Isaac Construction Company Limited v Nu-Way Energy (NZ) Limited

[2019] NZHC 92

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2015-409-670

[2019] NZHC 92

BETWEEN

ISAAC CONSTRUCTION COMPANY LIMITED
Plaintiff

AND

NU-WAY ENERGY (NZ) LIMITED

Defendant

Hearing:	7 February 2019 (On the Papers)
Counsel:	C Shannon and L McLoughlin-Ware for the Plaintiff C Langstone and B Alcorn for the Defendant
Judgment:	7 February 2019

COSTS JUDGMENT OF MANDER J

[1]    On 18 July, I entered judgment for the plaintiff, Isaac Construction Company Limited (Isaacs), against the defendant, Nu-Way Energy Limited (Nu-Way), in the sum of $428,540.95.1 I reserved costs but made the preliminary observation that, as the successful party, Isaacs was entitled to costs against Nu-Way.

[2]    Isaacs seeks scale costs of $100,461.50. That figure is calculated on a 2B basis, apart from two items – preparation of briefs and preparation for hearing – which Isaacs says should be categorised as 2C costs. It seeks a further $36,850.75 on the basis it is entitled to a 50 per cent uplift for costs incurred from 21 June 2017, being the date of the expiry of a Calderbank offer which was for less than the judgment sum. Disbursements of $203,353.51 are also sought.

1      Isaac Construction Ltd v Nu-Way Energy (NZ) Ltd [2017] NZHC 1775.

ISAAC CONSTRUCTION COMPANY LIMITED v NU-WAY ENERGY (NZ) LIMITED [2019] NZHC 92 [7

February 2019]

[3]    Nu-Way accepts it should pay scale costs on a 2B basis. However, it opposes the uplifts sought and disputes Isaacs’ entitlement to recover the expenses of its expert witnesses, which comprise the bulk of its disbursements figure. Nu-Way submitted its liability should be substantially reduced to reflect Isaacs’ failure to prove its primary theory as to the cause of the fire which was the subject of the trial.

Issues

[4]The issues in dispute between the parties are:

(a)Should items 30 and 33, preparation of briefs and preparation for trial, be categorised as 2B or 2C?

(b)Is Isaacs entitled to uplifted costs calculated from 21 June 2017 onwards?

(c)What is the extent of Nu-Way’s liability to bear Isaacs’ expert fees?

(d)Should Nu-Way pay the filing fee for Isaacs’ amended claims (and other miscellaneous issues)?

[5]I deal with each of these issues in turn.

Issue one: Preparation of briefs and preparation for trial

[6]    Mr Shannon for Isaacs submitted that the 2.5 days allocated under band B for preparation of briefs is, in the circumstances of this case, inadequate. He noted that Isaacs called nine witnesses who were briefed to provide approximately 175 pages of evidence excluding exhibits. He submitted the three day allocation under band B was insufficient to adequately reflect the preparation time involved. The hearing went for

10.5 days and was adjourned part-heard on a number of occasions. This required counsel to ‘get up to speed’  with  the  file  again  before  each  resumed  hearing.  Mr Shannon also submitted that much of the evidence was technical in nature, and that it was necessary to prepare extensive written closing submissions.

[7]    Mr Langstone on behalf of Nu-Way submitted the trial was “nothing out of the ordinary for a High Court trial of this nature”. The dispute involved a relatively modest sum of money ($428,540.95). The number of witnesses was not unusual, nor was the complexity of the case. He submitted that some of the delay which led to the case being adjourned part-heard was the result of the plaintiff being late in filing its evidence.

[8]    In reply, Mr Shannon submitted that the appropriate time allocation is not dependent on complexity. Under the High Court Rules, the time for a particular step may be allocated to band C if “a comparatively large amount of time for the particular step is considered reasonable”. He disputed that Isaacs filed its evidence late, and submitted that it complied with the Court’s directions.

Decision

[9]    The allocated time bands may differ from one step to the next, and a blanket assessment will only accord with the rules if the case is an average one requiring a normal amount of time for each step.2 If a greater than usual time has been spent on an issue, band C will only be appropriate where that expenditure of time was reasonable in the circumstances.

[10]   A considerable amount of preparation time was required to be spent on the forensic issue of the cause of the fire. I accept Mr Langstone’s submission that the need for technical evidence to address such a central trial question is not unusual. However, a feature of this case was the successive rounds of testing which resulted in the iterative supplementation and revision of the parties’ evidence.

[11]   While Isaacs’ fire theory ultimately fell short of establishing the definitive mechanism by which the fire started within the burner, it was necessary for it to engage with and address the successive testing carried out by Nu-Way, much of which was proximate to the commencement of the trial. Set against Isaacs’ overall success, I consider this aspect of the trial preparation in combination with the general complexity

2      McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR14.5.01]; Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [161].

of the case, which by itself would not otherwise have supported a 2C categorisation, reasonably warrants that classification.

Issue two: Should costs be uplifted as from 21 June 2017?

[12]   Mr Shannon submitted that a 50 per cent uplift in costs is in order from 21 June 2017. Isaacs offered to accept $375,000 (GST inclusive) in full and final settlement. This converts to about $326,087 exclusive of GST. Isaacs’ offer was accompanied by its theory of the case which included reference to the strong circumstantial evidence pointing to the burner being the cause of the fire. The judgment sum was well above the offer, and Mr Shannon estimated that after interest and costs, Nu-Way’s total liability is likely to exceed $800,000.

[13]   Mr Shannon submitted that although the statement of claim was amended after the expiry of the offer to include the allegation of a failure to exercise reasonable skill and care in the installation and testing of the trial burner, he maintained this argument was known to Nu-Way at the time the offer was made. Regardless, Mr Shannon argued that the central issue throughout the proceeding was whether the burner caused the fire.

[14]   As well as the submitted unreasonable rejection of this offer, Mr Shannon further submitted that Nu-Way unreasonably contributed to Isaacs incurring further costs by “taking actions to obfuscate or limit Isaacs’ access to information that would assist its case”. He submitted that one of the issues at trial was whether the burner was a prototype. An email which confirmed that it was of that status was initially redacted on the grounds of “irrelevance” when first provided to Isaacs, and only after a discovery request was lodged was the unredacted version provided.

[15]   Mr Shannon criticised Nu-Way for the fact that the seal, which was a component of the burner’s pump and a focus of Isaacs’ case, went missing while in its custody. Further, Nu-Way conducted a series of tests very close to the commencement of the trial  in  an attempt  to  prove that  the seal  could  not  have caused the fire.  Mr Shannon was critical of Nu-Way not inviting Issacs’ experts to participate in those tests, the inference being that it knew they might be adverse to its interests.

[16]   Mr Shannon submitted that Nu-Way advanced defences on grounds not subsequently pursued at trial, and raised unmeritorious quantum arguments. He argued that Nu-Way’s actions were unreasonable, and this further supported an uplift to mark its failure to accept the settlement offer.

[17]   In response, Mr Langstone accepted that the Court was entitled to order an uplift, but submitted the circumstances of the offer in this case were such that it should not do so. He maintained the offer was “based entirely on the plaintiff’s key witness Mr Jenkins’ theory as to the cause of the fire”. Because the Court did not accept that this theory adequately explained how the fire must have started within the burner,  Mr Langstone submitted it cannot have been unreasonable for Nu-Way to have rejected the offer on that basis.

[18]   As to the redacted emails, Mr Langstone submitted that disagreements with respect to discovery and steps to obtain documents are everyday occurrences in litigation, and do not warrant an uplift in costs. In relation to the ‘prototype’ status of the burner, it was submitted that this was insignificant, as that feature had been ‘overtaken’ in my analysis of the case by Isaacs’ Mr McLaughlin’s reliance on Nu- Way’s Mr Dudley at the time the burner was installed and commissioned.

[19]   Mr Langstone disagreed with the conclusions drawn by Mr Shannon as to the strength of the defendant’s case from the testing prior to trial. He submitted the first round of testing was done to assist Nu-Way’s witnesses in responding to Isaac’s fire cause theory. Upon receipt of the result of the testing, Isaacs’ expert, Mr Jenkins, changed his theory, and this new theory also needed to be tested. Mr Jenkins was then critical of that round of testing and so a third round was needed. Contrary to what  Mr Shannon submitted, Mr Langstone maintained the testing showed the weaknesses in Isaacs’ fire cause theories, and that these highlighted weaknesses were reflected in my judgment.

Decision

[20]   An uplift for the failure to accept a settlement offer can only be awarded if it was unreasonable for Nu-Way to reject the offer.3 Unreasonableness is assessed at the time of the rejection, not against the subsequent result alone. It will depend on the size and timing of the offer, the reasonable expectations of the party refusing the offer, and on the parties’ ability at the time of the offer to assess the merits of the case.4 Generally, it will not be unreasonable to refuse an offer which is based on a claim different to that which succeeds at trial.5

[21]   The letter of 15 June setting out the Calderbank offer focused primarily on Isaacs’ theory of how the fire started in the burner, which I found fell short of adequately explaining the mechanics of the fire’s ignition. However, the offer also set out the key components of the circumstantial case which ultimately proved successful at trial. While these elements were not the main focus of the commentary that accompanied the offer, it was incumbent on Nu-Way to have considered its overall position on receipt of the offer, including the wider case against it.

[22]   The offer was for less than the judgment sum. When Nu-Way’s prospective jeopardy for interest and costs are factored in, the offer was significantly less than Nu-Way’s ultimate liability. Nu-Way’s prospects of successfully defending the suit were, in my view, always limited notwithstanding the deficiencies in Isaacs’ fire cause theory. I consider the rejection of the offer was not reasonable in the circumstances. However,  I do not accept that a  50 per cent increase is warranted.   I consider a     25 per cent increase on costs incurred after the expiry of the offer better reflects the merits of the parties’ respective positions in relation to that issue.

[23]   The rejection of the Calderbank offer alone is sufficient to justify the uplift. Isaacs did not seek a discrete uplift in respect of the other aspects of Nu-Way’s conduct it takes issue with, and it is not necessary to discuss these in any detail. However, in my view, the other allegations would not individually or cumulatively have justified

3      High Court Rules 2016, r 14.6.

4      New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010 at [36]; Samson v Mourant [2016] NZHC 1119 at [44]; Weaver v HML Nominees Ltd [2016] NZHC 473 at [30].

5      Aldrie Holdings Ltd v Clover Bay Park Ltd (No 2) [2016] NZHC 1482 at [37].

an increase in the costs award. I agree with Mr Langstone that the issues around discovery and the testing before trial are insufficient to warrant an overall increase in costs. As to the missing seal, I am reluctant to make any findings in the absence of any further inquiry or the receipt of evidence directly addressing the issue. To do otherwise risks casting suspicion of evidence tampering. The Court will be very reluctant to draw such a conclusion without substantial proof, although I accept the failure to secure such an important exhibit prima facie points to negligence.

[24]   For completion, I note that while registration of the burner was an irrelevant circumstance, the fact it was a prototype was material, being information known to Nu-Way at the time of the installation of the burner about which Isaacs was not informed.

Issue three: Expert fees

[25]   Mr Langstone submitted that because Isaacs failed to prove its fire cause theory, Nu-Way should only make a modest contribution to the fees of Messrs Jenkins, Luff, and Oliver, who were principally engaged by Isaacs to support that theory. He relied on r 14.7(d) of the High Court Rules, which provides that costs can be reduced where “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”. In the alternative, he says r 14.7(g) applies, which allows for the reduction of costs for “some other reason”. Isaacs did not dispute the Court’s discretion to reduce the quantum of disbursements claimed by the successful party.

[26]   Mr Langstone contended that, apart from a few discrete matters, the evidence of these three witnesses did not assist Isaacs’ claim. The fire theory they developed was rejected, notwithstanding that most of the time at trial was devoted to it. He submitted Nu-Way should pay $25,000 of the cost of these witnesses (as opposed to the $176,272.73 claimed by Isaacs) to reflect the elements of their evidence that contributed to a circumstantial finding that the burner caused the fire.

[27]   As to the expert witnesses Messrs Alexander and Jameson, Mr Langstone argued that Nu-Way should not contribute at all to their fees, which were $2,271 and

$1,728.80 respectively. He submitted Mr Alexander’s evidence was irrelevant as it

concerned the burner’s certification for use in New Zealand. I held that this did not advance the plaintiff’s case because there was no causal link between the lack of registration and the fire.6 Similarly, Mr Langstone maintained Mr Jameson’s evidence was wholly unnecessary. He gave evidence about the cost of rebuilding, but the basis of the quantum claimed by the plaintiff was the cost not of rebuilding but of insulating and weatherproofing the tanks.

[28]   Mr Shannon opposed any reduction of the expert fees recoverable as disbursements. His primary submission was that the fees reflected that this was a technical case which relied on expert evidence. He submitted that Mr Jenkins’ evidence was central to proving Isaacs’ circumstantial case. It was through his evidence that Isaacs proved mechanical damage to the tappet holding the inner seal and to the inner seal itself. Mr Jenkins’ evidence also established there was a blockage in the relief oil gallery of the pump, and responded to iterations of Nu-Way’s testing in his reply brief and two further supplementary briefs. He also put evidence before the Court as to the monitoring protocol which went toward proving negligence.

[29]   As to Mr Oliver, Mr Shannon submitted that his evidence about the photocell was not challenged and was accepted by the Court. Mr Luff gave evidence that he considered the fire originated from the burner and refuted other fire cause theories. Rather than being ‘wholly unnecessary’, he noted Mr Jameson was the main witness on quantum, and was cross-examined by Nu-Way at some length. Finally, he submitted Mr Alexander’s evidence about the burner certification regime was important background evidence demonstrating that the burner was a recently developed variant of a previously manufactured burner.

Decision

[30]   I accept there should be some reduction in the expert fees payable by Nu-Way. A great deal of time was expended on Mr Jenkins’ fire cause theory within the burner at significant cost to both sides. At the end of the day, that theory remained incomplete as an answer to how the burner caught fire, and Isaacs could have secured success

6 At [177].

without putting it forward or, at least, without pitching the theory as the indisputable mechanism which caused the fire in the burner.

[31]   Nevertheless, in my view, Mr Langstone’s critique did not accurately reflect the value of the expert witnesses’ evidence. The circumstantial case which ultimately succeeded at trial was drawn from their evidence. Mr Langstone attempted to apportion how much of Isaacs’ experts’ evidence contributed to its success, but I consider such an assessment to be largely artificial. Absent the expert evidence having been adduced, Isaacs would likely not have succeeded. It is very difficult, if not impossible, to gauge how much time and expense could have been saved if Isaacs had modified its approach to the case and not pursued its complex fire cause theory as the complete answer as to how the burner had caused the fire.

[32]   Furthermore, it is not every part of an expert witnesses’ evidence that must be crucial to a party’s success or be validated by the Court in order for that witness’s costs to be recoverable by the successful party. I accept a significant portion of the evidence called by Isaacs was a necessary part of its case which succeeded at trial, or was material to its presentation.

[33]   Rather than assess each experts’ evidence, I consider it would be an overall just outcome for Nu-Way to account for 65 per cent of the experts’ costs. This does justice to Isaacs’ ultimate success while recognising its lack of success in proving its primary theory of the case, which materially added to the cost of the proceedings.

Issue four: Filing fee for leave to file amended claim (and other miscellaneous issues)

[34]   Mr Langstone argued there was no justification to claim the $434.78 filing fee for an application for leave to file an amended claim. The defendant consented to an amended claim being filed. He argued the application and its associated filing fee was an unnecessary expense.

[35]   Mr Shannon submitted the application for leave to amend the statement of claim was made on 5 July 2017, and the filing fee paid at that time. On 10 July, Nu-Way’s counsel indicated he was available for a teleconference, but did not mention

consent at that stage. The joint memorandum stating the defendant did not oppose the application was then signed on 13 July. Given the timing and nature of the amendment sought, Mr Shannon submitted it was appropriate to make the formal application and incur the cost.

Decision

[36]   This filing fee does not appear to have been unreasonably incurred in the circumstances. It is an allowable disbursement.

Miscellaneous issues

[37]   Isaacs accepted the original filing fee should be claimed on a GST exclusive basis ($1,173.91). It also agreed no appearance was required on 17 August 2016, and item 13 is reduced to 0.6 days. I accept that Isaacs is entitled to claim for the joint memorandum which it drafted. However, I uphold Nu-Way’s objection to the claim for the memorandum of 22 September 2018. This appears related to Isaacs’ costs application rather than case management.

Conclusion

[38]Isaacs are entitled to an award of costs and disbursements in the sum of

$258,983.90, together with interest. That figure comprises:

(a)2B scale costs of $98,900.50.7

(b)25 per cent uplift from 21 June 2017 of $18,425.37.8

(c)Expert fees of $114,577.25.9

(d)Other disbursements ofp $27,080.78.10

7      As per amended schedule 3 attached to plaintiff’s reply memorandum dated 6 November.

8      Calculated from amended schedule four attached to plaintiff’s reply memorandum dated 6 November, amended to reflect 25 per cent increase only.

9      As per plaintiff’s disbursement bundle less 35 per cent.

10     As per plaintiff’s disbursement bundle less $176.09 as per paragraph 6.1 of plaintiff’s reply memorandum dated 6 November.

[39]   Leave is granted to the parties to revert to the Court should they consider there is any error in these calculations.

Solicitors:

Duncan Cotterill, Christchurch Fee Langstone, Christchurch