Obrecht v Earthquake Commission
[2015] NZHC 555
•24 March 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000605 [2015] NZHC 555
BETWEEN JERRY GEORGE OBRECHT AND
AIMEE JANE OBRECHT Plaintiffs
AND
THE EARTHQUAKE COMMISSION First Defendant
AA INSURANCE LIMITED Second Defendant
Judgment: 24 March 2015
JUDGMENT OF GENDALL J (Dealt with on the papers)
OBRECHT v THE EARTHQUAKE COMMISSION [2015] NZHC 555 [24 March 2015]
The costs application
Introduction
[1] Jerry George Obrecht and Aimee Jane Obrecht (the Obrechts) filed these proceedings against the Earthquake Commission (EQC) and AA Insurance Ltd (AA) on 28 August 2014. The proceedings concern their earthquake-damaged two-storey, timber framed house, on a concrete slab foundation in New Brighton, Christchurch. It was originally built in 1940, but has been extended and renovated.
[2] As I have noted, the property was damaged in the Christchurch earthquakes. The Obrechts plead that separate damage was inflicted upon the property in earthquakes in September 2010, February 2011 and December 2011. They are covered under a replacement policy by AA. In a 13 October 2014 minute, Wylie J noted that the Obrechts seek to have the house repaired or rebuilt, and do not seek a payout.1 Wylie J then averred:2
[5] Mr and Mrs Obrecht have this morning assured me that they are seeking to repair/replace their house and that they are not seeking a cash settlement…The insurance policy provides for repair/replacement, and only in limited circumstances, a cash settlement.
[6] The statement of claim as it stands at the moment seeks a cash settlement. It will require amendment.
The prayers for relief
[3] The 28 October 2014 statement of claim first filed, in relation to AA, sought the following relief:
AA declaration that the second defendant is liable to pay to the plaintiffs up to a maximum of $524,556.61 to reinstate the house;
B Judgment for general damages of $50,000; C Interest;
D Costs.
Alternatively
A Judgment for:
1 Obrecht v The Earthquake Commission CIV-2014-409-605, 13 October 2014 (Minute) at [5].
2 At [5]–[6].
1. Reinstatement costs of $524,556.61;
2. General damages of $50,000; B Interest;
C Costs.
[4] After Wylie J released his 13 October 2014 minute, an amended statement of claim was filed on 29 October 2014. In relation to AA, the prayer for relief stated as follows:
AA declaration that the second defendant is liable to pay to the plaintiffs up to a maximum of $524,556.61 to reinstate the house;
B Interest; C Costs.
Inadequacies remain
[5] After this amended statement of claim was filed, counsel for AA again raised issues with the relief sought. This resulted in a telephone conference on 11
November 2014 and a minute released the same day.3 Wylie J recorded the
dissatisfaction of AA with the amended pleading, but stated that he would make no further orders in that regard.4 It was noted, however, that:5
… It is, of course, open to AA to take whatever steps it considers are appropriate as a result of the amended statement of claim and the assurance given by Mr Shand (that the plaintiffs do not intend to file a further amended statement of claim).
[6] AA then filed a statement of defence on 25 November 2014. Among other things, objections were raised to the relief sought against it. In particular, an affirmative defence was pleaded that no cause of action had been alleged:
17.The plaintiffs have not alleged any cause of action against the second defendant.
18. There is no basis for the plaintiffs’ claim for a declaration that the
second defendant is liable to pay them up to a maximum of
$524,556.61 to reinstate the house under the policy.
3 Obrecht v The Earthquake Commission CIV-2014-409-605, 11 November 2014 (Minute No 2).
4 At [5].
5 At [6].
Matters come to a head
[7] AA’s position in relation to the prayer for relief culminated when it filed an application for summary judgment, or, alternatively, to strike out the proceeding. The application was brought on the basis that the Obrechts cannot succeed because:
(a) The cause of action pleaded is not a valid cause of action; (b) It does not disclose a reasonably arguable cause of action;
(c) The prayer for relief sought is not one that is available to the plaintiffs.
[8] In relation to this prayer for relief issue, in AA’s submissions in support of the
summary judgment/strike out application, it stated:
5.1 The Obrechts seek:
A declaration that the second defendant is liable to pay the plaintiffs up to a maximum of $524,556.61 to reinstate the house.
5.2They seek this declaration because they want to “enforce the plaintiffs’ entitlements under a house insurance policy”. They go on to say that the Court has approved of declarations regarding an insurer’s liability to the insured in other “similar circumstances”.
5.3AA Insurance accepts that the Court has made declarations regarding an insurer’s liability to an insured in other cases. It also accepts that the Court could make a declaration regarding AA Insurance’s liability to the Obrechts.
5.4However, the declaration the Obrechts seek is not a declaration regarding AA Insurance’s liability. Rather, they seek a declaration that AA is liable to pay them a sum of money by enforcing the terms of the policy (the cause of action as pleaded). The policy does not enable them to seek a payment from AA Insurance, even if they have a valid claim. The declaration is legally untenable and incapable of success because the Obrechts purport to enforce terms of the policy which simply does not provide for the outcome they seek.
[9] The Obrechts denied there was any deficiency with the pleading.
A conditional resolution
[10] The proceeding to determine the interlocutory application was set down for a one day hearing on 9 March. At 8.58 am on the morning of the scheduled hearing, the Court was informed via email from counsel for AA. That email disclosed that
the parties have agreed to an amended declaration. As a result, there was no need for the hearing to proceed other than in relation to costs, which I stated, in a minute of the same date, that I would deal with on the papers.6
What the parties seek
AA’s position
[11] AA seeks costs against the Obrechts here on a 2B basis in the sum of $6,766. The basis for its cost application is:
(a) On 16 September 2014 AA wrote to the Obrechts notifying them that the relief sought was not open to them. No response was received.
(b)On 29 September 2014, AA filed a statement of defence which repeated this assertion, this time formally pleaded.
(c) Before the case management conference, AA again wrote to the
Obrechts, noting the same objections. No response was received.
(d)On 13 October 2014 the same issue was again raised at the case management conference. Wylie J there noted that an amended statement of claim would be required.
(e) On 22 October 2014, the Obrechts served an amended statement of claim. AA did not consider that the amended statement of claim complied with Wylie J’s minute for a number of reasons. It communicated this to counsel for the Obrechts.
(f) On 11 November 2014, at an urgent telephone conference, Wylie J declined to make any further orders in relation to the statement of claim but noted that AA could take action it considered appropriate. Wylie J also noted that Mr Shand remained steadfast that the amended
pleading was adequate.
6 Obrecht v The Earthquake Commission CIV-2014-409-605, 13 October 2014 (Minute No 3) at
[3] and [5].
(g)On 15 December 2015 AA applied for strike out. The Obrechts responded with their opposition on 13 January 2015.
(h)The night before the application for strike out was to be heard, counsel for the Obrechts emailed counsel for AA, agreeing to file an amended statement of claim with a declaration that conformed with the policy entitlements.
[12] AA states that despite the ultimate acquiescence to the amendment, AA had put the Obrechts on notice for months that an amended prayer for relief was required, and that it would be formally seeking such. It was only on the eve of the hearing that the Obrechts agreed to file a conforming pleading.
The Obrechts’ position
[13] The response to the costs claim was straightforward. Mr Shand, counsel for the Obrechts, noted that:
… it is difficult to see how a Court could find that a claim for indemnity for earthquake damage, corroborated by an engineer’s report, under an admitted insurance policy that covers earthquake damage could be summarily dismissed as hopeless.
[14] Mr Shand went on to note that the relief sought was similar to that pleaded in other cases. He then noted that this latest amendment differs little from the first amended statement of claim. In particular, the new provision seeks:
A declaration that the second defendant is liable to pay up to a maximum of
$524,556.61 to/for reinstatement of the house in terms of the policy.
[15] It is said that the amendment was a pragmatic resolution to avoid the time and cost of a Court hearing. Mr Shand also comments that AA have not previously made an application such as this. Therefore, as it is suggested that AA “capitulated on its application and agreed to a minor wording change”, the Obrechts are entitled to costs which they seek on a 2B basis in the sum of $4,179.
Discussion
Legal position
[16] Rule 15.23 of the High Court Rules states:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of an incidental to the proceeding up to and including the discontinuance.
[17] The following definitions from r 1.3 are relevant here:
defendant means a person served or intended to be served with a proceeding
(other than a third or subsequent party served with a proceeding under rule
4.12)
…
Interlocutory application means an application made in accordance with rule 7.19 or 7.41.
Interlocutory order–
(a) means an order or a direction of the court that–
(i) is made or given for the purpose of a proceeding or an intended proceeding; and
(ii) concerns a matter of procedure or grants some relief ancillary to that claimed in a pleading; and
(b) includes–
(i) an order for a new trial; and
(ii) an order striking out the whole or part of a pleading; and
(iii) an order varying or rescinding an interlocutory order
…
plaintiff means the person by whom or on whose behalf a proceeding is brought
proceeding means any application to the court for the exercise of the civil jurisdiction of the court other than an interlocutory application
[18] In addition various other rules provide guidance:
12.15 Discontinuance
(1) The party making the application may, at any time before an application for judgment under rule 12.2 or 12.3 is heard, discontinue the application—
(a) by filing in the registry of the court in which the application is filed a memorandum of discontinuance; and
(b) by serving a copy of the memorandum on the other party to the application.
(2) The court may give directions about the future conduct of the proceeding after an application for judgment under rule 12.2 or 12.3 is discontinued.
…
14.8 Costs on interlocutory applications
(1) Costs on an opposed interlocutory application, unless there are special reasons to the contrary,—
(a) must be fixed in accordance with these rules when the application is determined; and
(b) become payable when they are fixed.
(2) Despite subclause (1), the court may reverse, discharge, or vary an order for costs on an interlocutory application if satisfied subsequently that the original order should not have been made.
(3) This rule does not apply to an application for summary judgment.
[19] It will be clear from the rules that, strictly speaking, r 15.23 has no application to the discontinuance of either a strike out application or an application for summary judgment, both being interlocutory in nature and therefore not a “proceeding”.7
[20] That there is no explicit regime dealing with costs on a discontinued interlocutory application is of little moment. First, r 1.6 is perhaps able to step in to enable the Courts to apply analogous principles. Thus, the law articulated regarding r 15.23 might well be considered as having application to this case. Rule 14.2 also provides guidance here. This states that “the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds”. AA is in effect the successful party here and it is consistent with r 14.2 to award it costs.
[21] Before getting to the resolution of this matter, I note also that r 7.77(8) also has some relevance here. It provides:
7 For the proposition that a strike out application is interlocutory in nature, one need look no further than r 1.3 of the High Court Rules. For the proposition that an application for summary judgment is interlocutory, refer McGechan on Procedure (online looseleaf ed, Brookers) at [7.36.01].
If an amended pleading has been filed under this rule, the party filing the amended pleading must bear all the costs of and occasioned by the original pleading and any application for amendment, unless the court otherwise orders.
Resolution
[22] Mr Shand’s position in relation to the merits of the claim itself ignores AA’s primary objection to the pleading. That was, notwithstanding the merits of the claim, the relief sought was not available under the policy. The description of the amendment to the prayer as “tinkering” also belies the fact that its nature has been altered from a declaration seeking payment of a liquidated sum, to a declaration of liability to repair or reinstate, up to a maximum amount. This is a fundamental alteration to the nature of the relief sought.
[23] The alteration to the declaration sought is not, as Mr Shand seeks to assert, a capitulation on AA’s part. Rather, it is the realisation of the outcome AA sought all along. That is, a pleading disclosing relief in the form of a declaration as to liability, not a declaration seeking the payment of a money sum. In these circumstances, in my view, AA has been successful here. The outcome has avoided the issue of argument being required over the adequacy of pleadings at trial.
[24] It is clear too that AA had attempted multiple times, through various fora, to communicate to the Obrechts that there were issues with the relief sought. The inadequacy endured for months it seems until AA finally considered that it was left with no choice other than to take formal steps to address this issue. The Obrechts could have responded at any point. Instead, they chose to wait until the eve of the hearing to resolve the matter inter partes, without calling in aid the assistance of the Court. The fact that the Obrechts altered their stance at the eleventh hour, literally on the eve of trial, vindicates the position of AA to a substantial degree. There is no explanation as to why this course was not adopted by the Obrechts, or at least seriously entertained, in any of the many months before 8 March 2015.
[25] The filing of the application was therefore reasonable in the circumstances. So was the discontinuance in light of the fact that the result sought by the application was achieved. AA, being the successful party, is entitled to costs. Indeed, applying
common sense principles, the just outcome requires that a party who unnecessarily and unduly puts another party to expense should be liable to pay costs for doing so.8
In my view that is precisely what has occurred here. And the category 2B costs quantum sought by AA of $6766 is not in any real way questioned by the Obrechts and in my judgment is an appropriate figure here.
Outcome
[26] For the reasons I have outlined above, AA’s application for costs succeeds, and the Obrechts’ request for costs accordingly fails.
[27] The Obrechts, the plaintiffs, are to pay to AA, the second defendant, costs on the summary judgment/strike out proceeding on a 2B basis, in the sum of $6,766 together with disbursements (if any) as may be awarded by the Registrar. I order accordingly.
...................................................
Gendall J
Solicitors:
McElroys, Auckland
Grant Shand, Christchurch
8 I have also had regard to the principles espoused in Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973; FM Custodians Ltd v Pati [2012] NZHC 1902 at [10]–[12].
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