c) – Categorisation
[31] The parties agree that time allocations under “B” of schedule 3 of the High Court Rules are appropriate. However, they disagree as to whether the appropriate daily rate ought to be category 3 or 2. Rule 14.3 provides that a category 3 proceeding is one which because of its complexity or significance requires counsel to have special skill and experience in the High Court.21
[32] I find that these proceedings should be categorised as category 3. In my view, the proceedings were complex, involving technical engineering and programming evidence as well as extensive and, at times, complex quantity surveyor evidence. The trial was lengthy and there were a significant number of witnesses, both fact and expert. Some of the legal issues, including the standing of the plaintiffs and interpretation of the Building Act 2004, were complex and to some extent, novel. The plaintiffs also had to address each of the elements of the tort of negligence which they had the burden of proving.
Issue (d) – Time band C for three discrete steps
[33]The plaintiffs seek additional cost allowances for the following three items:
(a)Discovery — band B allows 2.5 days for the preparation of a list of documents, whereas band C allows 7 days;
(b)Preparation of briefs and agreeing common bundle — 16.25 days is allowed for this step based on a hearing of 26 days;
(c)Preparation for hearing — 16.25 days is allowed for this step based on a hearing of 26 days.
[34] I find that the plaintiffs should be granted the additional cost allowances sought. The discovery was extensive, involving discovery by the plaintiffs of more
21 High Court Rules, r 14.2(3), which provides that the appropriate daily recovery rate should not depend on the skill or experience of the solicitor involved.
than 14,000 documents. The plaintiffs are to be allowed $47,220 (equivalent to 2 x 3C).
[35] In relation to preparation of briefs and agreeing common bundle (which exceeded 35,000 pages) I allow the plaintiffs 40 days.
[36]As to preparation for hearing, I allow the plaintiffs 50 days.
[37] I acknowledge that these are high figures, but they reflect, in my view, the scale, the complexity and significance of the proceedings. The plaintiffs were, of course, preparing on the basis that their claim totalled approximately $41 million. I note also that the settlement of some of the other defects (apart from 1 and 2) that took place not long before trial, added to the complexity and challenges that the plaintiffs faced. There was an inevitable and substantial re-casting of the claims and some of the key evidence.
Issue (e) – Steps in proceeding not specifically mentioned in Schedule 3 (item 36 of Schedule 3)
[38] The plaintiffs claim costs for the following steps that are not specified in Schedule 3 of the Rules:
(a)Arranging the experts’ conferral and drafting the Scott Schedule for waterproofing experts – 3 days;
(b)Preparing submissions on quantum (including reply) – 1.5 days.
[39] I find that the plaintiffs should be awarded these additional costs. I note that the Auckland Council does not oppose an allowance for these additional costs.
Issue (f) – Certification of third counsel
[40] I certify for third counsel. I note that both the Auckland Council and Argon Construction Ltd agree with certification of third counsel.
[41] The complexity, the significance, the length of trial and the nature of discovery justify the certification for third counsel. I also note that there were a significant number of legal issues, including the standing of the first plaintiff, the interpretation of the Building Act 2004, the issue of measure of loss, contributory negligence (and how it operates in the standing context) and non-delegable duties of care.
Issue (g) – Disbursements
[42]The plaintiffs claim disbursements of $796,837.92, broken down as follows:
(a)Court fees – $107,200;
(b)Photocopying and other expenses (including courtroom screen set-up of $20,834 and electronic discovery of $44,957.50) totalling
$72,314.73;
(c)Expert witness fees – $617,323.19.
[43] Rule 14.12 covers entitlement to disbursements.22 In addition to recovery of expenses in an approved class, such as court fees, r 14.12(2) provides for recovery of disbursements that are specific to the conduct of the proceeding; and reasonably necessary for the conduct of the proceeding; and reasonable in amount. Rule 14.12(3) provides that a disbursement may be disallowed or reduced if it is disproportionate in the circumstances of the proceeding.23
[44] The Auckland Council contends that the only expert fees that can properly be regarded as reasonably necessary for the conduct of the proceeding are those which were incurred in relation to defects 1 and 2. It says that where any expert’s work related to other defects, the associated fee should be excluded, and where that work relates to more than one defect, then an apportionment will be required.
[45] The plaintiffs accept that some discount needs to be made for fees for work on settled or abandoned defects. They contend for a “broad brush” approach. They
22 High Court Rules, r 14.12.
23 High Court Rules, r 14.12(3).
initially made a deduction of $35,000 to account for “charges that may have a component relating to settled defects.” In their reply submissions on costs, they accept that a further reduction of $34,209.55 would be appropriate.
[46] The Auckland Council is critical of the “broad brush” approach. It submits that more is required than “bare assertion” when the plaintiffs are seeking to recover more than $600,000. It argues that an assessment of particular expert witness work concerning defects 1 and 2 requires detailed supporting information, which has not been supplied.
[47] The Auckland Council further submits that the plaintiffs cannot recover the expert witness fees for the Maynard Marks witnesses, including Mr Angell (with the exception of Mr Simon Paykel’s evidence in relation to Council practice), Mr Hakin, Mr August, Ms Gould or Ms van Eden (even when those fees relate to defects 1 and 2). The Auckland Council submits that their evidence was for the most part, completely rejected.
[48] I find that the criticisms the Auckland Council makes of the plaintiff’s proposed “broad brush” approach are overstated. While in principle a distinction should be drawn between defects 1 and 2 and the other defects that were settled and/or abandoned, in practice and given the late settlement of those other claims, it seems to be that this may well have been a difficult, complex, and expensive exercise. This litigation must already have been hugely expensive for all parties and there must be very real questions that at this late costs stage, whether any work to resolve these issues is at all cost-effective. The realities of litigation of this scale need to be firmly kept in mind.
[49] I accept that there is merit to the Auckland Council’s contention that there should be some further discount for the expert fees for some of those expert witnesses whose evidence I rejected.
[50] In this case, I do not see how anything other than a “broad brush” approach can ultimately be applied in determining the amount of expert fees that are recoverable.
Taking all matters into account, I find that the plaintiffs should be allowed $400,000 under r 14.12 for expert witness fees.
[51] I also allow for the Court fees of $107,200 and the total photocopying and other expenses sought of $72,314.73. Many of the objections made by the Auckland Council to the plaintiffs’ claim for disbursements relating to these categories are based on its Calderbank offer submissions. I have, of course, rejected those submissions.
Liability of costs as between defendants
[52]I find that both defendants are jointly and severally liable for costs.
[53] I also order that liability for the costs and disbursements is to be apportioned between the defendants as follows:
(a)The Auckland Council is liable to pay 65 per cent of the costs and disbursements; and
(b)Argon Construction Ltd is liable to pay 35 per cent of the costs and disbursements.
[54] This apportionment is made to recognise the different roles taken by the defendants and, in particular, the approach of the Auckland Council to contest virtually every element of the plaintiffs’ claim. It also recognises the fact that the evidence called by Argon Construction Ltd from Mr Alexander and Mr Brock (as to scope and quantum) met the plaintiffs’ case head-on. I ultimately concluded as follows:24
Ironically, if I were to accept the plaintiffs’ criticisms of Mr Alexander and reject his evidence, then there would be no scope before the Court that could be accepted.
[55] I agree with the submission of Argon Construction Ltd that its approach, and the benefits of its approach, for both the Court and for the plaintiffs, should be reflected to some extent in costs.
24 Body Corporate 406198 v Argon Construction Ltd, above n 1, at [246].
Memorandum of the self-represented second plaintiffs dated 19 March 2024 (including Hailing Wang and Linda Wu)25
[56] In making the determinations on costs in this judgment, I have taken into account the submissions of the self-represented second plaintiffs in their submission.
[57] I note that Ms Wang and Ms Wu contend that they were not aware of the Calderbank offer details (and were surprised at it) until disclosed by the defendants as part of the costs submissions process.
[58] Ms Wang and Ms Wu say that they “fully adopt and support all the positions expressed in the Auckland Council’s Calderbank offer on 29 March 2023.”
[59] Ms Wang and Ms Wu apply for a ruling that they not be required to pay the defendants’ costs. In light of my finding that the defendants are not entitled to costs, but rather must pay costs to the plaintiffs, it is not necessary for me to address this point.
[60] As acknowledged by Ms Wang and Ms Wu, internal disputes between them and the Body Corporate cannot be resolved in these proceedings.
Result
[61] I order that the defendants (on a joint and severable basis), are to pay costs to the plaintiffs (based on a category 3B calculation) in the sum of $563,254.26
[62] I further order that the defendants (again on a joint and severable basis) are to pay disbursements to the plaintiffs in the total sum of $579,514.73 (i.e. total court fees of $107,200, photocopying and other expenses of $72,314.73, and expert witness fees of $400,000).
[63] As between the defendants, the liability for costs and disbursements is to be apportioned as follows:
25 A notice of change of representation was filed, dated 8 March 2024.
26 As calculated in Appendix 1 to the plaintiffs’ submissions on costs dated 28 February 2024.
(a)the Auckland Council is liable to pay 65 per cent of the costs and disbursements; and
(b)Argon Construction Ltd is liable to pay 35 per cent of the costs and disbursements.
[64] I will address the plaintiffs’ application for correction of the judgment (i.e. quantum) under High Court Rule 11.10 in a separate and subsequent judgment. That is the only outstanding matter in these proceedings.
Andrew J
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