Jarden v Lumley General Insurance (NZ) Ltd
[2016] NZHC 2820
•24 November 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-001332 [2016] NZHC 2820
BETWEEN DAVID JOHN JARDEN AND JOANNE
JARDEN Plaintiffs
AND
LUMLEY GENERAL INSURANCE (N.Z.) LIMITED
Defendant
Hearing: 24 November 2016 (Determined on the papers) Appearances:
A Ferguson and J Moss for Plaintiffs
P J L Hunt and K J Rowe for DefendantJudgment:
24 November 2016
COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] On 23 June 2015 the High Court issued a judgment on Mr and Mrs Jarden’s claim against their insurer, Lumley General Insurance (N.Z.) Limited (Lumley) arising out of damage to their home caused by earthquakes on 4 September 2010 and
22 February 2011.1 Mr and Mrs Jarden appealed the judgment to the Court of
Appeal. That Court upheld the judgment of the High Court in all respects save one, relating to a breakdown of the sum received by Mr and Mrs Jarden from EQC on which the Court of Appeal had admitted further evidence.2
[2] Mr and Mrs Jarden seek an award of costs against Lumley. Lumley, in turn, seeks an award of costs against Mr and Mrs Jarden. No costs issues arise in relation to the former second defendant, EQC, with which Mr and Mrs Jarden have settled,
receiving their statutory entitlement together with $55,313 for costs.
1 Jarden v Lumley General Insurance (NZ) Ltd [2015] NZHC 1427, [2015] 18 ANZ Insurance
Cases 62-077 [High Court judgment].
2 Jarden v Lumley General Insurance (NZ) Ltd [2016] NZCA 193 [Court of Appeal judgment].
JARDEN v LUMLEY GENERAL INSURANCE (N.Z.) LIMITED Costs Judgment [2016] NZHC 2820 [24 November 2016]
Summary of the plaintiffs’ position
[3] In the judgment in this Court the High Court Judge analysed the elements of damage to Mr and Mrs Jarden’s house and made findings of liability in respect of each. Mr and Mrs Jarden say that they were successful in relation to replacement of the exterior brick cladding which Lumley proposed to repair, remediating cracks to the concrete floor, replacing floor coverings over cracks, and replacing the formal living room timber floor. They say they also succeeded in persuading the Court to require that a 10 per cent contingency sum should be allowed for in the costings for the work to be undertaken, when those costings are carried out.
[4] Given this measure of success, as they see it, Mr and Mrs Jarden argue that it is they who have succeeded in this proceeding and, on the principle that costs should follow the event, it is Lumley which should pay costs. They say that costs should be assessed on the basis of Category 2 Band B.
[5] Mr and Mrs Jarden rely on a number of established principles in support of their position. They say a commonsense approach should be taken in relation to which party has succeeded, whether in whole or in part,3 that whilst success may be reflected in a complete win, it may also be achieved when, viewed overall, one party has substantially succeeded, even though it has lost on some issues.4 Where a claimant essentially succeeds by pressing and sustaining litigation, that claimant should be regarded as the successful party.5 Mr and Mrs Jarden say that where a money claim is brought and a claimant recovers more by pressing the litigation than it would have been able to recover without doing so, the claimant is the successful party and entitled to recover all its costs, even though it failed to establish some of alternative heads of claim.6
[6] Counsel for Mr and Mrs Jarden says that although settlement was achieved with EQC at its statutory cap, plus costs, Lumley’s position was that the cost to
3 Driessen v Earthquake Commission [2016] NZHC 1048 at [22].
4 At [23].
5 At [24].
6 Widlake v BAA Ltd [2009] EWCA Civ 1256, [2010] 3 Costs LR 353 at [36]; Fox v Foundation Piling Ltd [2011] EWCA Civ 790, [2011] 6 Costs LR 961 at [51] and [64]; Hall v Stone [2007] EWCA Civ 1354, [2008] 3 Costs LR 450 at [71]-[73]; Ritter v Godfrey (1920) 2 KB 47 (CA).
repair Mr and Mrs Jarden’s house was below cap, and therefore Lumley did not have any liability to pay any sum at all. Although Lumley’s assessment of the cost to repair the house varied over time, it remained Lumley’s position before and throughout the trial that it was not liable to make any payment at all, for this reason.
[7] Viewed against that position counsel says that although they failed in some elements of their claim, Mr and Mrs Jarden have broadly succeeded and, on the principles cited, should be awarded costs as sought, together with disbursements including the fees of all experts consulted during the course of assessing and establishing their claim. The sum claimed for costs is $51,342 and the sum claimed for disbursements is $73,092.85 of which all but approximately $20,000 is for the fees of witnesses.
Summary of the position of Lumley
[8] The primary premise for Lumley is that contrary to the position of Mr and Mrs Jarden, Lumley substantially succeeded and Mr and Mrs Jarden achieved little by bringing this case. The first point made for Lumley is that although Mr and Mrs Jarden sought judgment for damages, being the alleged cost of rebuilding their home less sums paid by EQC, together with damages for stress and general damages, this
claim was entirely rejected by the Court.7 The Court described this claim as
misconceived. It was based on a breach of obligation by Lumley, but no breach had occurred. The High Court judgment made declarations pursuant to the alternative prayer for relief by Mr and Mrs Jarden.8
[9] Secondly, counsel for Lumley referred to each element of Mr and Mrs Jarden’s claimed defects. The first was cracks in the floor. The High Court found that these were not caused by the natural disaster. The Court found that although the floor of the house was out of level, Mr and Mrs Jarden had not proved that this was caused by the earthquake events. The claim that there were voids beneath the
concrete slab failed.
7 High Court judgment, above n 1, at [22]-[23] and [128]-[130].
[10] The external brick veneer walls of the home were damaged in the earthquake. Mr and Mrs Jarden maintained that the cladding needed to be replaced in its entirety. Lumley said that the bricks should all be checked after they had been removed to half height and that if brick ties below half height had failed, further demolition may be required. The declaration made by the Court reflects Lumley’s position.9
[11] The High Court rejected the Jardens’ claim in relation to alignment of interior walls, but approved the strategy agreed by Lumley and Mr and Mrs Jarden in relation to raking, plastering and repainting internal walls as required.10 The High Court rejected Mr and Mrs Jarden’s claim that the ceiling and the roof of the house had been damaged in the earthquakes and their claim that the ceiling beams in the kitchen and dining room were sagging as a result of the earthquakes.11
[12] Overall, therefore, Lumley says that the extent to which Mr and Mrs Jarden succeeded is extremely limited. They failed entirely on key elements of their claim:
(a) it was not found that their house was uneconomical to repair as a result of earthquake damage, and needed to be rebuilt;
(b) nor that their house had suffered extensive earthquake damage; (c) nor that Lumley had breached its policy obligations;
(d)it was not found that they were entitled to judgment in a monetary sum for costs of rebuilding, or for general damages;
(e) they failed to obtain the declaration they sought that Lumley should pay up to $918,579 on the incurring of costs in relation to remediating the house; and
(f) they failed to receive approval for their remedial work strategy.
9 At [118].
10 At [91] and [121].
11 At [101]-[102].
[13] Lumley says that the only success Mr and Mrs Jarden achieved from the six day trial in the High Court was a finding that damage to the wooden lounge floor was caused by the earthquake which, on the evidence presented for Mr and Mrs Jarden, will cost $13,993 plus margin and GST, a total of $17,701.15, or just 1.69 per cent of the total amount Mr and Mrs Jarden had sought.
[14] Lumley notes that the trial Judge commented that Lumley cannot be criticised for resisting the Jardens’ claim, which in large measure could not be sustained on the evidence.12 It says that in terms of the tests referred to earlier in this judgment, Mr and Mrs Jarden did not achieve a measurable degree of success by bringing this proceeding, they were not vindicated by it, and that had the proceeding not been brought they would not likely have had to consider a settlement substantially less than the result they achieved. Lumley says it did not substantially move its position
over time: provided Mr and Mrs Jarden actually carried out repairs of the earthquake damage to their home in accordance with the policy, and those repair costs exceeded the amount of EQC cover, then Lumley was always willing to pay the difference between the actual necessary repair costs incurred and that cover. That position remained throughout. Although Mr and Mrs Jarden may have succeeded against EQC, which had initially assessed the costs of repairs at well below cap, they failed in their claim against Lumley.
[15] Lumley also says that it should receive an uplift in costs against Mr and Mrs Jarden, under r 14.6 of the High Court Rules. Lumley says that Mr and Mrs Jarden pursued a claim that lacked merit and failed to comply with Court directions. I will review these submissions as a secondary consideration, after determining first whether costs should be awarded to Mr and Mrs Jarden or to Lumley.
Discussion: liability for costs
[16] In the statement of claim initially filed Mr and Mrs Jarden sought a total sum of $1,077,788 from EQC ($227,700) and Lumley ($850,088) to remediate damage said to have been suffered by their home. In addition they sought damages for stress, and general damages, in a total sum of $51,000 from Lumley, and $50,000 general
damages from EQC. The claim was based on a pleading that Lumley had refused to meet its obligations under the policy it held over Mr and Mrs Jarden’s house by not offering to pay them anything to settle their claims. The relief sought was a declaration that Lumley was liable to pay to them up to a maximum of $850,088.45 to rebuild their house.
[17] Thirteen months later Mr and Mrs Jarden filed an amended statement of claim (August 2014). The claim was reduced to a total of $730,965 of which
$608,653 was claimed against Lumley. Breach of contract was alleged as before. The relief sought was judgment in that sum. There was no claim for a declaration of liability for a sum up to a maximum amount. The claims for damages for stress and general damages remained.
[18] Trial of the action commenced on 23 February 2015. On the second day of the trial, with leave, Mr and Mrs Jarden filed a second amended statement of claim. By this point they had settled their claim against EQC. The claim against Lumley was based on Lumley having indicated that it would not perform its obligations under the policy, or alternatively having refused to do so. The cost to remediate the damage to the home was then assessed at $1,033,829 from which Mr and Mrs Jarden deducted the sum received from EQC, leading to their claim against Lumley being quantified at $918,579. They sought, in the alternative, judgment for that sum or a declaration that Lumley was liable to pay them up to that sum on the incurring of costs in relation to remediating the house. Once more, the same sums were claimed for damages for stress, and by way of general damages.
[19] In the second amended statement of claim, 12 specific forms of damage to
Mr and Mrs Jarden’s house, resulting from the earthquakes on 4 September 2010 and
22 February 2011 were identified. In his judgment Kós J dealt with these in turn, grouping them into categories for the purposes of discussion and findings. Summarised, the allegations and the Court’s findings in relation to them were these:
(a) Cracking through the concrete slab foundation: the Court found cracks in the floor were not natural disaster damage.13
(b)Differential settlement and floor levels: the Court found that the different levels across the floor were likely to be an original feature of construction, perhaps slightly exacerbated by natural settlement, and that Mr and Mrs Jarden had not proved on the balance of probabilities that irregularities to the floor slab levels were caused by earthquake
events or that they had suffered any insurance loss as a consequence.14
It also found that it was not proved on the balance of probabilities that the house had voids beneath it as a result of the earthquakes.15
(c) External brick veneer cladding: the Court found that Mr and Mrs Jarden had established on the balance of probabilities that damage to the brick veneer wall was caused by the earthquake events, but found that the exact extent of the damage was not yet known.16 The expert evidence for Lumley was that all the brickwork could be checked once the bricks had been removed to half their height, or possibly lower if it was shown
that brick ties below that level had failed. It appears the Judge accepted this position as he directed that sufficient bricks must be removed to ensure that the walls are correctly tied to the timber framing in accordance with current standards, which may require demolition below half the height of the bricks.17
(d)Alignment of internal and external walls: the Court rejected the claim that the present alignment of the interior walls was the result of earthquake damage.18 The Judge noted that Lumley accepted that cracking to the internal wall linings was a consequence of the earthquake and should be fixed, adopting the proposed method of repair proposed by Lumley.19 The Court found that the same would apply to any detachment of wall linings from supporting studs.
(e) Roof and ceiling: the Court found that Mr and Mrs Jarden had not established on the balance of probabilities that leaks they complained
14 At [40]-[42].
15 At [53].
16 At [60].
17 At [118].
18 At [91].
19 At [92] and [121].
of, in the roof, were caused by the earthquakes, so rejected their claim in relation to the roof and the ceilings.20 The Court also rejected the claim in relation to sagging in some decorative beams which it found to be deflections under the force of gravity.
(f) Lounge doors and windows beside patio: Lumley accepted and the Court found that these were damaged in the earthquake, were out of square and should be fixed.21
(g)Lounge floor: the Court found that this had buckled and was bulging as a result of damage by a liquid which had come into contact with the floor as a result of the earthquakes.22
(h)The garage: all claims were rejected save for damage to the brick veneer, in respect of which the Court findings were the same as those applying to the house.23
[20] In submissions Mr Hunt took me to documents which showed that the position established at trial in relation to the bricks was largely the same as the position taken by Lumley prior to the trial, with the only outstanding question being the extent to which the bricks had been damaged, which had not been established as insufficient bricks had been removed for all ties to be viewed and assessed.
[21] Mr Hunt also took me to a document which showed that the Court findings in relation to interior linings reflected the position taken by Lumley before and at the trial. He noted that the Court of Appeal recorded in its judgment that witnesses for Lumley had accepted that doors and windows were jamming or out of square.24
[22] In written submissions for the hearing in relation to costs Mr Ferguson, counsel for Mr and Mrs Jarden at trial, claimed that his clients had succeeded in relation to all these items, and in relation to establishing an entitlement for damage to
the lounge floor. He also said that the Court allowed for a contingency sum.
20 At [101]-[102].
21 At [104].
22 At [105] and [107].
23 At [106].
24 Court of Appeal judgment, above n 2, at [71].
However, on analysis, I find that the only issue on which Mr and Mrs Jarden succeeded at trial, by which I mean they attained an outcome greater than that accepted by Lumley at and in advance of trial, was in relation to damage to the lounge floor. The addition of a contingency sum does not appear to have any material relevance to the overall outcome of the case.
[23] Mr Moss appeared as counsel on this application but had not been instructed until a week or so before the hearing, and had not acted in any way for Mr and Mrs Jarden at any prior point. Mr Moss candidly accepted, and responsibly so, that Mr and Mrs Jarden had sought too much in their claims. It is plain from the judgment of the Court that the evidence presented for Mr and Mrs Jarden did not satisfy the Court in relation to the majority of the claims that Mr and Mrs Jarden made. He pointed out, however, that prior to and right through the trial the position of Lumley was that the claim should have been correctly quantified at a figure below the cap to be paid (and eventually paid) by EQC, and that turned out to be wrong. Mr Moss says that by taking the case through the court process, therefore, Mr and Mrs Jarden had established a liability on the part of Lumley which was denied prior to, and during the course of, their doing so. In the end meeting the cost of remediating the items which the Court has found to be the consequence of the earthquake will cost a sum in excess of the EQC cap. Thus, Mr Moss says, Mr and Mrs Jarden were justified in bringing the proceeding, and have been successful by establishing some liability on the part of Lumley both in terms of elements of the required scope of work and in terms of the monetary consequences of carrying it out.
[24] In my opinion, although Mr and Mrs Jarden succeeded in establishing that damage to the floor of their living room was caused by the earthquakes, it cannot be said that they were the successful party in this case when the claim, and its outcome, are viewed as a whole. First, the claim for judgment by way of damages was rejected and, for reasons given by the Judge, was described as misconceived. Had the trial proceeded on the basis of the first amended statement of claim, and not been amended on the second day to add a claim for a declaration which had been omitted from the first amended statement of claim, Mr and Mrs Jarden’s case would have been entirely dismissed. As it was, the declaration established a position in their
favour which only exceeded that proffered in evidence by Lumley by the inclusion of remedial work on the lounge floor, at comparatively low cost.
[25] In contrast, Lumley defended a claim which went to trial quantified at
$659,653, and proceeded through trial after the second day as a claim either for
$969,579 or for declarations of liability up to that sum, over and above the amount already received from EQC. Against these claims its monetary liability for the single material item on which the Court found against it, the floor, is under $20,000 and its liability in respect of the brickwork, which it accepted in any event, seems unlikely to take its total liability beyond approximately $60,000 including the costs of the floor.
[26] Mr Moss argues that Mr and Mrs Jarden were justified in issuing proceedings at a point before EQC finally, and frankly belatedly, decided that the claim was over cap, and I accept that submission. I think it unrealistic to suggest that in the circumstances applying to those who suffered damage to their homes as a consequence of the Christchurch earthquakes they should litigate first against EQC, and then after resolution of that claim, against an insurer. It is a long jump from that point, however, to find that the way the case was pleaded and run was justified. There is nothing in the material before the Court to give me any confidence that at any point Mr and Mrs Jarden were in possession of probative evidence sufficient to establish at trial either that their house suffered such extensive damage as a consequence of the earthquakes that it needed to be rebuilt, as alleged, or to be repaired at a cost of some 94 per cent of the estimated cost of rebuilding, as pleaded. As well, there is material before the Court to show that requests to provide information in support of these contentions were either ignored or denied, and even material to show that one of Mr and Mrs Jarden’s own expert advisors agreed in a joint statement of experts that certain elements of the claim were not caused by the earthquakes. That witness was not in the end called by Mr Ferguson at trial, though he failed to respond in other than an oblique way to a specific enquiry from counsel for Lumley on whether this witness was to be called.
[27] Viewed overall, Lumley was taken to trial on a claim of nearly $1,000,000, on evidence which manifestly failed to come up to the mark, and with a pleading
made in three statements of claim which was unable to succeed. Against this, the very limited success achieved by Mr and Mrs Jarden is well outweighed. In terms of the decisions referred to in paragraph [5] above, I find that Mr and Mrs Jarden have not substantially succeeded. Rather, they have lost on by far the greater part of the claim that they brought. In my judgment, therefore, Lumley is entitled to costs against Mr and Mrs Jarden.
The amount of costs to be awarded
[28] The starting point for an award of costs to Lumley is Category 2 Band B –
neither counsel submitted otherwise.
[29] Lumley seeks an increase in costs, pursuant to r 14.6 of the High Court Rules, of 25 per cent. Mr Hunt presented a detailed analysis of pre-trial steps, which in the context of the very limited degree to which Mr and Mrs Jarden accomplished anything by running this case, provide a foundation for increased costs to be awarded under this rule. Summarised, Mr Hunt’s submission is that:
(a) The Jardens initiated proceedings against Lumley that were untenable and were not supported by evidence which they held, particularly in relation to their claim over the foundations of the house.
(b)Mr and Mrs Jarden failed to alter their claims against Lumley once they obtained expert evidence which showed that their claim was untenable. In particular they did not take heed of the views of Mr Fletcher, an expert witness they initially consulted, who did not support material aspects of the claim which they were asserting. They called, instead, a Mr Scarry but his evidence did not support their position either.
(c) They resisted attempts by Lumley to better understand their position and continued to fail to produce evidence to support that position. In this respect they did not comply with discovery when required, their briefs of evidence contained inadmissible evidence, they wrongly brought an application that the trial Judge should recuse himself, and
they withdrew a witness who had taken part in the joint expert assessment process directed by the Court.
(d)Mr and Mrs Jarden failed with all aspects of their claim except for one relatively minor point.
(e) Mr and Mrs Jarden sought monetary relief to which they were not entitled.
[30] In my opinion each of these points is validly made out on this application. Balancing it to a degree is Lumley’s position at trial that repairs to Mr and Mrs Jarden’s property would cost a sum below cap. It is highly questionable, though, whether even if Lumley had taken a more realistic approach to the assessment of the cost of necessary repairs, this would have made any difference to the approach being taken by Mr and Mrs Jarden, through their counsel. 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.
[32] Arguably, the responsibility for the decisions which led to this course of conduct may lie at the feet of Mr and Mrs Jarden’s legal advisors. Similarly, the way the claim was conducted, as summarised above, may also lie at the feet of those advisors. In this judgment that point cannot be established, but is in any event irrelevant to the issue before me. Mr and Mrs Jarden must take responsibility for the actions of those who represent them, so far as Lumley is concerned. If that responsibility lies at the door of others it is for Mr and Mrs Jarden to take such steps as may be open to them. It is not a matter which bears on their responsibility to Lumley.
[33] Having taken into account all relevant factors I am satisfied that Mr and Mrs Jarden did pursue arguments that lacked merit and acted frivolously in continuing this case, for the reasons I have given. The grounds for an uplift of costs under r
14.6 are made out. The percentage uplift sought by Lumley is appropriate in my opinion.
Outcome
[34] Mr and Mrs Jarden will pay to Lumley costs on a 2B basis, plus 25 per cent, together with disbursements (including witness expenses) which are approved in
accordance with the schedule submitted by counsel.
J G Matthews
Associate Judge
Solicitors:
Grant Shand, Christchurch
McElroys, Auckland
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