Jarden v Lumley General Insurance (NZ) Ltd
[2018] NZCA 6
•7 February 2018 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA663/2016 [2018] NZCA 6 |
| BETWEEN | DAVID JOHN JARDEN AND JOANNE JARDEN |
| AND | LUMLEY GENERAL INSURANCE (NZ) LIMITED |
| Hearing: | 6 November 2017 |
Court: | Gilbert, Lang and Ellis JJ |
Counsel: | N R Campbell QC and J Moss for Appellants |
Judgment: | 7 February 2018 at 3.00 pm |
JUDGMENT OF THE COURT
A The appeal is dismissed.
B The appellants must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
Introduction
Mr and Mrs Jarden’s house at Rolleston, near Christchurch, suffered damage in the major earthquakes that occurred on 4 September 2010 and 22 February 2011. They claimed the damage caused by these earthquakes was so extensive that their house needed to be demolished and rebuilt. The Earthquake Commission (EQC) considered that the house was repairable, as did Lumley General Insurance (NZ) Ltd (Lumley) which had provided “top-up” insurance cover. To resolve this impasse, the Jardens sued EQC and Lumley for the costs of demolishing and rebuilding the house (then estimated to be $1,080,488) and general damages of $50,000 against each for the “substantial distress, inconvenience and mental anguish” caused by the alleged breach of their respective insurance obligations. They also claimed from Lumley the sum of $1,000 being a stress benefit payable under the policy in the event that the house was a total loss.
Shortly prior to the trial, EQC settled with the Jardens so the claim proceeded only against Lumley. In their second amended statement of claim, filed on the second day of the trial, the Jardens maintained that it would be uneconomic to repair the house and it needed to be rebuilt. They claimed that Lumley had “refused to meet its obligations under the policy by failing to settle the claim by agreeing to pay” the costs required to rebuild the house. They sought judgment against Lumley for the estimated rebuild costs of $918,579 (taking into account the amount paid by EQC), the $1,000 stress benefit and $50,000 as general damages to compensate for Lumley’s allegedly wrongful conduct.
After a six-day trial, Kós J found that Lumley had not breached its obligations under its policy and was not liable to the Jardens in damages.[1] The Judge considered that the Jardens’ claim was misconceived. The Judge made what he described as “a limited declaration” (not in the terms sought by the Jardens in their prayer for relief) as to what damage had been sustained in the earthquakes, the repairs required to remediate that damage and how the repair costs should be apportioned between the two earthquake events.[2] The Judge stated that Lumley “cannot be criticised for resisting the Jardens’ claim” which he found “in large measure could not be sustained on the evidence”.[3]
[1]Jarden v Lumley General Insurance (NZ) Ltd [2015] NZHC 1427, [2015] 18 ANZ Insurance Cases 62-077 [High Court judgment] at [130].
[2]At [132] and [137].
[3]At [128].
The Jardens appealed against Kós J’s judgment but the appeal was dismissed by this Court save in one minor respect relating to the costs component of the settlement sum paid by EQC.[4] The Court directed that costs in the High Court should be fixed by that Court.[5]
[4]Jarden v Lumley General Insurance (NZ) Ltd [2016] NZCA 193 [Court of Appeal judgment].
[5]At [83].
Because Kós J had by this time been appointed to the Court of Appeal, costs in the High Court were determined by Associate Judge Matthews. In his judgment delivered on 24 November 2016, the Associate Judge found that Lumley was successful overall and should receive costs calculated on a 2B basis with a 25‑per‑cent uplift and approved disbursements.[6] The Associate Judge considered that the uplift was justified because the Jardens “pursue[d] arguments that lacked merit and acted frivolously in continuing this case”.[7]
[6]Jarden v Lumley General Insurance (NZ) Ltd [2016] NZHC 2820 [Costs judgment].
[7]At [29]–[33].
The Jardens now appeal against the costs judgment. They contend that the Associate Judge erred:
(a)in finding that Lumley was the successful party overall;
(b)in awarding an uplift in costs to Lumley; and
(c)by not reducing any costs awarded to Lumley to reflect its failure on issues that significantly increased the Jardens’ costs.
The Jardens submit that the costs order made in the High Court should be set aside and replaced by either:
(a)an order requiring Lumley to pay costs to the Jardens on a 2B basis reduced by 50 per cent to reflect their failure on some issues; or
(b)an order directing that costs lie where they fall; or
(c)an order that the costs awarded to Lumley be reduced by 50 per cent to reflect Lumley’s lack of success on some issues.
Approach on appeal
Mr Campbell QC for the Jardens accepts that an award of costs involves the exercise of a discretion. For their appeal to succeed, the Jardens must show that the Associate Judge acted on a wrong principle, failed to take into account some relevant matter, took account of some irrelevant matter, or was plainly wrong.[8] A trial judge has a particular advantage when fixing costs and his or her views can therefore be influential on appeal.[9] However, because costs in this case were not determined by the trial Judge, we accept Mr Campbell’s submission that no particular deference to the High Court’s decision is justified.
Issue 1 — which party was successful?
[8]Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [15].
[9]Cunningham v Butterfield [2014] NZCA 213, (2014) 22 PRNZ 521 at [59].
Mr Campbell notes the general principle set out in r 14.2(1)(a) of the High Court Rules 2016 that success must be assessed “with respect to a proceeding”. He says the question is whether the Jardens substantially or essentially succeeded by bringing the proceeding against Lumley and this requires a comparison of the Jardens’ position before the proceeding and the position they obtained as a result of the proceeding. Mr Campbell says that prior to the proceeding EQC and Lumley considered that the damage was under the limit of cover provided by EQC and the only apportionment between the insured events was EQC’s assessment of 35:65. As a result of the proceeding, the Jardens received a cap payment from EQC, an apportionment of 90:10 between the two events, declarations as to the insured damage and scope of repair works and a declaration that Lumley was liable to pay such repair costs (in excess of EQC’s payment) after these costs were incurred. On that basis, Mr Campbell argues that the Jardens were the successful party.
Mr Campbell submits that the Associate Judge erred by failing to evaluate the Jardens’ position before the proceeding commenced and compare this to their position following the proceeding. Rather than adopting that approach, Mr Campbell contends that the Associate Judge focused inappropriately on Lumley’s position at trial and compared this with the outcome in the judgment.
For the reasons that follow, we agree with the Associate Judge that Lumley should be regarded as the successful party.
The sole cause of action against Lumley was for alleged breach of the contract of insurance. This claim failed completely. As Kós J said, the claim that Lumley had breached its obligations under the policy was misconceived.
The Jardens sought judgment against Lumley for $918,579 plus $1,000 for the stress benefit and $50,000 for general damages. They also sought interest. They were wholly unsuccessful in these damages claims.
After the trial commenced, the Jardens amended their claim to seek alternative relief by way of declarations. They did obtain limited declarations but none of these were in the terms they had sought. They had sought declarations that Lumley was liable to pay “up to $918,579” being the costs of demolishing and rebuilding the house after allowing for the payment by EQC. They also sought a declaration that they were entitled to $1,000 for the stress benefit payable under the policy in the event of the house being a “total loss” and a declaration that Lumley was obliged to pay $50,000 for general damages. The Jardens’ claims for these declarations were wholly unsuccessful. The result of the proceeding was that, contrary to the Jardens’ contention, the house was not a total loss, it did not require to be demolished and rebuilt and Lumley was not required to pay the stress benefit of $1,000 or general damages in any sum.
The Judge’s findings on the pleaded damage claims may be summarised as follows:
(a)Concrete slab floor — cracks, levels and voids — no damage caused by the earthquakes.[10]
(b)External brick veneer walls — damage caused by earthquakes (accepted by Lumley) but the extent would not be known until the repair work is undertaken.[11]
(c)Internal walls — no alignment damage caused by the earthquakes.[12] Cracking damage caused by the earthquakes (accepted by Lumley).[13]
(d)Roof, ceiling beams and ceilings — no damage caused by the earthquakes.[14]
(e)Doors and windows out of square and jamming — earthquake damage (accepted by Lumley).[15]
(f)Lounge floor “buckled and bulged” from liquid damage — earthquake damage.[16]
(g)Garage — walls out of plumb, distortion to garage door frames, brick veneer loose and cracks in floor slab — only damage caused by earthquakes was to the brick veneer exterior wall (accepted by Lumley).[17]
[10]High Court judgment, above n 1, at [37], [42] and [54].
[11]At [60].
[12]At [91].
[13]At [92].
[14]At [101]–[102].
[15]At [104].
[16]At [105].
[17]At [106].
Even if it were appropriate to gauge success in the proceeding by confining attention to the issue of damage, which we do not accept, Lumley could still fairly claim that it was successful overall. Had the Jardens not amended their statement of claim on the second day of trial to seek declarations, their claim would have been dismissed outright. The Jardens’ only success on disputed items of damage following the amendment was in respect of the lounge floor, damage that they had not even specifically pleaded.[18] Their expert quantity surveyor considered that this damage would cost less than $18,000 to repair including GST. That amounts to a small fraction of the total amount claimed — less than two per cent — and plainly could not justify the cost and expense of a six-day trial in the High Court.
[18]During the hearing of the appeal Lumley agreed, without admission of liability, to repair cracks in the concrete slab of the house and garage: see Court of Appeal judgment, above n 4, at [5].
In summary, the Jardens did not succeed in establishing their sole cause of action against Lumley, nor did they succeed in obtaining any of the relief they sought against it. On that basis, they did not succeed with respect to the proceeding in terms of r 14.2(1)(a); on the contrary, Lumley successfully defended the claim brought against it. This conclusion is supported by Kós J’s observations that “Lumley cannot be criticised for resisting the Jardens’ claim, one which in large measure could not be sustained on the evidence” and that the claim was “misconceived”.[19] Until the amendment during trial, the Jardens’ claim was hopelessly misconceived and doomed to fail. The limited success achieved by the Jardens came as a result of that amendment. We consider that the Associate Judge was justified in evaluating that success by comparing Lumley’s position at the time of the amendment (at trial) with the outcome in the judgment. For these reasons, we are not persuaded that the Associate Judge erred in concluding that Lumley was successful overall and entitled to an award of costs.
Issue 2 — was the uplift justified?
[19]High Court judgment, above n 1, at [128] and [130].
Rule 14.6(3)(b) of the High Court Rules empowers the Court to order a party to pay increased costs if that party has contributed unnecessarily to the time or expense of the proceeding including by pursuing an argument that lacks merit. The Associate Judge relied on this provision in awarding a 25-per-cent uplift on scale costs for reasons he explained in the following passage of his judgment:[20]
[30] … In my view it is clear that Mr and Mrs Jarden embarked on a course intended to take them to a position where their house was either fully rebuilt, or very substantially so, and they did not deviate from that course even when expert advisors they had engaged, and who then considered the house in conjunction with experts for the defendant as required by the Court, found themselves quite unable to support key planks of their case. When that occurred it was open to Mr and Mrs Jarden to take responsible account of the advice they were receiving from independent experts and modify their claim to accord with it. That is not what occurred. The result is set out in the judgment. In my view it would be unrealistic to conclude that a minor shift in Lumley’s position from assessing the claim at below cap to assessing it at slightly above, which is in fact the position, would have caused Mr and Mrs Jarden to materially change their view and avoid the trial and all the attendant expense of it, including preparation. Why Mr and Mrs Jarden and their advisors elected to press on with their claim in manifestly exaggerated terms when confronted with the evidence not only of Lumley’s independent professional advisors but also their own is difficult to comprehend. The consequence of their doing so was to put Lumley to expense which could have been avoided by a more reasoned approach.
[31] Those who bring cases which fall short of establishing allegations almost invariably bear an adverse award of costs in accordance with the principle that costs should follow the event. It is not an automatic step up from that that increased costs should be awarded. Here the grounds for doing so are made out, because early in the piece, at the point where their own expert found himself unable to support their position, they could and should have reviewed their case and scaled it down to a less assailable position. Instead their response was to seek other expert advice but even then the independent evidence fell well short.
[20]Costs judgment, above n 6.
Mr Campbell submits that the Associate Judge failed to take into account the way in which the trial Judge, and then this Court, dealt with the particular items of damage that the Jardens failed to establish. For example, he points out that this Court was persuaded that the Jardens’ evidence was sufficient to establish a prima facie case that the roof leaks were caused by the earthquakes so that the evidential onus shifted to Lumley to show that those leaks resulted from other causes.[21] Mr Campbell argues that there is no basis for a finding that the Jardens’ claims in respect of these items lacked merit or that they pursued their claims frivolously.
[21]Court of Appeal judgment, above n 4, at [40].
For the reasons that follow, we are not persuaded that the Associate Judge erred in awarding a 25-per-cent uplift on scale costs.
The claim as pleaded was misconceived and the Jardens exposed themselves to the risk of an increased costs award by pursuing it.
Leaving aside the fundamental difficulty with the claim, namely that Lumley had not breached its obligations under the insurance contract and was not liable to the Jardens in damages, the principal dispute was whether the house had been damaged in the earthquakes to such an extent (concrete floor slab, internal and external walls, ceiling beams, ceilings, roof, etcetera) that it needed to be demolished and rebuilt. Kós J recorded that the Jardens’ contention that the house was a total loss was not supported by the joint report of the experts provided prior to trial.[22] These experts also considered that the cracks in the concrete floor slab originated prior to the first earthquake and were caused by shrinkage.[23] They noted, however, that these cracks had widened as a result of the earthquakes.
[22]High Court judgment, above n 1, at [26].
[23]At [26].
The Jardens maintained throughout that there were voids under the concrete slab caused by the earthquakes and the rebuild would require an “enhanced” foundation but their evidence to support this claim was seriously deficient. Kós J noted the evidence of Adrian Cowie, a surveyor called by the Jardens, that it is good practice to use ground-penetrating radar and intrusive coring to determine the presence of voids.[24] However, this investigative work was not done despite the modest estimated cost of approximately $3,000. Philip Cook was the only geotechnical engineer to give evidence. He was called by Lumley. Mr Cook considered that it was “very unlikely, very, very unlikely” that there would have been significant settlement induced by the earthquakes causing voids under the slab.[25]
[24]At [44].
[25]At [45].
We consider that the Jardens added unnecessarily to the expense of the proceeding by pursuing their claims that the house was a total loss and required rebuilding with an enhanced foundation. This claim was not supported by the experts and was pursued without proper justification.
The overall uplift of 25 per cent on scale costs was further justified by the Jardens’ persistent refusal to provide evidence to support the principal components of their claim and their failure to comply with court directions. This also contributed unnecessarily to the time and expense of the proceeding.
On 17 May 2013, shortly prior to the commencement of the proceedings on 23 July 2013, Lumley’s solicitors wrote to Mr Shand, counsel for the Jardens, requesting information relied on to support their claim:
Lumley’s approach has been to review all available information and advise its response to a claim. If it is provided with additional information from an insured, it will consider that when making an amended offer. This will enable Lumley to confirm its position and obtain any further expert evidence if needed. It could be that some of those claims can then be promptly resolved without the parties unnecessarily incurring litigation expenses.
However, if you continue to issue proceedings without an attempt to resolve the claim with Lumley first, and have not obtained the necessary documentation supporting your clients’ claims (such as that their homes are uneconomic to repair), Lumley reserves the right to seek costs against your clients for any steps it is required to take that could have been avoided had you first corresponded with Lumley in the first place.
Lumley did not receive any response to this reasonable communication. Rather than providing evidence to support their claim as requested, the Jardens chose to sue Lumley for allegedly breaching its obligations under the insurance contract.
On 2 October 2013, after the proceedings were served, Lumley’s solicitors wrote again to Mr Shand seeking evidence to support the claim:
… it is not clear why the Jardens claim that their house must be rebuilt. As you know, the Jardens will only be entitled to a rebuild under the policy if: 1. It is uneconomic to repair it; or
2. The house is so badly damaged it cannot reasonably [be] repaired.
We are not in possession of any documents that support either of these positions. If the Jardens want to claim that their house [requires] a rebuild, then as advised to you on 17 May 2013 (attached), we would expect to be provided with a repair scope of works from suitably qualified experts in the first instance. However, none has been provided.
…
We therefore reiterate our requests that you provide us with repair scopes from suitably qualified experts for these proceedings (as with all others) in advance of proceedings being issued. However, since that time has now past, please provide these to us as soon as possible and preferably in advance of the [Case Management Conference]. We consider that this claim cannot sensibly progress without it and there is no utility waiting for Court orders before it is provided.
As previously stated, if these reports are not provided, Lumley reserves its right to seek costs for the delays caused.
Again, there was no response to this request.
On 29 October 2013 Wylie J made an order directing the Jardens to obtain their own expert reports identifying the extent of natural disaster damage, a scope of works and a costed repair or rebuild methodology by 20 December 2013. This order was not complied with.
Following a site inspection on 21 February 2014, the parties’ experts prepared a joint report for the Court dated 9 April 2014. The experts agreed that there was some damage to wall linings and to the exterior brick veneer. The experts were unable to reach agreement as to whether other damage was caused by the earthquakes — roof damage, cracks in the floor, doors and windows on the north side of the lounge and some sections of the brick veneer. Significantly, the experts agreed that the house was repairable and the foundations did not have to be replaced, contrary to the Jardens’ claim.
Despite the experts’ joint conclusion, the Jardens filed an amended statement of claim and provided an updated scope of works on 18 August 2014 claiming the cost of demolishing and replacing the concrete slab foundation with an enhanced foundation. Accordingly, Lumley sought further particulars of the Jardens’ claim including particulars of their allegation that an enhanced foundation was required. The Jardens resisted Lumley’s application for particulars claiming that these were matters of evidence, not pleading.
The Jardens were ordered to serve their briefs of evidence by 31 October 2014 and to provide particulars of the rebuild cost by the same date. They did not comply with these directions. Kós J recorded in a minute dated 11 December 2014 that he would take into account the Jardens’ non-compliance with timetable directions when he came to deal with costs in due course.
Issue 3 — should there be a reduction in the costs awarded to Lumley?
Mr Campbell submits that even if Lumley is awarded costs, these should be reduced under r 14.7(d) which empowers the Court to reduce the costs that would otherwise be payable if:
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
Mr Campbell argues that the Jardens succeeded in establishing a number of items of damage and in obtaining declarations in respect of them. He submits that a 50-per-cent reduction on costs would be appropriate, “looking at it in the round”.
We disagree. The Jardens did not succeed with their claim that Lumley had breached the contract of insurance. They did not obtain any of the relief they sought in their second amended statement of claim. We can see no justification for reducing the costs to which Lumley is otherwise entitled under the rules consequent upon this outcome.
As the insured, the onus was always on the Jardens to establish damage covered by the policy. They did not need to issue proceedings to do that. They could have accepted Lumley’s invitation prior to the proceedings being issued (and repeated thereafter) to provide evidence to substantiate their claim. Had they done so and been willing to accept the advice of the experts, it is likely that the substantial costs incurred in the litigation would have been avoided. The only item of damage on which they ultimately prevailed against Lumley’s opposition was the damage to the wooden lounge floor which was estimated to be repairable for less than $18,000 (including a margin and GST). Success on this minor item could not justify a reduction in costs. It was so comparatively insignificant that the Jardens did not even mention it when pleading the particulars of damage caused by the earthquakes.
Conclusion
Despite Mr Campbell’s careful submissions, we are not persuaded that the Associate Judge erred in exercising his discretion to award costs to Lumley on a 2B basis with a 25-per-cent uplift.
Result
The appeal is dismissed.
The appellants must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Grant Shand, Christchurch for Appellants
McElroys, Auckland for Respondent
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