Rout v Southern Response Earthquake Services Limited
[2014] NZHC 1053
•20 May 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-000586 [2014] NZHC 1053
BETWEEN PAUL JOHN ROUT AND GEORGINA
ANN KNOX ROUT Plaintiffs
AND
SOUTHERN RESPONSE EARTHQUAKE SERVICES LIMITED Defendant
Hearing: 3 April 2014 Appearances:
GDR Shand for Plaintiffs
C M Stevens for DefendantJudgment:
20 May 2014
JUDGMENT OF GENDALL J (As to Costs)
Background
[1] This proceeding involved a claim by the plaintiff homeowners following the Christchurch earthquakes against the insurers of their house the defendant for damage to their home requiring full replacement. A dispute developed between the parties over what that entailed and a hearing took place in this Court for eight days commencing 7 October 2013.
[2] Judgment was given in the proceeding on 6 December 2013. In that judgment I held that the plaintiffs were successful to an extent in their claim against the defendant, but not for the figure in excess of $1.29 million they had originally sought at the hearing before me. At [197] of the judgment I found that, when they
made an election under their policy, the plaintiffs would be entitled to incur
ROUT v SOUTHERN RESPONSE EARTHQUAKE SERVICES LIMITED [2014] NZHC 1053 [20 May 2014]
rebuilding or replacement costs for their home but only up to a maximum figure of
$673,330.90.1
[3] In that judgment, I reserved the question of costs. Both counsel indicated they wished to make submissions on costs, but this did not occur at the hearing. I therefore directed that in the absence of agreement between the parties, written submissions on costs were to be filed sequentially following which I would decide costs issues on the papers, unless any party indicated they wished to be heard on the issue. Thus far, the parties have been unable to agree on costs. Counsel filed memoranda of submissions and the plaintiffs also indicated they wished to be heard on the issue. A one-half day in person hearing on costs took place, this being held on Thursday 3 April 2014. I now give my decision on the costs question.
Plaintiff ’s Position on costs
[4] At the outset the plaintiffs say that they were the successful parties here and should receive an award of costs which they seek totalling $124,674 plus disbursements of $83,750.38.
[5] The plaintiff’s submissions on costs set out the background relating to what they say was the defendant’s response to the plaintiff’s claim over a long period of time and its change of position when the plaintiffs issued these proceedings. The background referred to is outlined in detail in my earlier judgment.
[6] The plaintiffs emphasise that in that judgment I held that the defendant had breached its policy obligations by endeavouring to settle the claim in respect of their house purely on a repair basis when it was found to be liable to settle the claim based on a rebuild basis. This was at a final cost of $673,330.90. It was submitted that as the plaintiffs succeeded in proving the house was a rebuild not a repair, thus they obtained $220,143.90 more than they were ever offered by the defendant ($673,330.90 less $453,187). In addition, they obtained $410,125.15 more than the defendant’s position during trial ($673,330.90 less $263,205.75). The judgment sum
I am told has now been paid by the defendant.
1 Rout v Southern Response Earthquake Services Ltd [2013] NZHC 3262 at [197].
[7] The plaintiffs acknowledge that this proceeding has never been categorised for cost purposes but they submit it should be regarded generally on a 2B basis. On their part, a few exceptions to this categorisation in relation to item 30 (witness statement preparation), item 31 (issues, authorities and bundle preparation) and item
33 (hearing preparation) are sought however. As to these items only, the plaintiffs suggest that a category 2C band should be applied
[8] The plaintiffs also seek an uplift on costs they say should be awarded to them under rr 14.6, 14.10 and 14.11 High Court Rules. This is for what they submit are various failures of the defendant here. These are said to include delays in serving witness statements on time, a failure to accept the defendant could not succeed based on the evidence of Mr Lewis and Mr Hutt, and an unwillingness to either perform the appropriate geotechnical investigations on the land, or to accept reasonable settlement offers. It is suggested that, amongst other things, all this increased the time required on the part of the plaintiffs for witness statement and trial preparation.
[9] The hearing in this proceeding took a total of eight days. Mr Shand for the plaintiffs suggests that preparation was difficult and compressed by the technical nature of the evidence and the proximity of service of the defendant’s witness statements to the hearing date.
[10] Accordingly, the plaintiffs seek costs uplifts under r 14.6 of 10 days in relation to delay and preparation issues and 2 days for the defendant’s alleged failure to arrange an appropriate geotechnical investigation. Failures on the part of the defendant to accept the position during the trial as to what an “as new” rebuild would require were also said to lead to 3 more court days being wasted. In summary then, the plaintiffs seek a total uplift on scale costs of some 15 days.
[11] The plaintiffs also request the Court here to increase a total costs award by
$20,000 for what is said to be the defendant’s failure to properly negotiate and to accept reasonable settlement offers. It was submitted that the defendant ought to have resolved this dispute prior to proceedings being issued and that would have avoided the bulk of the legal costs.
[12] As a starting point, the plaintiffs noted the principle that, under r 14.2(a) High Court Rules a party who fails with respect to a proceeding should generally pay the costs of the party who succeeds.
[13] Where a money claim is brought as here and the plaintiffs as claimants recover more money by pursuing the litigation than they would have been able to recover without doing so, then as the successful parties the plaintiffs say they are entitled to a costs recovery.
[14] Again, I note that Mr Shand contended the plaintiffs had been largely successful in this proceeding. They succeeded on the crucial issue here in establishing that their house was a rebuild, not a repair, and the plaintiffs obtained more than Mr Shand says they were ever offered by the defendant pre-trial.
[15] Mr Shand suggested that it did not matter to the assessment of success that the plaintiffs did not recover the entire amount they claimed nor that they did not succeed on all issues.
Disbursements
[16] An award for disbursements was sought by the plaintiffs totalling $83,750.38. This included an amount of $3921.50 paid to the plaintiff ’s quantity surveyor, Mr Malcolm Gibson. Mr Shand suggested Mr Gibson had provided costings that were a part of the plaintiff’s pleadings, attended court-ordered meetings about costings and produced a witness statement. But, there is no doubt that very much at the last minute, the plaintiffs chose not to call him as a witness. Mr Shand submits that Mr Gibson was not called as a witness because the plaintiffs had made a decision to rely primarily on the evidence of the independent builder, Mr Stanicich. But nevertheless, Mr Shand contends that Mr Gibson’s fee satisfies the criteria in r 14.12, and should be allowed as a proper disbursement.
[17] As will be seen later in this judgment, the defendant takes issue with this and contends Mr Gibson’s fees are not a recoverable disbursement here. But, as to the other disbursements sought by the plaintiffs, the defendant really took no issue with the type or reasonableness of those disbursements.
Reduced costs
[18] Issues were raised by the defendant here regarding whether, even if costs are to be awarded, they should be only on a reduced basis. Mr Shand for the plaintiffs then embarked upon a discussion of the principles applying to reduced costs under r
14.7. His submissions were essentially that the plaintiffs were successful on their main cause of action and, although unsuccessful on the other causes of action, Mr Shand suggested that nevertheless all their claims were meritorious. He submitted that there were no sustainable reasons to reduce the costs to be awarded to the Routs.
Defendant’s submissions on costs
[19] In response, the defendant’s position here is that essentially it seeks an order that costs for the substantive proceeding should lie where they fall. In addition however, it does seek costs itself on its opposition to the plaintiffs’ present costs application.
[20] If the Court however is minded to award costs to the plaintiffs, the defendant suggests nevertheless that a cost categorisation at 2B for all steps in the proceeding less a reduction of 50% under r 14.7 is appropriate. This calculation would amount to a total 2B assessment of $60,894.00 less 50% giving a final costs award of
$30,447.00. It was also submitted that neither was there any basis here for the plaintiffs’ claim to a 2C categorisation for steps 30, 31 and 33, nor was there any basis for an uplift of costs under r 14.6. The defendant did accept however that the plaintiffs would be entitled to the claimed disbursements but not the disbursement for the costs of the plaintiffs’ quantity surveyor Mr Gibson, given that he did not give
evidence at trial.
Costs should lie where they fall
[21] As I have noted, the defendant’s initial position is that no costs award should be made to either party because both parties were partly successful and partly unsuccessful in the substantive proceeding. The situation was said to be one where
in reality both parties had equal success and failure and thus r 14(2)(a) requiring costs to follow the event did not truly apply.
[22] The defendant submitted that there were principled and good reasons here for the Court to exercise its discretion under r 14.1 and order that costs should simply lie where they fall in this proceeding.
Refusal of costs under 14.7
[23] The defendant notes that r 14.7 allows the Court to refuse to make an order for costs. Rule 14.7 provides:
14.7 Refusal of, or reduction in, costs
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
(a) the nature of the proceeding or the step in a proceeding is such that the time required by the party claiming costs would be substantially less than the time allocated under band A; or
(b) the property or interests at stake in the proceeding were of exceptionally low value; or
(c) the issues at stake were of little significance; or
(d) 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; or
(e) the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding; or
(f) the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i) failing to comply with these rules or a direction of the court; or
(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii) failing, without reasonable justification, to admit facts, evidence, or documents, or accept a legal argument; or
(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or
(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
(g) some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
[24] The defendant claims the primary reason for suggesting costs should be refused to the plaintiffs under r 14.7 relates to the fact that the time and expense of the proceeding were increased because the plaintiffs pursued an inflated and excessive claim of $1,291,508.31 grossly exceeding their entitlement under the insurance policy and that this was roundly criticised by this Court. This inflated claim included the costs of enhanced foundations which this Court in both
O’Loughlin v Tower Insurance Limited2 and Turvey Trustee Limited v Southern
Response Earthquake Services Limited3 had already determined were not claimable. It was submitted that the plaintiffs’ persistence with an inflated claim meant that the litigation was heavily contested and this was a major cause of delay in reaching or
getting close to any resolution.
[25] The defendant maintains there were a number of other specific examples where the plaintiffs unnecessarily contributed to the time and expense of this proceeding. These included the belated removal of the claimed $2000 stress payment from the plaintiffs’ pleadings, a claim that the plaintiffs unnecessarily lengthened the trial with repeated and baseless objections to the defendants’ expert evidence, the withdrawal of any evidence from Mr Gibson 30 minutes before he was due to give evidence, the plaintiff’s earlier failure to disclose the Fowler Homes estimate, a supplementary brief provided by the plaintiffs’ engineer Mr Rakovic at very short notice, the filing of several memoranda late on the weekend before the trial was to begin, and the fruitless re-litigation of arguments already pursued in
O’Loughlin.
2 O’Loughlin v Tower Insurance Limited [2013] NZHC 670.
3 Turvey Trustee Limited v Southern Response Earthquake Services Limited [2012] NZHC 3344.
Defendant’s position if costs are awarded
[26] As I have noted above, the defendant submits that if the Court is minded to award costs against it, then these proceedings should be categorised only on a 2B basis. The proceedings were said to be of average complexity requiring counsel of skill and experience considered average in the High Court under r 14.3 and therefore category 2 was appropriate. The plaintiffs appear to accept this. Pursuant to r 14.5, it was submitted it was reasonable for all steps in the proceeding to take a normal amount of time and therefore band B was appropriate. There was nothing particularly complex or onerous about this case that justified the band C categorisation which the plaintiffs sought in part.
[27] The defendant in particular says there is no basis to increase the scale costs to category 2C for steps 30, 31, and 33. The plaintiffs’ submissions do not provide any reasons to justify band C for these steps. There is nothing before the Court to establish therefore that a comparatively large amount of time for these steps was reasonable in this proceeding under r 14.5.
[28] The defendant does accept however that the steps set out by the plaintiffs at Tab 2 of the plaintiffs’ bundle were taken in the proceeding (although it notes that no formal pre-trial conference under step 15 took place) and in addition no formal order for a second counsel had been made by the Court. Nevertheless, it concluded that costs on a 2B basis based on the steps set out at Tab 2 of the plaintiffs’ bundle would total $60,894 including a charge for second counsel.
Reduction of scale costs
[29] The defendant submits for the reasons it has already identified, that in any event any costs order that might be made should be reduced under r 14.7, because it was the plaintiffs’ conduct that caused the trial to take 8 days, when it could have been resolved in a far shorter period.
[30] On this, the defendant suggests that a reduction representing the degree to which the plaintiffs succeeded here is appropriate. The plaintiffs’ claim at the hearing (to include screw piles) was for $1,291,508.31. They succeeded as to
$673,330.90 which was 52% of the plaintiffs’ total claim. The defendant then applied that percentage to a basic 2B claim of $60,894 coming to a figure of $31,664 it said to reflect the increased time and expense added by the plaintiffs’ conduct during the proceedings.
Disbursements
[31] As I have noted above, Mr Stevens, counsel for the defendant, does not take issue with the reasonableness or type of disbursements claimed by the plaintiffs. However, I repeat that he does not consider that the plaintiffs are entitled to claim as a disbursement Mr Gibson’s invoice of $3,921.50. This was because rather puzzlingly it was decided not to call Mr Gibson 30 minutes prior to when he was due to give evidence and thus the plaintiffs had put virtually no quantity surveying evidence before the Court. The defendant submits therefore that this disbursement should not be allowed, and this leaves a balance of $79,828.88 for the disbursements claim.
No basis for increased costs
[32] As a preliminary matter, the defendant maintains that the plaintiffs’ submissions variously refer throughout both to the defendant’s alleged misconduct prior to the issue of proceedings and after these were filed. This is wrong as the defendant says that in any event costs are to reflect how the parties acted during the litigation, not before or after it, and therefore such conduct is irrelevant.
[33] Next, the defendant notes that the plaintiffs seek increased costs here which total a further $49,850. This is an increase of around 66% to the scale costs sought by the plaintiffs at $74,824 and represents an increase of 82% on costs calculated solely on a 2B basis. Any increase exceeding 50% on scale costs is unlikely in most cases according to the defendant, given the daily recovery rate under the scale is intended to be two thirds of a daily rate considered reasonable for the proceeding. It is submitted that the claim for increased costs was unjustified and excessive and therefore should not be awarded.
[34] The defendant then turned to address the plaintiffs’ specific stated reasons for a requested uplift of costs. In relation to the allegedly late serving of witness statements, the defendant says that the briefs of evidence were served only half a working day late and that this was to ensure that nothing further needed to be added or clarified. The defendant submits that there was nothing underhand in waiting to file the briefs of evidence as the plaintiffs seem to be suggesting and in any event the half day delay is trifling. It is also noted that the plaintiffs’ briefs were served one working day late as well. And finally, this delay of half a day it is said could not possibly have caused any additional costs to the plaintiffs or increased the hearing time.
[35] In relation to the failure to undertake deep soil geotechnical testing at the site, the defendant says that the Court never ordered it to undertake this and it was also submitted that in any event the only geotechnical evidence before the Court was that provided by the defendant. The plaintiffs put nothing before the Court on this aspect. The defendants also suggested that the absence of deep soil geotechnical testing could not be said to have lengthened the trial and it certainly did not increase the costs by 2 days as claimed by the plaintiffs. It was always open for the plaintiffs
to seek their own geotechnical evidence and clearly they elected not to do so.
[36] The plaintiffs also claimed increased costs on the basis that they contended the defendant should have accepted that it could not succeed at trial based on the evidence of Mr Lewis and Mr Hutt. In response, the defendant says that all these points simply went towards the substantive issues in the trial which the defendant was validly and reasonably entitled to argue based on its independent expert evidence. Accordingly, no justification of any kind existed for an order for increased
costs of 3 days as sought.
[37] In addition, the plaintiffs sought increased costs for what was said to be the defendant’s non-acceptance of settlement offers. In reply, the defendant complains that the plaintiffs withdrew settlements offers on occasions before the time they had given the defendant to consider an offer had expired. On this, it is clear that the reasonableness of a party’s rejection of a settlement offer is to be assessed at the time of rejection and not just in light of a subsequent result. Here, the defendant says it
acted reasonably at all times in not accepting settlement offers advanced by the plaintiffs. There was therefore no basis to award increased costs under r 14.6(3)(b)(v).
[38] The fundamental conclusion reached by the defendant as I have noted above is that costs for the substantive proceeding should lie where they fall. If the Court however disagrees and is minded to award costs to the plaintiffs, the defendant says these costs should reflect the degree to which the plaintiffs have succeeded with their “inflated” claim. According to the defendant, this should lead to an award of only
50% of 2B costs of $30,447 plus agreed disbursements at $79,828.88. And, I repeat, the defendant itself seeks costs in opposing the plaintiffs’ present costs application.
The approach to be adopted
[39] The starting point must always be that set out in r 14.2(a) that the party who fails with respect to a proceeding should pay costs to the party who succeeds.
[40] In my earlier judgment, the plaintiffs were successful in their claim to an extent. I found that when the plaintiffs made an election under their insurance policy, they would be entitled to incur costs up to a maximum figure of $673,330.90 less the $113,850.00 that had already been paid by EQC.4
[41] While the plaintiffs did not succeed in all of their causes of action, they were in my view successful to a reasonable degree in the proceeding. The fundamental point that cannot be ignored is that in my judgment I found the defendant’s interpretation of their policy liability here to be wrong and the plaintiffs accordingly succeeded in their monetary claim, albeit at a reduced level from that sought in their pleadings. It must follow therefore that the defendant was unsuccessful and should meet costs to some extent.
[42] The Court under rr 14.6 and 14.7 has the ability to increase costs and also to reduce costs respectively. The plaintiff argues for increased costs. The defendant
4 Rout v Southern Response Earthquake Services Ltd, above n 1, at [197].
argues that, if the Court is minded to award costs, that these should be reduced because of the plaintiffs’ conduct here.
[43] I do not consider that there are any grounds for increased costs for the plaintiff in this case under r 14.6. Rule 14.6 matters include failing to comply with the rules or with a direction of the court; taking or pursuing an unnecessary step or an argument that lacks merit; failing to admit facts, evidence, documents, or accept a legal argument; failing to comply with an order for discovery or failing to accept an offer of settlement. None of these apply to the defendant in this case.
[44] On the other side, the defendant argues for a reduction in any costs awarded of about 52% to represent the degree to which it says the plaintiffs were successful. (As noted earlier, their original claim was for $1,291,508.31 and the amount awarded was $673,330.90, this being approximately 52% of the plaintiffs’ claim). It must be said at this point that it was entirely unfortunate that the pre-hearing negotiations between the parties could not result in a settlement. This would have removed the need for a lengthy hearing and the fact that both sides have incurred large bills for legal and experts’ costs. And it is significant here too that neither party chose to make an operative Calderbank offer.
[45] While I accept that some of the approach taken by and the conduct of the plaintiffs arguably lengthened the trial here, I do not consider that it lengthened the trial to the extent that a reduction in costs against the plaintiffs must necessarily follow. And by the same token, questions might well be asked in the circumstances prevailing here over the defendant’s about-face when it went from treating the extent of damage to the plaintiffs’ house here to mean this was a rebuild, to a late classification of the damage as repairable.
[46] On all of these matters, throughout I have had a real concern over the approaches both parties have taken to this dispute and the disagreements between them. In saying that, it is appropriate to reflect again on comments I made at [202]
and [203] of my earlier judgment which are usefully repeated here.
[202] The obligation of Southern Response throughout was to act fairly and in good faith as insurer in terms of the policy requirements. General
damages claims against insurers in the past have involved situations, for example, where claims have been unjustifiably declined on grounds of fraud
or gross delay.5
In addition, s 30 Consumer Guarantees Act 1993 requires
services such as those provided here by Southern Response to be provided “in a reasonable time”. That section might well apply in this case. On these aspects, Southern Response’s actions here in a number of ways must invite some criticism. First the time taken by it to process this claim being nearly three years, although not entirely their responsibility, nevertheless must be of some concern. Secondly, allegations are made that Southern Response has constantly changed its position with multiple DRRA assessments being undertaken and new reports obtained, and particularly in making a direct change in its position earlier this year from a rebuild to a “notional” repair. Thirdly, its decision to instruct its geotechnical and structural engineers to consider and report only on the capability of the site for a foundation repair, must also invite some criticism. And finally, the contention that Southern Response and/or Arrow in the earlier negotiations were deceptive to an extent in confirming their inclusion in their costings of some minor items in the Routs’ house which later proved not to be the case may well need further explanation.
[203] On the other hand, the major decision by the Routs and their advisors to persist in what might be seen as an entirely unprincipled way with their approximately $1.2 million claim in this proceeding, despite their unexplained decision very much at the 11th hour to withdraw any possibly supporting quantum evidence for this claim, in my view, can only be seen as both unjustified and ill-advised. And, the unexplained failure by the Routs until mid way through the trial in this proceeding to inform the Court (and presumably also Southern Response) that some time earlier they had received a Fowler Homes rebuild estimate valid until 17 August 2013 for
$557,000, must also count against their claim here for general damages.
[47] With all this in mind I do not intend to debate further the many claims and counterclaims that each party here has made against the other. Neither party is blameless in the situation which was before this Court. Suffice to say at this point I do not consider in this case that either increased costs or reduced costs are appropriate, although it is only by a rather fine margin that I find the plaintiffs escape a reduction in the costs they are to receive.
[48] In my view, scale costs with disbursements should be awarded here and those costs should be on a 2B basis. As to the general quantum of costs submitted by the plaintiff, I am not prepared to allow 2C costs for items 30, 31 and 33. On this I agree
with the comments advanced by Mr Stevens for the defendant. As I see it, a 2B
5 Kerr & Kerr v State Insurance General Manager [1987] 4 ANZ Ins Cas 60/781, and Stuart v Guardian Royal Exchange Assurance Company of New Zealand Limited (No 2) [1988] 5 ANZ Ins Cas 60-844.
categorisation is appropriate, meaning these items will reduce to $4975 for Items 30 and 31 and to $5970 for Item 33. All items claimed therefore are to be on a 2B basis.
[49] I therefore consider that the plaintiffs are entitled to a 2B costs award of
$60,894 (which includes second counsel).
[50] I also take the view that the successful plaintiffs are entitled to their reasonable disbursements. However, these are to exclude the claim for Mr Gibson’s fees. As Mr Gibson was not called to give evidence and this occurred only approximately 30 minutes prior to when he was due to testify, I do not consider his fees of $3,921.50 can reasonably be claimed as disbursements. The decision was made at the eleventh hour that Mr Gibson, who was essentially providing the only expert quantity surveying evidence for the plaintiffs and was someone who had provided a brief of evidence and met on occasions to negotiate with the defendant’s equivalent experts, was not to give evidence. That obviously created a major omission in the material before the Court, was entirely unsatisfactory and left the parties and the Court here struggling. I therefore disallow any disbursement for Mr Gibson’s fees.
[51] But, I allow the other disbursements claimed by the plaintiffs. Total disbursements of $79,828.88 are therefore approved.
Costs on this costs application
[52] It is well established that costs may be awarded in respect of an application
for costs.6
However, the Court still has a general discretion under r 14.1 with regard
to any such further costs request.
[53] Be that as it may, I have come to the conclusion in this case that, despite both the plaintiffs and the defendant seeking costs on the present costs application and costs hearing, there ought to be no order made at all. That is because, on the major
issues in this costs dispute, I have found almost in equal measure in favour of the
6 See Auckland Regional Council v Arrigato Investments Ltd (2002) 16 PRNZ 217 (HC).
arguments advanced by the plaintiffs on some issues and in favour of the arguments advanced by the defendant on other issues.
[54] Although the plaintiffs will finish with a substantial award of costs, but significantly less than they have sought, the defendant has enjoyed some success on the costs argument.
[55] There is to be no order made as to costs on the costs application itself.
Result
[56] The plaintiffs have succeeded in part in their present substantive costs application and are entitled to costs and disbursements from the defendant which I order to be paid as follows:
(a) Costs of the proceeding totalling $60,894.00; (b) Disbursements totalling $79,828.88;
...................................................
Gendall J
Solicitors:
Grant Shand, Christchurch
David Maclaurin, Christchurch
Craig Stevens, Wellington
DLA Phillips Fox, Wellington
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