Bruce v IAG New Zealand Ltd

[2020] NZHC 661

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV 2016-409-1223

[2020] NZHC 661

BETWEEN

J T BRUCE, S L BRUCE and L G

WILLETTS as Trustees of the Jo and Stephen Family Trust

Plaintiffs

AND

IAG NEW ZEALAND LTD

Defendant

AND

ORANGE H MANAGEMENT LTD (FORMERLY HAWKINS MANAGEMENT

LTD) (in receivership and liquidation) First Third Party

ORANGE H GROUP LTD (FORMERLY HAWKINS MANAGEMENT LTD) (in

receivership and liquidation) Second Third Party

QBE INSURANCE (AUSTRALIA) LTD

Third Third Party

On the papers
Judgment:	31 March 2020

JUDGMENT OF MALLON J

Introduction

[1]                 Mr and Mrs Bruce, through their family trust, have brought a claim against the defendant (IAG). The trial of their claim was divided into two stages. The first stage has been determined.1 The second stage is to be heard later this year.

1      Bruce v IAG New Zealand Ltd [2018] NZHC 3444.

BRUCE v IAG NEW ZEALAND LTD [2020] NZHC 661 [31 March 2020]

[2]                 The Bruces seek an order for costs for the first stage. They say they succeeded at the first stage and are therefore entitled to costs. IAG disagrees that the Bruces succeeded. It considers costs should remain reserved until the second stage has been determined.

Background

[3]                 Mr and Mrs Bruce’s home, owned through their family trust, was damaged in the Christchurch earthquake. The house was insured with the IAG. IAG elected to repair the house. The repairs were extensive. The Bruces considered the builder engaged by IAG did not meet the “as when new” standard required under the policy. They brought this claim against IAG seeking remediation costs of $2,056,221 for 135 alleged defects as well as general damages of $50,000, temporary accommodation costs, interest and costs.

[4]                 Pursuant to a pre-trial direction the claim was divided into two stages. The first stage was whether the alleged repair defects existed and what was required to remedy them. The second stage was to determine the cost of remediation and the appropriate remedy or damages.

[5]                 The trial on the first stage took place in November 2019. Prior to the trial, IAG accepted that a large number of the pleaded defects existed and that it was responsible to remediate them. The trial was confined to five remaining alleged defects: (1) the interior finish; (2) the wall verticalities; (3) the floor levels; (4) the downstairs fire place; and (5) the garage. At trial the Bruces contended the award of damages should be the estimated cost to rebuild the whole house or, alternatively, to lift the house and rebuild the foundation.

[6]I determined these matters as follows:

(a)I found in favour of the Bruces as to the level of interior finish that was required for an “as when new” repair. I accepted IAG’s expert evidence as to what remediation would be required to achieve this finish.

(b)I found that the wall verticalities were affected by the repairs but to a minor extent. I accepted IAG’s expert evidence that endeavouring to straighten the walls now was not a reasonable response when no real benefit would be achieved from it. I indicated a possible way that damages might be assessed so that the parties might be able to settle this without further court involvement.

(c)I found the floor levels had not been repaired to the “as when new” standard and that there was some resulting loss of amenity. I considered it was unclear on the evidence whether there was a reasonable and workable remedial solution. As with the wall verticalities, I indicated a possible way forward for the parties to resolve the matter.

(d)Prior to the earthquake the upstairs and downstairs fireplaces matched. The upstairs fireplace was damaged in the earthquake but the downstairs fireplace was not. IAG provided the funds for the upstairs fireplace but it was not possible to find a match for the one downstairs. The Bruces claimed that IAG needed to replace the undamaged downstairs fireplace so that it would match the new upstairs one. I held that IAG was not required to do this.

[7]                 The Bruces abandoned the garage claim through counsel in oral closing submissions. As noted in my judgment, they were correct to do so. They were unable to prove that the repaired garage varied from the garage as it was originally built despite considerable latitude provided to them during the hearing to do so.

[8]                 I considered general damages were available but did not reach a final view on an award because of the limited submissions made about this. This was to be considered further if the parties were unable to resolve the matter.

[9]                 I anticipated the parties would be able to resolve all outstanding matters in light of my findings and indications as to how those matters might be resolved. I reserved costs with leave for the parties to submit memoranda if they were not resolved.

[10]              On appeal, the Court of Appeal set aside my finding that the plaintiffs had not established there was a reasonable and practical way to remedy the walls or the uneven floors.2 The Court considered the Bruces should have the opportunity to call evidence about the cost of remediating the wall verticalities and the uneven floor before that conclusion could be made, given the issues that were to be determined at the two stages. The appeal was otherwise dismissed.

Submissions

[11]The Bruces claim they succeeded because:

(a)IAG belatedly accepted liability for more than 127 defects shortly before the trial on the first stage;

(b)the Court accepted their position on the standard of IAG’s obligations under the policy, that IAG breached those obligations and that IAG is liable for general damages.

[12]              The Bruces rely on authority to the effect that, where there is a split trial and it is possible to identify the successful party, the ordinary rule is that the successful party is entitled to costs. Success on limited terms is still a success.

[13]              IAG submits that at the trial on the first stage the Bruces were seeking damages for the estimated cost to rebuild the whole house or, alternatively, to lift the house and rebuild the foundations. IAG’s position was that there was no benefit to be gained in remedying the wall verticalities or the floor levels. IAG says the overall success or failure of the parties’ respective cases will not become apparent until after the trial on the second stage.

Analysis

[14]              All costs matters are at the discretion of the Court.3 This is subject to principles set out in the High Court Rules 2016. Those principles include:

2      Bruce v IAG New Zealand Ltd [2019] NZCA 590.

3      High Court Rules 2016, r 14.1(1).

(a)The party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds.4

(b)The Court may refuse to make an order for costs or may reduce the costs otherwise payable under the rules if (amongst other things):5

(i)although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or

(ii)the party claiming costs has contributed unnecessarily to the time or expense of the proceeding by pursuing an argument that lacks merit, failing without reasonable justification to accept a legal argument or an offer of settlement.

[15]              When a trial is split into two parts, it may not yet be known whether a party has succeeded or failed in a proceeding. Nor may it be known whether there are grounds for refusing or reducing the costs of the successful party. This leaves the issue of whether costs should be ordered as a matter of discretion for the Court.

[16]              This was confirmed in Cousins & Associates v FM Custodians Ltd where the trial on liability and quantum was split.6 The High Court Judge ordered costs against Cousins & Associates when they admitted liability close to the trial on that issue. They argued on appeal that the Court should have reserved costs until the quantum trial. They contended it was possible that no or only minimal damages would be awarded against them and in that case they would have been the successful party overall.

[17]              The Court of Appeal was referred to English authorities that supported Cousins & Associates’ position. One was Well v Mean Fiddler Holdings Limited where the Judge considered that, if there was doubt about whether the plaintiff would recover more than minimal damages at the quantum trial, it may be proper to defer making a

4      Rule 14.2(1)(a).

5      Rule 14.7 (d) and (f)(ii),(iii) and (v).

6      Cousins & Associates v FM Custodians Ltd [2013] NZCA 99.

costs order until the outcome is known.7 The Court of Appeal agreed that “such a course may be proper” while also saying this was not a principle that had to be followed in all cases.8

[18]              The Court of Appeal considered another Judge might have reserved costs in the High Court, but it was open to the trial Judge to be concerned about the wasted costs arising from the late admission of liability and to order costs. There was no basis for the Court to interfere in the discretion exercised by the Judge in these circumstances.9

[19]              In the present case I consider it is not appropriate to order costs until the outcome of the second stage is determined. This is because there is a prospect that the Bruces will not succeed in establishing anything beyond their success at the first hearing. That was acknowledged by the Court of Appeal. It commented that “it might be thought self-evident that the cost of again lifting the house and replacing the slab would be out of all proportion to the resulting benefit”. It also noted my finding that the wall verticalities exceeded tolerances by very small and indiscernible margins.10

[20]              It is true the Bruces had a measure of success at the first stage. A large number of defects were accepted shortly before the hearing and the Bruces succeeded on the interior finish issue. However, they did not succeed on the fireplace and garage issues and it is not yet known whether they will ultimately succeed on the wall verticalities. If the Bruces do not achieve anything beyond their success at the first hearing, then IAG may contend that costs should not be ordered because they have significantly increased the costs of IAG in pursuing matters that failed or obviously lacked merit.

[21]              The fact that IAG agreed to most of the defective repairs shortly before the trial does not necessarily show that IAG acted unreasonably in failing to agree to these earlier. A direction was made by the Court on 22 November 2017 for a joint report and this led to agreement about most of the defective repairs. There were other attempts to settle the matter including a judicial settlement conference. The details of

7      Well v Mean Fiddler Holdings Limited [2003] EWCA Civ 1637 at [37]-[39].

8      Cousins & Associates v FM Custodians Ltd, above n 6, at [15].

9 At [17].

10     Bruce v IAG New Zealand Ltd, above n 2, at [39].

these attempts are not before me at this stage for obvious reasons but they may be relevant when costs are ultimately determined. Moreover, the Bruces were seeking the estimated cost to rebuild the whole house or, alternatively, to lift the house and rebuild the foundation. Its success relative to that claim will be known once the second stage is determined.

[22]I therefore consider it is premature to determine costs.

Result

[23]              The application for costs is declined. Costs remain reserved. They are to be determined when the second stage has been determined if the parties do not reach an agreement. Taking into account the further costs that will be incurred with a trial on the second stage, it is likely that a negotiated settlement of the outstanding matters remains the best way forward for both parties. The parties are encouraged to see if a settlement can be reached.

Mallon J