East v Medical Assurance Society New Zealand Limited

[2017] NZHC 2802

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2013-409-001360 [2017] NZHC 2802

BETWEEN

MICHAEL CHARLES EAST, JANE

LOUISE EAST AND INGRID ROBYN TAYLOR AS TRUSTEES OF THE EAST FAMILY TRUST

Plaintiffs

AND

MEDICAL ASSURANCE SOCIETY NEW ZEALAND LIMITED Defendant

Submissions:	21 September 2016 and 16 October 2016
Appearances:	S P Rennie for Plaintiffs N R Frith for Defendant
Judgment:	15 November 2017
Reissued:	23 November 2017

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to costs]

Introduction – the litigation to date

[1]      The plaintiffs’ home was damaged in the Canterbury earthquake sequence. The defendant had indemnified the property against earthquake damage under a policy of insurance.

[2]      The plaintiffs sued the defendant in reliance on that policy.

EAST v MEDICAL ASSURANCE SOCIETY NEW ZEALAND LIMITED [2017] NZHC 2802 [15 November

2017]

[3]      Following a five day trial in late 2014, Whata J gave judgment granting some relief on 22 December 2014.1     His Honour reserved matters relating to the quantification of restoration costs.2     His Honour also reserved costs pending the resolution of quantum issues.3

[4]      The defendant appealed.  The plaintiffs cross-appealed.  On 17 June 2015 the Court of Appeal gave judgment, allowing the defendant’s appeal in part but otherwise dismissing the appeal and the cross-appeal.4   The Court of Appeal made no order for costs or disbursements given that both parties had enjoyed a measure of success on the appeal.5

The need for costs and disbursements to be determined

[5]      It seems that, following the delivery of the Court of Appeal’s judgment, the parties struggled to reach agreement on the scope of works and costings.

[6]      Equally the parties did not resolve the issues of costs and disbursements which had been reserved in this Court.

[7]      I therefore issued directions in July 2017 for the filing of memoranda as to costs and disbursements. Those have now been received and considered.

The parties’s positions on costs

[8]      The plaintiffs seek costs of $40,307.25 and disbursements of $92,205.32.  To reach the costs figure, Mr Rennie calculates a full scale award, based on a 2B calculation6 of $53,743.  Mr Rennie identifies two trial issues on which the plaintiffs succeeded in the High Court, namely an issue as to the timing of payment (an interpretation matter) and a proper measure issue (relating to the assessment of the scope of works and their cost).  While the plaintiffs succeeded on both issues in the

High Court, they ultimately lost on appeal on the timing issue.  Mr Rennie, having

1      East v Medical Assurance Society NZ Ltd [2014] NZHC 3399.

2      East v Medical Assurance Society New Zealand Limited, above n 1, at [119](c).

3      East v Medical Assurance Society New Zealand Limited, above n 1, at [120].

4      Medical Assurance Society New Zealand Limited v East [2015] NZCA 250.

5      Medical Assurance Society New Zealand Limited v East, above n 4, at [49].

6      High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).

regard to the outcome, would exclude from the costs calculations the time at trial of certain witnesses (four hours) and would discount the 2B scale assessment of submissions by 25 per cent, having regard to the time taken on the timing issue.

[9]      The defendant asks that there be no order as to costs and disbursements in relation to the issues determined in the High Court and the Court of Appeal save that the plaintiffs should be awarded their geotechnical engineering experts’ pleas and that the defendant should be awarded its quantity surveying experts’ fees. Mr Frith submits that the parties enjoyed a broadly equal measure of success on the determined issues.

[10]     Mr Frith also takes issue with Mr Rennie’s calculation of items and the daily rate included in Mr Rennie’s 2B calculation.

[11]     Mr Frith submits that the plaintiffs’ claim for the fees of one expert witness (Dr Jain) is unjustified in that the disbursement is not appropriately substantiated and the evidence had no bearing on the determined issues.  Issue is taken with some other disbursements, including filing fees.

[12]     Finally, Mr Frith submits that the plaintiffs have not established that they have incurred any costs or disbursements in their own right.  They refer to an agreement dated 30 January 2012 between Risk Worldwide New Zealand Ltd and Mr and Mrs East in which their insurance claim was assigned to Risk Worldwide on the basis that Risk Worldwide would be the body presenting the insurance claim (and implicitly thereby meeting the costs  of such  presentation).   The invoices  provided  by the plaintiffs are consistently addressed to Risk Worldwide.

Legal issue – actual costs and disbursements incurred by the party claiming costs

[13]     In the concluding paragraphs of his costs memorandum, Mr Frith questioned “whether [the] plaintiffs incurred any costs and disbursements”, having regard to the arrangements which had occurred involving Risk Worldwide.  While Mr Frith raised the question, he did not develop any legal submissions upon it.   Mr Rennie’s submissions had been previously filed and had not addressed the issue.

[14]     As counsel will be aware, the issue has recently arisen in other litigation on the Earthquake List and is likely to be the subject of a determination, upon full submissions, in at least one other case.

[15]     In these circumstances, and in the absence of any developed submissions to this point in this case, I will defer any consideration of the legal issue.   In this judgment, I will instead address the appropriate incidence and quantum of costs and disbursements, reserving (if counsel wish to pursue the question) for later determination whether the plaintiffs are in fact precluded from recovering the costs and disbursements sought by reason of their not having actually incurred those costs and disbursements.

Costs

[16]     The submissions of counsel for both the plaintiffs and defendant proceed on the basis that the Court should appropriately apply the primary principle under r

14.2(a) High Court Rules whereby costs follow the event. They differ on whether the parties had a similar measure of success (Mr Frith’s submission) or the outcome was preponderantly in favour of the plaintiffs (Mr Rennie’s submission).

[17]     In Packing In Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott, the Court of Appeal considered a case where in broad terms each party had had similar success.7     Bond Cargo had applied for an order reversing the setting aside of 14 allegedly voidable transactions. The High Court reversed the setting aside of 11 of the

14 transactions (representing $60,970.79 out of a total of $112,344.96 by value). The

High Court awarded costs to the respondent.

[18]     Tipping J delivered the judgment of the Court of Appeal.  The Court had to consider the costs award.  His Honour, having recognised the similar success of both parties, continued:8

Costs in a case such as this should rather be based on the premise that approximately equal success and failure attended the efforts of both sides. To

7      Packing In Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott (2003) 16 PRNZ 869 (CA)

at [5].

8 At [5].

that starting point should be added issues such as how much time was spent on each transaction or group of transactions in issue, and any other matters which can reasonably be said to bear on the Court’s ultimate discretion on the subject of costs. In the end, as in all costs matters, the Court must endeavour to do justice to both sides, bearing in mind all material features of the case.

[19]     What the Court of Appeal’s judgment recognises is that in some cases it is relatively easy, standing back, to ascribe approximately equal success to both parties. But, by the reference to examining time spent on each issue, the judgment recognises that it may be necessary, in achieving justice between the parties, even in a case where the outcome on issues is evenly split, to award one party a measure of damages having regard to a disproportionate time required on that party’s “winning” issues.

[20]     Here, the most significant outcome was that the plaintiffs obtained a judgment which has enabled them to have the scoping and costing works and subsequent repair proceed on the basis of the policy as correctly interpreted in relation to the proper measure.   This was, as Mr Rennie submitted, the issue which occupied the preponderant time at trial.

[21]     To the extent that the outcome in the Court of Appeal reversed the High Court judgment – on the interpretation issue as to the timing of payment – it is necessary to recognise that the defendant had a measure of success.   It is also necessary to recognise, as Mr Frith submitted, that the defendant succeeded at trial on issues not identified in Mr Rennie’s submissions.  Those involved success against the plaintiffs’ claim for a money judgment, the plaintiffs’ position on what policy terms applied and the plaintiffs’ assertion of a breach of the defendant’s claims handling duty. But those do not collectively defeat the significance of the plaintiffs’ success as identified in the preceding paragraph.

[22]     My overall impression of the time involved at trial on the significant issues is reinforced by the observation in the judgment of the Court of Appeal that:9

It must be noted that much of the judgment [of Whata J] is a narrative of evidence relating to a dispute about the proper measure of MAS liability. It is unnecessary for us to revisit that evidence or the Judge’s findings on it because they are not in issue on appeal.

9      Medical Assurance Society New Zealand Limited v East, above 4, at [10].

[23]     A mathematical division of the component issues and outcomes in this case is neither achievable nor necessary.  Having regard to the issues which were in play at trial, and the High Court’s analysis of the evidence on those issues, I conclude that the just outcome requires an award in favour of the plaintiffs by reference to the scale and a 2B assessment, but with two additional steps. First, there should be disregarded from the calculation of hearing days the time taken on evidence on which the plaintiffs effectively failed (four hours).  Secondly, there should be a reduction of the normal allowance for submissions, designed to reflect the fact that a significant proportion of submissions was directed to issues on which the plaintiffs failed. Whereas Mr Rennie submitted that the appropriate reduction would be 25 per cent, Mr Frith described that as “an underestimate”, without proposing an alternative percentage.  The proportion which I relate to submissions on the “failed” issues is 33.3 per cent.

[24]     Mr Rennie attached to his submissions a schedule of his calculation of costs upon a 2B basis.

[25]     Mr Frith raised three objections to Mr Rennie’s specific calculations.

[26]     Mr Rennie applied the current daily recovery rate for a Category 2 proceeding of  $2,230.10     The  correct  recovery rate  (the  High  Court  judgment  having  been delivered on 22 December 2014) was $1,990.11

[27]     Secondly, Mr Rennie’s calculations assumed that there would be a certificate for second counsel. I will not so certify. From a perusal of the judgment, the case was not of such complexity or intensity as to justify an allowance for second counsel.

[28]     Thirdly, the plaintiff objects to Items 20 and 21 (list of documents on discovery and inspection of documents) upon the basis that formal discovery was not undertaken. That is true. As in almost all litigation on the Earthquake List, the parties proceeded on an informal basis.   They did so, however, pursuant to Court direction.   The directions in this case dispensed with the requirement for a list as such, but still

required discovery and therefore consequential inspection. The parties were required

10     High Court Rules, Schedule 2.

11     Pursuant to r 4 High Court Amendment Rules 2012.

to assemble the identified categories of documents, even if not to list them.   It is appropriate to allow 50 per cent of Item 20 (1.25 days) and a full Item 21 (1.5 days).

[29]     The adjusted schedule of costs is attached to this judgment as Schedule “A”.

Disbursements

Expert witness fees

[30]     The plaintiffs called a number of experts.  The plaintiffs limit their claim to recover expert witness fees as disbursements to those of Dr Anuarg Jain ($45,785.89) and Elliot Duke ($27,256.43).  Mr Rennie did not provide an analysis of the way in which the evidence of those two witnesses related to the issues on which the plaintiffs succeeded.

[31]     I deal first with Dr Jain’s fees. The defendant objects to an award of those fees on the basis that Dr Jain’s evidence had no bearing on the decided issues as his evidence related solely to the extent of earthquake damage to the plaintiffs’ dwelling’s superstructure and the repairs necessary to repair that damage. As issues regarding the extent of earthquake damage and scope of superstructure repairs are yet to be determined, Mr Frith submits that it would be inappropriate to make an award of this disbursement (at least at this point).

[32]     I agree.  The appropriate order at this point is that issues of recovery of Dr

Jain’s fees should be reserved pending the final outcome.

[33]     Mr Duke, on the other hand, provided geotechnical engineering evidence which led to the Court’s determination of the general foundation requirement.  Mr Frith responsibly accepts that Mr Duke’s evidence was helpful in determining those matters. The defendant does not oppose an award of Mr Duke’s fees.

Other disbursements

[34]   The plaintiffs seek an order for payment of a number of other usual disbursements, being filing fees, scheduling fee, hearing fee, printing of the common bundle and a process server’s fees.

[35]     The defendant opposes the award of the fees of Court.  Mr Frith explains that opposition upon the basis of his previous (unsuccessful) submission that the parties achieved a broadly equivalent measure of success.

[36]     As my determination is that the plaintiffs were preponderantly successful, they are entitled to recovery of their Court fees, subject to a reduction of the hearing fee in relation to half a day having regard to the time involved with evidence on “unsuccessful issues”.

[37]     The process server’s fee is not challenged and is to be allowed.

[38]     The sum recovered for printing of the common bundle ($1,652) is challenged by the defendant upon the basis that those costs are unverified and, in Mr Frith’s submission, appears to be disproportionate in the light of the size of the common bundle (which comprised five lever arch files). While the figure claimed is significant, it does not appear out of keeping with disbursements which the Court sees in relation to other trials of this length.  On the other hand, the defendant’s objection that the disbursement has not been verified (in terms of r 14.12(2) High Court Rules) is justified.

[39]     This disbursement will be referred to the Registrar for verification.

Orders

[40]     I order:

Incidence and quantum

(a)       The defendant is to pay to the plaintiffs the costs of this proceeding in the sum of $25,799.36.

(b)The defendant is to pay to the plaintiffs its disbursements (other than in relation to the common bundle)  which I fix at $43,167.43.

(c)      I reserve the plaintiffs’ claim for the disbursements in relation to the common bundle, which will be allowed subject to verification. That issue is referred to the Registrar.

Liability to pay

(d)The liability of the defendant to pay the costs and disbursements so ordered and fixed will not accrue until and unless there is a later determination that the defendant is not precluded from recovering such costs and disbursements by reason of their not having actually incurred those costs and disbursements (“the remaining costs issue”).

(e)      Leave is reserved to counsel to have the remaining costs issue brought on for determination on five working days’ notice.

Associate Judge Osborne

Solicitors:

Rhodes & Co, Christchurch

Minter Ellison Rudd Watts, Auckland

SCHEDULE A

Costs

SCHEDULE OF 2B COSTS AND DISBURSEMENTS

Item 1	Commencement of proceeding by plaintiff	3.0
10	Preparation for first case management conference	0.4
11	Filing memorandum for case management conference	0.4
13	Appearance at case management conference	0.3
15	Preparation for and appearance at pre-trial conference	0.5
20	List of documents on discovery	1.25
21	Inspection of documents	1.5
30	Plaintiff’s preparation of briefs or affidavits	2.5
31	Plaintiff’s preparation of list of issues, authorities and	2.5
common bundle
33	Preparation for hearing	3.0
34	Appearance at hearing for sole or principal counsel	4.0

Total number of days  19.35

Total costs (@ 1,990)   $38,506.50

Total  w ith  33.3%  red u ction    $25,799 .36

Disb u rsemen ts

Filing fees  $1,350.00

Scheduling fee  $1,600.00
Hearing fee  $12,800.00
Process server  $161.00
Expert fees  $27,256.43

Total   $43,167.43

Total   $68,966.79