Michalik v Earthquake Commission

[2015] NZHC 490

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-3167 [2015] NZHC 490

BETWEEN

P W MICHALIK

Plaintiff

AND

EARTHQUAKE COMMISSION Defendant

Hearing:	On the papers
Counsel:	P W Michalik in person J A Knight and N S Wood for Defendant
Judgment:	16 March 2015

JUDGMENT OF WILLIAMS J (COSTS)

[1]      In a reserved judgment issued on 17 September 2014, I found in favour of the Earthquake Commission (EQC) in relation to Mr Michalik’s claim for cover of his damaged retaining wall under the EQC Act.1   The issue was whether EQC properly calculated  its  liability  under  the Act,  in  particular  whether  it  used  the  correct methodology for assessing “indemnity value” pursuant to s 19(b).  I concluded:2

… that EQC adopted the correct approach when it applied depreciated replacement cost methodology to derive the indemnity value of the wall.  In my view that approach is consistent with the terms of the EQC Act, relevant legislative history and with generally applicable principles of insurance law.

[2]      As to costs, I foreshadowed at [97]:

EQC will be entitled to costs.  I apprehend that the time and energy put into defending this application reflected its significance to EQC as a potential precedent.   EQC will be entitled to some costs – after all the plaintiff commenced the proceeding – but an appropriate deduction will be made in light of the wider significance of the questions raised in the application.

1      Michalik v Earthquake Commission [2014] NZHC 2238.

2 At [48].

MICHALIK v EARTHQUAKE COMMISSION (COSTS) [2015] NZHC 490 [16 March 2015]

[3]      Both parties have filed memoranda at my invitation, following disagreement as to the correct approach to costs in this case.

[4]      Both EQC and Mr Michalik agree that Mr Michalik should pay a reduced sum of costs.  The extent of the reduction is the issue.  Although not accepting usual

2B costs should be departed from, EQC indicates it would accept 75 per cent of its scale costs and full (scale) disbursements.  Mr Michalik suggests a ‘logical division’ of costs based on [97] above.  That is, EQC should pay for the costs attributed to “the time and energy put into defending this application”, while Mr Michalik is responsible for the steps in commencing the proceeding.

[5]      The submissions raise two issues that bear on the correct measure of costs, namely:

(a)       To what extent did this litigation represent a ‘test case’ for EQC?

(b)      Did EQC make a Calderbank offer to Mr Michalik?

A test case?

Submissions

[6]      As to this first point, EQC notes that this would have been a test case had it brought the proceeding.  In defending Mr Michalik’s claim, however, EQC submits that the ultimate judgment in its favour will be “helpful precedent for the future” but a judgment was not required by it in order to settle other similar claims.  EQC says it was  “satisfied  that  the  interpretation  it  applied  of its  statute was  correct  in  the relevant aspects”, and has been able to settle claims like Mr Michalik’s with that approach since 1984.  The judgment simply confirms its long-standing approach to the legislation.

[7]      EQC  further  submits  the  case  is  not  ‘public  interest  litigation’.    It  says Mr Michalik brought this claim in respect of his private property for the purpose of securing for himself a more generous sum.

[8]      Mr Michalik makes a number of points which, he says, reveal the true value of this litigation to EQC as a test case:

(a)       An excerpt from the transcript of hearing in which Mr Knight for EQC refers to the “thousands of retaining walls” in Canterbury upon which this Court’s interpretation of s 19 will have an impact.

(b)       Alleged  reliance  on  this  judgment  by  EQC  in  rejecting  similar retaining wall claims in Canterbury.

(c)       An EQC circular dated October 2013 that signals and explains a

change in EQC’s approach to settling land claims in Canterbury.

(d)       The existence of the Christchurch Retaining Walls Group, formed for the purpose of sharing information regarding retaining wall settlements with EQC.

(e)       A pending class action in relation to retaining walls in Canterbury.

Analysis

[9]      EQC draws my attention to the recent Court of Appeal judgment in Kraal dealing with the correct interpretation of “natural disaster damage” under the EQC Act.3  As to costs, Asher J writing for the Court said:

Costs  would  usually  follow  the  event.    We  received  submissions  from counsel about the costs options.   Mr Campbell argued that this was a test case, and there was a public interest in the determination of the issues.  We accept that this was an important case which explored a new issue arising from   a   disaster   of   unforeseen   an   indeed   unimaginable   proportions. However, the Earthquake Commission through the litigation has treated the legal issue that arose as settled by the clear words of the statute, and never accepted that there was any genuine uncertainty.  It never accepted this was a test case.  As is clear from our judgment, our analysis is in accord with that assessment, as was the judgment of Mallon J.  There is no reason to depart from the usual costs practice.

[10]     In these circumstances, EQC must be seen as responsible in acknowledging that a 25 per cent reduction in costs would not be opposed.  I agree that this is a fair assessment of the wider advantage to EQC in having the matter at issue resolved by this Court as distinct from the potential private advantage to Mr Michalik if he had been successful.

Calderbank offer?

[11]     EQC says it made a Calderbank offer to Mr Michalik to discontinue the proceedings on 3 September 2013, just over a month after Mr Michalik filed his

statement of claim.  In that letter, EQC offered to have costs lie where they fall if Mr Michalik filed a notice of discontinuance and as such Mr Michalik would have been then in a better position he is in now facing costs liability.

[12]     Mr Michalik says the letter cannot be considered a Calderbank offer because

it offered him “nothing of substance”.

[13]     On the contrary, it is well settled that a Calderbank offer can consist simply of an offer to let the other party “walk away”.4   Mr Michalik is right, however, that in general such offers are taken into account by the Court in relation to whether the unsuccessful party must pay increased costs in terms of rr 14.6(3)(b)(v) and 14.11 of the High Court Rules.

[14]     In the end, I do not consider EQC’s offer to Mr Michalik affects the ultimate award of costs.

Conclusion

[15]   I consider EQC is entitled to 75 per cent of its scale costs, and full disbursements. That is $13,432.50 in costs and $2,175.40 in disbursements.

[16]     There is one final matter I must address.   In his material submitted to the Court on costs, Mr Michalik made reference, in considerable detail, to an apparently without prejudice meeting that took place between him and Mr Knight.   I do not consider that this is appropriate material for the Court to consider.   In any event, even if what Mr Michalik says about the meeting is true, it would not have altered my conclusion as to costs.   I have already said that the value of this judgment to EQC,  whether  conducted  as  a  test  case  or  not,  is  reflected  in  the  25  per  cent reduction in its entitlement.

Williams J

Solicitors:

Chapman Tripp, Wellington