Goodier v Earthquake Commission

[2020] NZHC 64

IN THE HIGH COURT OF NEW ZEALAND WHANGANUI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGANUI ROHE

CIV-2016-483-000016

[2020] NZHC 64

BETWEEN

MARK ALBERT GOODIER AND NICHOLA JANE GOODIER

AS TRUSTEES OF THE GOODIER FAMILY TRUST
Plaintiff

AND

THE EARTHQUAKE COMMISSION

First Defendant

AND

IAG NEW ZEALAND LIMITED

Second Defendant

Hearing:

17 – 28 September 2018

8 – 10 October 2018
12 October 2018
16 October 2018
7 February 2019, 27 February 2019 and 14 March 2019 (further submissions received)

Counsel:

G D R Shand and N T P Lala for the Plaintiffs

B A Scott and J Y Moran for the First Defendant
R W Raymond QC and S K Swinerd for the Second Defendant

Judgment:

3 February 2020

JUDGMENT OF CULL J

[1]        Following my judgment of 2 September 2019,1 the Earthquake Commission (EQC) and IAG New Zealand Ltd (IAG) have filed memoranda seeking costs, and an interlocutory application seeking non-party costs against the litigation funder Claims

1      Goodier v The Earthquake Commission [2019] NZHC 2176.

GOODIER v THE EARTHQUAKE COMMISSION [2020] NZHC 64 [3 February 2020]

Resolution Service (2015) Ltd (CRS). This judgment deals only with that first issue: whether and what type of costs should be awarded.2

[2]        EQC and IAG accept that category 2B is the appropriate scale for the most part and seek an uplift on those scale costs of 25 per cent as well as reasonable disbursements.

[3]        Of relevance to this stage of the proceeding, the following costs orders are sought:

(a)EQC seeks that the plaintiffs pay EQC’s costs of this proceeding in the amount of $140,107.92 and EQC’s reasonable disbursements of

$124,343.41, being a total of $264,451.33.

(b)IAG seeks that the plaintiffs pay IAG’s costs of $111,867.80 and reasonable disbursements of $30,910.96, being a total of $142,778.76.

[4]        The plaintiffs to this proceeding, Mr and Mrs Goodier, oppose the cost orders sought on a number of grounds.

Background

[5]        In June 2015 there was a landslip at the Goodiers’ property which caused damage. The Goodiers lodged claims for the damage with EQC under the Earthquake Commission Act 1993 (the Act) and IAG under their insurance policy.

[6]        EQC accepted liability under the Act and paid the Goodiers $136,790.21 (less excess) in respect of the building, retaining walls and land. IAG made a further payment of $36,776.05 to the Goodiers for the damage to the paved driveway. Both EQC and IAG maintained this was the limit of their liability under the Act and the insurance policy respectively.

2      Whether costs should be awarded against CRS is the subject of a hearing set down for this week, for which I will issue a further judgment after the parties have provided oral argument.

[7]        The Goodiers disagreed with EQC and IAG’s positions and issued proceedings in May 2016. At trial, the Goodiers sought $76,709.79 from EQC under s 18 of the Act, and a full sum insured from IAG of $369,972.95, along with $2500 for landscaping costs, $20,000 for retaining wall costs, $1000 for stress and $50,000 for general damages.

[8]        In September 2019, I gave judgment for EQC and IAG. I found that EQC and IAG had no further liability beyond that which had already been accepted.

[9]        The Goodiers have appealed the judgment to the Court of Appeal. The Goodiers have asked that the issue of costs be deferred until the appeal process is complete. EQC and IAG oppose deferral. I consider it is appropriate to determine costs now. There is no presumption that a determination of costs should be deferred until an appeal is heard.3 In this case, much like that in He v The Earthquake Commission, the parties have gone to the trouble of filing costs submissions and it is appropriate that the determination of costs is not deferred too far into the future.4

Legal principles

[10]      Part 14 of the High Court Rules 2016 governs the award of costs. All matters are at the discretion of the Court, though this discretion is not unfettered. It is a general principle that a party who fails with respect to a proceeding should pay costs to the successful party,5 and an award of costs should reflect the complexity and significance of the proceeding.6

[11]      Counsel for both EQC and IAG submit that as they were successful in their defence of the proceeding brought by the Goodiers, the Goodiers should pay costs to EQC and IAG. EQC and IAG accept that category 2B is the appropriate scale with a few exceptions, and seek an uplift on those scale costs of 25 per cent as well as reasonable disbursements. I turn to discuss scale costs, whether an increase is appropriate, and then reasonable disbursements.

3      He v The Earthquake Commission [2018] NZHC 67 at [71].

4 At [71].

5      High Court Rules 2016, r 14.2(a).

6      Rule 14.2(b).

[12]      Before doing so, I deal with the issue of whether both EQC and IAG should receive costs. Rule 14.15 of the High Court Rules 2016 provides that the Court must not allow more than one set of costs between defendants if they defended the proceeding severally and it appears to the Court that they could have joined in their defence, The Goodiers submit that EQC and IAG should not be awarded two sets of allowances for every step in the proceeding because the defendants ran the same case and led the same witnesses.

[13]      I am not satisfied that both defendants could have appropriately joined in their defence. They had different interests and were dealing with distinct issues regarding the insurance policy and the Act. Further, as EQC have explained, although the defendants shared some common interests in the proceeding, they are distinct entities

– one with statutory responsibilities and the other with separate contractual responsibilities.7 There was the potential for conflict between the interests of the two defendants even though that conflict did not eventuate. That IAG ultimately relied on the expert witnesses of EQC does not detract from the appropriateness of their having engaged separate representation. In such circumstances, I consider their separate representation was appropriate.

Scale costs

[14]      In 2016, Associate Judge Smith directed that  the proceeding was  category  2, band B, for costs purposes.8 All parties accept this scale of costs generally and I agree it is appropriate for the reasons outlined by Associate Judge Smith.

[15]      However, both EQC and IAG submit that the following exceptions should be made to the 2B band. The first is a memorandum dated 6 September 2017. Both EQC and IAG submit this should be calculated on a 2A basis as it was a joint memorandum. There is no opposition to such a calculation and I accept the 2A band for that memorandum is appropriate.

7      Hoju v Earthquake Commission [2018] NZHC 2138 at [25].

8      Goodier and Goodier v The Earthquake Commission and IAG New Zealand Ltd HC Whanganui CIV-2016-483-16, 10 August 2016 at [16].

[16]      The  second  exception   is  for  memoranda  dated  25  May,   5  June  and   22 June 2018 and teleconferences on 6 June and 28 June 2018. Both EQC and IAG submit these were required as a result of the Goodiers’ unexplained failure to provide their evidence in accordance with timetable directions. As to costs on these steps, Associate Judge Johnston’s minute dated 6 June 2018 recorded that EQC and IAG are both entitled to costs in relation to the two conferences and preparation for both, being brought about by the Goodiers’ “blatant disregard of their obligations.”9 He directed these costs were to be on a solicitor-and-client basis. For the reasons articulated in Associate Judge Johnston’s minute, costs on a solicitor-and-client basis for the memoranda and teleconferences noted above and the preparation involved for them is appropriate.

[17]      The third exception is for the preparation of briefs and preparation for the hearing. EQC seeks the band C allowance in respect of each of those steps, which is five days each, rather than the band B allowance of two and a half days for briefs and three days for hearing preparation. EQC submits band C is appropriate as a comparatively large amount of time was reasonable for each of those steps. Counsel submits EQC prepared a detailed set of written briefs, the majority of which dealt with technical expert evidence, and the hearing occupied three weeks’ time requiring lengthy preparation. I note that IAG does not seek any scale costs for the preparation of briefs given EQC’s experts were called jointly at trial, and does not seek band C scale costs for preparation for the hearing.

[18]      I do not find it appropriate to alter the scale from band B to band C in this instance. The proceedings were categorised at the outset as band B. It is true the detail of the case unfolded as the hearing progressed, with further evidence being brought throughout the course of the hearing, and this may have complicated matters particularly in terms of hearing preparation. However, this is part and parcel of a relatively lengthy civil matter, involving building and geotechnical issues and does not move the band from the position of band B in the circumstances. I consider band B for both the preparation of briefs and hearing is appropriate.

9      Goodier v The Earthquake Commission and IAG New Zealand Ltd HC Whanganui CIV-2016- 483-16, 6 June 2018 at [9].

[19]      Beyond the usual Schedule 3 step allocations, EQC has also claimed a second allowance for briefing at the band B allowance (two and a half days) as EQC had to re-brief its structural engineer and its builder during the hearing to respond to the evidence of Mr Hunt, the Goodiers’ building expert, who gave new evidence regarding the pile under the southwest corner of the garage during the hearing. EQC submits that a second allowance is appropriate given that both of these briefs needed to be substantially rewritten as a result of Mr Hunt’s new evidence and the defendants’ experts’ subsequent investigations.

[20]      I do not consider it is appropriate to allow a second allowance for re-briefing EQC’s experts during the trial to respond to Mr Hunt’s evidence about the pile at the corner of the garage. As the Goodiers have submitted, no one has suggested Mr Hunt should not have carried out that exercise. The defendants acknowledged his work and thanked him for undertaking the exercise, and despite being critical of Mr Hunt’s relevant expertise, EQC’s experts altered their views and evidence on the information provided by Mr Hunt. In such circumstances it was helpful of Mr Hunt to conduct the exercise he did, even if it did occur later than might have been expected. It provided all the experts involved in the case with further information relating to the pile and how the landslip mechanism occurred. That EQC’s briefs needed to be substantially rewritten as a result is not the fault of the Goodiers, nor of Mr Hunt. To the contrary, EQC’s experts had the same if not more access to the site and could have conducted the exercise themselves at an earlier date if they had thought it might alter or influence their position. I do not accept the second allowance for re-briefing.

[21]      The final exception to the standard Schedule 3 step allocations is a request from both EQC and IAG for another allowance for the preparation of further closing submissions. These were required because the Goodiers’ amended their statement of claim at the end of their lawyer’s reply closing submissions. EQC and IAG submit that had the Goodiers’ amended their claim earlier, EQC could have addressed the amendment in its primary closing submissions. EQC seeks two days allowance and IAG seeks one and a half days.

[22]      I accept an allowance for further closing submissions is warranted. The submissions were both necessary and important due to the amendment of the

Goodiers’ statement of claim, which involved 34 particulars of damage (compared to the 11 original particulars) and their belated submission on multiple landslips. I consider that two day’s preparation for EQC one day’s preparation for IAG is appropriate, given that IAG’s submissions substantially reflected those of EQC.

[23]      I direct the parties to update their actual scale costs in accordance with the decisions made above, and provide Registry with the final figures. For clarity, I am allowing costs on a 2B basis to be awarded in favour of EQC and IAG, as set out in Schedule 1 of both EQC’s and  IAG’s submissions dated 20 September 2019 and   25 September 2019 respectively, with the following exceptions:

(a)2A costs for the joint memoranda dated 6 September 2017.

(b)Solicitor-and-client costs for the memoranda dated 25 May, 5 June and 22 June 2018 and teleconferences on 6 June and 28 June 2018.

(c)I do not accept that band C costs is appropriate for EQC’s preparation of briefs or the hearing. The appropriate band is band B, that is, two and a half days for the briefs and three days for the hearing. This needs to be updated on EQC’s schedule.

(d)I do not accept that EQC is entitled to a second allowance for re- briefing its experts. That step needs to be removed from EQC’s schedule.

(e)I accept that EQC and IAG are entitled to an allowance for further closing submissions. I consider that two day’s preparation for EQC and one day’s preparation for IAG is appropriate. This needs to be updated on IAG’s schedule.

[24]      Given I have found for both parties on some issues, I consider any allowance for the preparation of the costs memoranda in relation to this decision is inappropriate.

Increased costs

[25]      The High Court Rules provide that the court may make an order increasing costs otherwise payable under the rules if, among other things, the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it.10 On the basis that the Goodiers contributed unnecessarily to the time and expense of the proceeding, EQC and IAG seek an uplift of 25 per cent on their overall scale costs.11

[26]      The leading authority on the correct approach to increased costs is the four- step approach explained by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd:12

(a)Categorisation:  the first  step is  to  categorise  the proceeding under  r 14.3. This proceeding has been categorised as category 2.

(b)Standard time allocation: the second step is to work out a reasonable time for each step in the proceeding under r 14.5. This has been categorised as band B.

(c)Increased time allocation: a party can, under r 14.6(3)(a) apply for extra time for a particular step. It is possible to get a greater time allocation for a particular step if the party can show that the step in the proceeding was such that the time required by the party would substantially exceed the time allocated under band C.

(d)Overall assessment: the fourth steps requires the applicant for costs to step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs due to the way the other party conducted the case in terms of r 14.6(3)(b), it should do so. An increase of more than 50 per cent is unlikely.

10     Rule 14.6(3)(b).

11     High Court Rules 2016, r 14.6(b).

12     Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [40]-[48].

[27]      EQC and IAG submit that a 25 per cent uplift on its scale costs (not including the solicitor-and-client costs) is appropriate under r 14.6. They submit the Goodiers pursued a number of arguments that lacked any merit:

(a)The Goodiers’ second cause of action was a land claim under s 19 of the Earthquake Commission Act 1993. The pleaded claim sought a building “cap” payment, which EQC submits was legally untenable and irreconcilable with the basis on which land and retaining walls are insured under s 19 of the Act. The Goodiers did not abandon the s 19 claim until opening submissions on 17 September 2018.

(b)The Goodiers’ case was that the landslip adjacent to the garage on the edge of the driveway had caused substantial structural damage to both the garage and the house. The case was always to be determined on causation, which in turn depended on evidence from geotechnical engineers as to the landslip mechanism. Despite this, the Goodiers did not call any evidence on causation from a geotechnical engineer. This is notwithstanding that EQC advised as early as 17 February 2017 that geotechnical evidence was required. In those circumstances, EQC submits that the Goodiers’ case concerning the alleged damage to the house and garage was fundamentally flawed from the start. It is submitted it lacked any merit and should never have been brought without taking expert advice.

(c)The Goodiers’ pleaded claim was that the house could not be legally repaired or rebuilt on its current site because of a s 124 Notice issued by the Whanganui District Council and therefore it was a total loss.13 The Court of Appeal in Kraal v Earthquake Commission had rejected a similar argument in 2015.14 It is submitted the argument pursued was therefore plainly incorrect and the opposite of both High Court and Court of Appeal authority.

13 Building Act 2004, s 124.

14     Kraal v Earthquake Commission [2015] ZNCA 13, [2015] 2 NZLR 589.

[28]      EQC and IAG make two further submissions on this point. First, it is submitted the Goodiers failed to comply with the direction of Associate Judge Johnston who held that “any reply evidence put in by the plaintiffs must be strictly limited to new matters raised in the defendants’ evidence and not addressed in the plaintiff’s initial evidence”.15 It is submitted the Goodiers served significant evidence in reply that was not limited to matters in reply. It is submitted that the failure to brief this evidence earlier meant that EQC’s experts and counsel had to spend substantial time after briefing had been completed considering the implication of the evidence.

[29]      Second, it is submitted the Goodiers failed to comply with the order for discovery made in the proceeding and that this failure deprived EQC of the opportunity to contradict the Goodiers’ other evidence and extended the hearing length through the need to cross-examine on the issue.

[30]      In addition, IAG submits that the Goodiers’ oral application to amend their statement of claim during their reply submissions, after both defendants had closed, contributed unnecessarily to the time and expense of the proceeding.

[31]      Overall then, EQC and IAG submit that throughout the proceeding, the conduct of the Goodiers contributed unnecessarily to the time and expense of this proceeding and justifies an award of increased costs.

[32]      I deal with the last two submissions made by EQC and IAG first. I accept that the Goodiers served significant evidence in reply, including detailed briefs from the Goodier family, more fulsome briefs from the Goodiers’ experts, and the 31 briefs of evidence from friends and family. However, such evidence was brought in largely as a response to EQC’s much more extensive briefs of evidence were filed. The initial expert reports obtained on discovery did not contain such detail. Essentially the detail from both parties came towards the end of the preparation for the hearing and during the hearing itself. I do not consider this factor, nor the failure to provide further discovery, merits increased costs in these circumstances.

15     Goodier v The Earthquake Commission and IAG New Zealand Ltd, above n 9, at [8].

[33]      Turning to the Goodiers’ failure to call a geotechnical expert, that was the plaintiffs’ decision in running the case. I do not consider it is for this Court to penalise the plaintiffs’ decision in that regard. The Goodiers called a number of lay witnesses who gave their own evidence. While I found that ultimately the issue came down to one of causation, and the geotechnical evidence was crucial in that regard, it was open to the Goodiers to run the case on the factual basis they did, as well as to rely on EQC’s geotechnical engineer in part. I do not consider this factor warrants a consideration of increased costs in the circumstances, particularly as EQC’s geotechnical expert’s evidence was uncontradicted.

[34] The final points are the land claim under s 19 of the Earthquake Commission Act and the claim following the s 124 Notice. I agree with EQC and IAG that both claims were largely untenable in light of the Act, the evidence and previous authorities. However, the plaintiffs abandoned the land claim at the outset of the hearing. As the Goodiers submit, there was little evidence served on the land claim point, no hearing time was taken up, and minimal opening submissions were filed on the issue. I accept that it would have caused minimal costs in terms of preparation for the hearing or the proceeding overall.

[35] In relation to the s 124 Notice claim, the Court of Appeal in Kraal v Earthquake Commission had held that the meaning of natural disaster damage was limited to physical damage that arises from a natural disaster. On that basis the claim under the s 124 Notice could never have been successful. I find that on these points alone, the Goodiers unnecessarily contributed to the time and expense of the proceeding by pursuing an argument that lacked merit.

[36]      On that basis, I consider increased costs in the vicinity of five percent to be adequate to reflect the amount of hearing and preparation time that in respect of the two issues.

Disbursements

[37]      EQC and IAG also seek reasonable disbursements. EQC claims disbursements of $124,343.41, as outlined in Schedule 2 of its memorandum dated 20 September

2019, and IAG seeks disbursements of $30,910.96, as outlined in Schedule 2 of its memorandum dated 25 September 2019.

[38]      In relation to EQC’s claim, the Goodiers submit that EQC is not entitled to claim for Peter Smith’s expenses (invoiced through Spencer Holmes) incurred prior to 1 October 2018 because Mr Smith’s evidence was largely rewritten during the hearing and his initial conclusions were incorrect. They also submit EQC is not entitled to recover expenses relevant to Alan Donnan or Adrian Williamson because they were both EQC employees.

[39]      On the first point, the relevant question is always whether the witnesses’ expenses and fees were necessarily incurred and are reasonable.16 The amendments to Mr Smith’s evidence responded to the new evidence introduced by Mr Hunt. His initial witness statement was still necessary at the time of preparation regardless of the fact that it was later amended. I accept that the related fees incurred are recoverable as necessary and reasonable disbursements.

[40]      On the second, the general rule is that a party’s internal costs are not recoverable,17 though this is not absolute.18 Mr Williamson was contracted by EQC for a period prior to the trial commencing. At the time of trial, he was engaged as an independent expert witness in the proceeding. Mr Donnan was, at the time of the trial, an employee of EQC. However, he too was called as an expert witness and not as an employee of EQC. Both witnesses were extensively examined and cross-examined, and both provided valuable evidence. For both experts, I do not think the cost of their presence can properly be regarded as an internal cost to the company. I consider the costs claimed for both Mr Williamson and Mr Donnan are reasonable and necessary in the circumstances.

[41]      In relation to IAG’s claim, the Goodiers submit IAG should not be able to claim for Peter Smith’s expenses for the same reasons outlined above, nor should it be able to recover costs for its structural engineers who were not ultimately called by

16     High Court Rules 2016, r 14.12(2).

17     Air New Zealand Ltd v Commerce Commission (2005) 17 PRNZ 786 (HC) at [86].

18     Houghton v Saunders [2015] NZHC 548 at [146]; and Pangani Properties Ltd v Lloyd [2019] NZHC 863 at [66].

IAG, and nor should it be able to recover counsel accommodation expenses for Wellington when it had local lawyers. I reject the first submission for the same reasons outlined at [36]. I also consider the costs related to the Wellington accommodation for the Christchurch counsel are recoverable as reasonable disbursements in the circumstances. It provided continuity for the same lawyers who had begun the trial in Whanganui to come to Wellington to complete the oral proceedings. The hearing had exceeded the allocated fixture of time, due to the additional evidence addressed by the Goodiers.

[42]      Turning to whether IAG can reasonably recover its costs for expert witnesses not ultimately called, there is precedent for allowing, as disbursements, fees incurred for experts who are subsequently not called as witnesses.19 Each claim is to be assessed within the context of preparation for, and presentation of, cases at trial. IAG submits that once it became apparent that the evidence of its expert witnesses was consistent with the evidence of EQC’s experts, it decided not to call its own as this would needlessly prolong the proceeding. Efficiency in hearing time and needless duplication of experts saves unnecessary expense and resources for all and is to be encouraged.

[43]      I accept some costs are reasonably recoverable as disbursements in relation to IAG’s expert witnesses. However, I consider a figure in the amount of 25 per cent of its invoices for the engineer is appropriate. The facts remain that IAG’s expert did not serve any witness statements or give evidence because the evidence was consistent with that of EQC’s. For that reason, I consider 25 per cent of IAG’s experts’ costs are recoverable as reasonable disbursements in the circumstances.

Result

[44]      I allow costs on a 2B basis to be awarded in favour of EQC and IAG, as set out in Schedule 1 of both EQC’s and IAG’s submissions dated 20 September 2019 and 25 September 2019 respectively, with the following exceptions:

19     Houghton v Saunders, above n 18, at [109]; and Murray & Anor v BC Group (2003) Ltd & Ors

[2009] NZLR 257 (HC) at [11].

(a)2A costs for the joint memoranda dated 6 September 2017.

(b)Solicitor-and-client costs for the memoranda dated 25 May, 5 June and 22 June 2018 and teleconferences on 6 June and 28 June 2018.

(c)I do not accept that band C costs is appropriate for EQC’s preparation of briefs or the hearing. The appropriate band is band B, that is, two and a half days for the briefs and three days for the hearing. This needs to be updated on EQC’s schedule.

(d)I do not accept that EQC is entitled to a second allowance for re- briefing its experts. That step needs to be removed from EQC’s schedule.

(e)I accept that EQC and IAG are entitled to an allowance for further closing submissions. I consider that two day’s preparation for EQC and one day’s preparation for IAG is appropriate. This needs to be updated on IAG’s schedule.

[45]      Once the overall costs figure has been finalised, I consider that a five per cent increase for both EQC and IAG is appropriate for the reasons outlined earlier.

[46]      In terms of disbursements, I direct IAG to update its Schedule 2 to reflect that only 25 per cent can be recovered from Kevin O’Connor & Associates.

[47]      I direct the parties to update their Schedules in accordance with the decisions made above and provide Registry with the final numbers.

Cull J

Solicitors:

Grant Shand, Auckland for Plaintiffs

Russel McVeagh, Wellington for the First Defendant

DLA Piper New Zealand, Wellington for the Second Defendant