Scandle v Far North District Council HC Whangarei CIV-2008-488-000203
[2011] NZHC 279
•31 March 2011
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2008-488-000203
BETWEEN MICHAEL JOHN SCANDLE Plaintiff
ANDFAR NORTH DISTRICT COUNCIL First Defendant
ANDCORINA LILI MULLANE AND MICHAEL JAMES MULLANE AS TRUSTEES OF THE MULLANE FAMILY TRUST
Second Defendants
ANDMICHAEL JAMES MULLANE Third Defendant
Hearing: (On the Papers)
Counsel: J D Turner for the Plaintiff
S A Thodey and S B Mitchell for the First Defendant
No Appearance of or for the Second and Third Defendants(granted leave to withdraw on 27 April 2010) Judgment: 31 March 2011
INTERIM JUDGMENT OF DUFFY J [Re Costs]
This judgment was delivered by Justice Duffy on 31 March 2011 at 2.15 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: McVeagh Fleming P O Box 300844 Albany 0752 for the Plaintiff
Heaney and Co P O Box 105391 Auckland City Auckland 1143 for the
First Defendant
Copies To: C L Mullane and M J Mullane (Second and Third Defendants) P O Box 923
Kerikeri 0245
R C Mark P O Box 172 Kerikeri 0245
SCANDLE v FAR NORTH DISTRICT COUNCIL and ORS HC WHA CIV-2008-488-000203 31 March 2011
[1] The issues for determination in this judgment raise complex questions of how to award costs in circumstances where the plaintiff has been entirely unsuccessful against one defendant (the first defendant) and successful in proving liability against the other defendants (the second and third defendants), but with the damages award being substantially less than the amount claimed. Added to this mix is the fact that the claim against the first defendant, which was weak, occupied the better part of the trial and the claim against the other defendants, which was strong, proceeded almost by way of formal proof with the second and third defendants being self-represented for the first part of the trial and withdrawing for the latter parts of the trial.
[2] The plaintiff brought claims to recover the losses he suffered from buying a defectively built house. The house was defective both in terms of its construction and its situation, the ground on which it was built having partially slipped away. Shortly before the hearing commenced, the local territorial authority (the first defendant) issued an order condemning the house.
[3] The plaintiff claimed that the first defendant, in allowing the house to be built, had acted negligently and in breach of its statutory duties. The second defendants were the Mullane family trust, the vendors of the house. The third defendant was Michael Mullane, the builder of the house and trustee of the Mullane family trust. Against the second defendants, the plaintiff claimed for breach of contract based on the warranties in the sale and purchase agreement. Against the third defendant, the plaintiff claimed in negligence. Since Michael Mullane was both a trustee of the Mullane family trust and the builder of the house, his knowledge of his substandard practices, which led to the house being so defective, was imputed to the Mullane family trust.
[4] The plaintiff was unsuccessful against the first defendant but was successful against the second and third defendants. In all respects the claims against the second and third defendants were straightforward, sound and easily dealt with. Even so, the plaintiff failed to prove he was entitled to the full amount of the damages he sought. In the second amended statement of claim the plaintiff had sought damages of
$622,273.98 for the costs of repairing the property; as well as other damages, to be quantified at trial, for a number of associated costs. The evidence from the plaintiff
took the overall damage to a sum in excess of $677,000. The damages awarded against the second and third defendants came to $437,000, being the diminution in value of the property as a result of their conduct, and $15,000 general damages. The claims against the first defendant were misconceived. Full details of the claims and their outcome are set out in Scandle v Far North District Council and Ors HC Whangarei CIV-2008-488-000203, 30 July 2010.
[5] The plaintiff now seeks costs and disbursements against the second and third defendants on a category 2B basis, which is the scale at which costs were fixed in the first directions conference. Given its success, the first defendant seeks costs against the plaintiff on an increased basis from category 2B.
Quantification of costs
[6] Both the plaintiff and the first defendant have altered the original quantification of their costs. The plaintiff has filed a supplementary memorandum setting out additional costs. Following receipt of the plaintiff’s response, the first defendant acknowledges that it is not entitled to claim some of the costs it originally included in its assessment of its entitlement under category 2B. However, neither party has attempted to reconcile their original costs claims with the later adjustments they have each made. This has meant that I cannot be certain of the precise sums each of them now seeks. However, I have a general idea of the level of costs they seek and the basis for making the awards. I propose, therefore, to work within these general levels, taking into account the various adjustments each party has made. This will give me some approximate figures so that I can issue an interim judgment setting out general findings on the issues they raise. The parties can then apply those findings and file memoranda setting out the precise sums which they seek. When they do so, I expect the information they provide to be precise and accurate.
[7] The plaintiff’s costs memoranda indicate that his assessment of the costs he
has incurred per the second schedule to the High Court Rules is as follows:
a) Costs on a category 2B basis totalling $129,600;
b)Disbursements (including expert witness fees as well as general disbursements – filing fees, travel accommodation etc) of
$196,529.01;
c) Additional expert’s fees of $31,141.05;
d) Making a total of $357,270.06 in costs and disbursements.
[8] These approximate figures represent the plaintiff’s costs and disbursements for the entire hearing against all defendants. The plaintiff seeks to recover this amount in its entirety from the second and third defendants.
[9] The first defendant seeks costs from the plaintiff under category 2B, as well as an uplift. The first defendant has set out its costs estimate in three appendices, which have been revised as a response to objections from the plaintiff that the first defendant has accepted. The costs appear to be as follows:
a) Appendix 1 (revised) $119,360 being costs as per the second schedule in the High Court Rules;
b)Appendix 2 (revised) $96,354.64 being disbursements including experts witness fees;
c) Appendix 3 $281,048.09 being unspecified items;
d) An uplift of $12,800;
e) Making a total of $509,562.73.
[10] Neither the second defendants nor the third defendant have taken any steps in relation to the costs awards the others are seeking.
[11] In addition to challenging the first defendant’s quantification of its costs and its request for an uplift from scale costs, the plaintiff has responded to the first defendant’s costs application by requesting the Court to make a Sanderson order for any costs awarded in favour of the first defendant. This would require the second and third defendants to pay the costs awarded to the first defendant for its success against the plaintiff. Alternatively, the plaintiff requests the Court to make a Bullock order. This requires the plaintiff to pay costs awarded to the first defendant; but the plaintiff can then recover those costs as part of the costs of the proceeding that it can claim from the second and third defendants. In this way either directly (under a Sanderson order) or indirectly (under a Bullock order) the unsuccessful second and third defendants would be liable for the costs the plaintiff has incurred as a result of the first defendant’s success. Thus the plaintiff is seeking orders from the Court that would potentially require the second and third defendants to pay $357,270.06 to cover costs and disbursements the plaintiff has incurred in bringing the proceeding, together with the sum of $509,562.73 to cover the costs and disbursements claimed by the first defendant. This comes to a total of $866,832.79. Those figures are subject to the necessary modifications which I identify as requiring attention.
[12] The first defendant opposes the costs awarded to it being in the form of a Sanderson order. Mainly, because it is common knowledge that the second and third defendants are unlikely to be able to pay any costs award. The first defendant has also argued that the circumstances of this proceeding do not fit the principles applicable to a Sanderson order. The first defendant also opposes the making of a Bullock order, though it would be unaffected by that event. Here, the first defendant refers to the fact the second and third defendants were legally unrepresented for an extended part of the hearing.
[13] I propose to determine first the costs and disbursements to which the first defendant is entitled; secondly, who should be responsible for paying the first defendant’s costs; and finally to what extent the plaintiff should be able to recover its entire trial costs against the second and third defendants.
[14] I first deal with the first defendant’s application for costs and disbursements against the plaintiff. The initial categorisation of this proceeding at 2B means that the first defendant is entitled to costs at that scale. The first question is whether the first defendant is entitled to all the costs it claims. The second is whether or not the plaintiff should be given an uplift of $12,800. Finally, there is the question of disbursements.
Disputed costs items
Cross-claims
[15] The plaintiff argues that he should not have to pay costs to the first defendant for the cross-claims the first defendant issued. However, the plaintiff has not advanced reasons for this submission. As matters turned out, no judgment was entered on the cross-claims due to the first defendant’s success. However, nothing before me suggests that it was unreasonable for the first defendant to take the precautionary step of issuing the cross-claims. It was an integral part of the steps the first defendant needed to take to defend itself against the plaintiff. As the first defendant has pointed out, where a number of defendants are sued in relation to a building dispute, issues of apportionment are likely to arise. This necessitates the making of cross-claims. Accordingly, I see no reason why the plaintiff should not have to pay costs in relation to the first defendant’s cross-claims.
[16] The plaintiff also argues that the first defendant is not entitled to costs because in all likelihood the costs of its defence will be met by its insurers. The plaintiff refers to r 14.2(f) and the principle that a party seeking costs should not receive an award greater than the costs actually incurred. Here the plaintiff argues that any such costs could only amount to the insurance excess, if any, for which the first defendant is responsible. The plaintiff has not cited any authority to support this argument.
[17] The first defendant argues that its arrangements with its insurers are not in evidence and that in any event those arrangements are irrelevant. The general rule is that ordinarily the fact of a party having insurance cover will not detract from that party’s entitlement to costs.
[18] The Supreme Court visited this topic in Shirley v Wairarapa DHB [2006] 3
NZLR 523 at [23]-[27] (Shirley). In Shirley, the presence of insurance cover was taken into consideration where Mr Shirley was seeking to recover costs from the Wairarapa District Health Board in circumstances where the Board paid for his professional indemnity insurance in its capacity as Mr Shirley’s employer. The employment arrangements between the Board and Mr Shirley were that he would meet the risk of any claim made against him personally, including a claim for costs, by means of professional indemnity insurance cover paid for by the Board. There was also the consideration that despite Mr Shirley being unsuccessful against the Board, he was seeking costs from the Board. Though he was successful against the plaintiff, he could not obtain costs from the plaintiff as the plaintiff was legally aided. The Supreme Court considered that the Board’s contractual responsibility for Mr Shirley’s costs (through paying for his insurance cover) was relevant when it came to considering whether he was entitled to obtain a costs award against the Board as well.
[19] The circumstances in Shirley are completely different from the circumstances of this proceeding. Here, in particular, there is no question of the first defendant enjoying a double benefit of the type that arose in Shirley. I consider the present case falls within the general category of cases where a successful party’s insurance status has no effect on it enjoying an award of costs for the steps it has taken to defend itself. I propose to ignore the prospect of the first defendant being insured against these types of claims.
[20] Therefore, I reject the plaintiff’s argument that the first defendant’s insurance cover will result in them recovering more in costs than the amount spent as a red herring. The likelihood is that the first defendant’s insurer (if there is one) will enjoy the benefits of any costs awarded to the first defendant through rights of subrogation. Here, the simple fact is that the first defendant has engaged legal representation and
incurred the cost of doing so. It is entitled to refer the Court to those costs for the purpose of obtaining a costs award. The principle in r 14.2(f) prevents persons whose actual legal costs are less than scale costs from nonetheless claiming the scale costs for the proceeding. There is no doubt here that the actual legal costs incurred in defending the claim against the first defendant exceed the scale costs that are sought. This is sufficient to satisfy r 14.2(f). Who actually pays the costs is a different issue and has no relevance when it comes to r 14.2(f).
Judicial settlement conference
[21] The first defendant contends that it is entitled to payment for attendance at the judicial settlement conference. The plaintiff contends that the first defendant’s costs covering this attendance should be discounted as its expert witnesses had not inspected the property prior to the conference. An inspection would have informed the experts on the nature and extent of the loss suffered. The key issue for the first defendant was whether or not it could be liable in tort for the plaintiff’s loss. Unless a compromise could be reached on that issue, no settlement was ever likely to eventuate. I do not consider therefore that the issue of the experts’ inspection of the loss was that critical for the settlement conference.
[22] The first defendant rejects the suggestion that it did not meaningfully participate at the conference. The conference was proposed by the plaintiff. The first defendant attended and, after a day, there was no resolution. The first defendant contends that the parties’ expectations as to the outcome of the matter were not aligned. Given the stance the plaintiff has taken throughout the proceeding, I do not find this surprising. The plaintiff has not provided evidence that shows the first defendant acted in a way that would seriously amount to conduct disqualifying the first defendant’s entitlement to seek costs for attending the settlement conference. The costs schedule permits costs to be sought for attendance at a judicial settlement conference. A day was spent at the conference. The conference had been sought by the plaintiff. I see no reason why the first defendant should not be entitled to these costs.
[23] The plaintiff contends that the first defendant is not entitled to its additional cross-claim for equitable apportionment against the second defendants. I do not agree. As the second defendants were being sued in contract, there was a clear need for a cross-claim based on equitable apportionment; and there is nothing which would render this cross-claim imprudent or unwarranted. I see no reason to treat this cross-claim any differently from the other cross-claims that I have approved.
Second counsel
[24] The plaintiff submits that there should be no award for two counsel as the proceeding was appropriate for one counsel. They contend that the first defendant’s resources allowed it to provide and pay for two counsel by its own costs, and that the claim for two counsel led to greater accommodation costs and disbursements.
[25] The first defendant contends that the proceeding was appropriate for two counsel for the following reasons:
a) Matters were raised that were of sufficient complexity to require the attendance of two counsel at the hearing;
b) Issues of importance for the first defendant;
c) The relative ability of parties to afford counsel should not impact on the ability of a party (if it is appropriate) to recover the costs associated with appointment of two counsel; and
d)The appointment of two counsel has not increased accommodation costs and disbursements.
[26] Whilst I have described the claim against the first defendant as ill-conceived, that does not mean that the first defendant has acted unreasonably in preparing to defend the claim in the way in which it did. It was facing serious allegations which purported to extend a territorial authority’s liability for buildings built within its jurisdiction in circumstances where the construction of the buildings had been supervised by a private certifier. It was suggested that the first defendant should not have the benefit of the statutory immunity in the Building Act 1991 because its actions did not meet the good faith qualification of the immunity. I consider these to be serious allegations, and the first defendant was entitled to approach the proceeding with caution and to prepare carefully to defend itself.
[27] Furthermore, although this was not apparent until the trial commenced, the work pressures on the first defendant were made more onerous by the plaintiff having poorly prepared some of his briefs of evidence, such result that passages of the briefs were ruled inadmissible and oral supplementary evidence was led to fill the gaps created by the excision of those passages. This imposed greater burdens on the first defendant, which warranted the presence of a second counsel. Had the first defendant not been represented by two counsel, the element of surprise which supplementary oral evidence would, in principle, create may have led to short adjournments to allow the first defendant time to deal with the new evidence. During the trial the first defendant indicated that if it was sufficiently embarrassed by the supplementary evidence, it would seek an adjournment, but it preferred to deal with the supplementary evidence as it was given. It would have been, in part, able to do this through the presence of second counsel. I am satisfied that this was a proceeding where the first defendant was properly represented by two counsel and, therefore, it should be entitled to claim costs for two counsel.
Witness evidence
[28] There is a dispute between the parties regarding the recoverable time for the
preparation of witnesses’ evidence. The plaintiff has complained that the costs have
not been calculated in accordance with the scale. The first defendant concedes that under category 2B, the base calculation for assessing costs of preparation of witness statements is two days for all statements of evidence; whereas the first defendant originally sought four days. The first defendant now seeks two days plus an uplift of two days for the justification it gave in its original costs memorandum for an allowance based on four days. In short, the first defendant contends for two days basic preparation time and a further two days to reflect the need to return to witnesses to address the plaintiff’s additional evidence. The additional two days are sought as an uplift over the scale allowance.
[29] The time bands in Schedule 2 are intended to vary according to the demands of each step. Category 2B allows two days for the preparation of written statements of evidence, whereas category 2C allows four days. In the present case, the first defendant’s request for two days additional preparation time for briefs of evidence is essentially asking that the preparation of witness briefs be treated as category 2C for the purposes of assessing costs. I consider that the first defendant’s justification for an uplift to four days preparation is readily applicable to a consideration of a change in the scale time bands from B to C.
[30] I have already referred to the impact of the plaintiff’s oral supplementary evidence on the first defendant’s representation during the trial. In addition, the trial was adjourned part heard on more than one occasion. The trial days were 17-
21 August 2009, 27-30 April 2010, 3-5 May 2010, 10 -11 May 2010, 14 May 2010, and 17 May 2010. The plaintiff rightly says that during the first week there were interruptions while the Court dealt with other matters. Nonetheless, the bulk of the time during those dates was spent on the trial.
[31] At the 2009 hearing the plaintiff did not have any expert evidence on the accepted standards of practice and conduct of territorial authorities when issuing building consents and supervising building construction. Nor did the plaintiff have evidence from a registered valuer to assess loss on the basis of diminution of value. The plaintiff needed to fill these gaps in his case if he were to have any prospect of proving his claims. He needed expert evidence of territorial authorities’ accepted standard of practice and conduct as part of his proof of the allegations of negligence
against the first defendant. He also needed the registered valuer’s evidence because it was clear from the other evidence then available that the costs of repair to the building’s defects were well in excess of the property’s value. Unless the plaintiff presented evidence of diminution in value, he ran the risk of failing to prove the correct measure of his loss: see Harvey Corporation v Baker [2002] 2 NZLR 213 for consequences of failure to prove loss correctly. When the hearings resumed in 2010, the plaintiff had prepared and sought to present the evidence he was missing in 2009. The first defendant then had to revisit its evidence in order to deal with this additional evidence from the plaintiff.
[32] Whilst the first defendant could be expected to have anticipated the plaintiff recognising and seeking to rectify the inadequacies in his evidence; until this step was taken, there was little the first defendant could do to prepare its response. I am satisfied that the manner in which the plaintiff dealt with its evidence caused the first defendant to spend more time than otherwise would be the case in preparing its own evidence. I consider that the three bands in the second schedule for the preparation of evidence are predicated on each side preparing evidence which meets the requirements of the Evidence Act 2006. I also consider that those bands are predicated on counsel fully appreciating in advance of the hearing the nature of the evidence his or her client needs to prove his or her case. Consequently, time bands would not include an allowance to cover dealing with inadmissible evidence or with later attempts to plug gaps in the evidence. Where more than a minimal amount of work is required to deal with the unexpected, the affected party will necessarily require an adjustment to the time band usually applied so as to account for the additional work that is undertaken. I consider that two additional days is an appropriate measure of this time. This brings the time spent on evidence preparation to four days, which fits with category 2C. It follows that I am prepared to allocate that scale to the first defendant which avoids the need for an uplift.
[33] The plaintiff has complained that the first defendant has sought to claim full costs of its witness, Mr Christiansen’s fees, though Mr Christiansen was not put forward as an expert witness. The first defendant has conceded an error in this approach. It now accepts that he attended as a primary witness and that his fees and expenses should be determined in accordance with the Witnesses and Interpreters
Fee Regulations 1974. I leave it to the first defendant to quantify the fee under those regulations.
[34] I now turn to other issues raised by plaintiff regarding the first defendant’s expert witnesses. The general approach now is that costs associated with expert witnesses are recoverable in their entirety: Body Corporate 189855 and Anor v North Shore City Council & Ors HC Auckland CIV-2005-4040-5561, 2 October
2008, Venning J (Costs Decision) at [15]; Air New Zealand v Commerce Commission [2007] NZCA 27, [2007] NZLR 494. It follows that for the disbursement claim relating to expert witness fees, I approve the amounts set out in appendix 2 of the first defendant’s second memorandum on costs. Since the items in appendix 3 have not been identified, the first defendant will need to address this matter in its next memorandum before anything can be done in relation to that claim.
[35] The plaintiff has complained about an invoice rendered by Rider Levett Bucknell Auckland Limited. The invoice was for the services of Mr Buskin, the first defendant’s quantity surveying expert. The costs were invoiced by the company with whom Mr Buskin is associated. I accept that Mr Buskin gave evidence and that he is entitled to be paid for this service. It is no disqualification for the inclusion of payment as a recoverable costs item that the bill is issued by a limited liability company with which he is associated.
[36] The plaintiff has also complained that the first defendant’s valuer, Malcolm McBain, rendered an invoice for 2 September 2009 for $168.75 for preparation of a court hearing when he did not attend or give evidence in 2009. The first defendant says that was because it was believed that Mr McBain would give evidence in 2009, but the trial did not reach a stage when Mr McBain could give his evidence. He did so later at the resumed hearing in 2010. There is no suggestion that Mr McBain did not do the preparation in 2009 for which he claims a fee, and I consider that this is an item to include in the recoverable costs.
[37] The plaintiff also contended that Mr McBain’s invoice of 31 May 2010 for
$2,968.88 is too high. The first defendant contends that between the first and second hearings, the plaintiff elected to instruct his own valuer and provide a brief of
evidence from that valuer addressing the issue of value. This required Mr McBain to review the plaintiff’s valuation evidence and to provide further evidence in response. Furthermore, given the spread of the hearing between 2009 and 2010, in 2010
Mr McBain had to review the evidence he had earlier prepared for the purpose of delivery of the hearing in 2009. It seems to me that Mr McBain’s fee is within the expected range of fees for valuers and I do not accept the plaintiff’s contention that it is too high. Accordingly, this can be included as a recoverable disbursement.
[38] The plaintiff has also objected to the accommodation costs which the first defendant seeks to recover. I am satisfied that the first defendant is entitled to recover accommodation costs for its counsel. The costs sought are within the expected range of costs and, accordingly, I consider they can be recovered as a reasonable disbursement. The first defendant has not sought to claim the accommodation costs of its second counsel.
Increased costs
[39] I now turn to deal with the first defendant’s application for increased costs to the sum of $12,800. The approach for determining increased costs is set out in Holdfast NZ Ltd v Selleys PTY Ltd (2005) 17 PRNZ 897 (CA) (“Holdfast”). The approach involves the following four steps. They are:
a) Categorisation of the proceeding under r 14.3;
b)Identifying a reasonable time for each step in the proceeding under r 14.5;
c) As part of the step two exercise, a party can under r 14.6(3)(a) apply for extra time for a particular step; and
The applicant for costs should step back and look at the costs award it could be entitled to. If it can argue for additional costs under
r 14.6(3)(b), it should do so; but any increase above 50 per cent on the costs produced by steps one and two is unlikely, as the daily recovery rate is two-thirds of the daily rate considered reasonable for the proceedings.
[40] Before a party can ask for an increase above scale, that party must establish that the available scale costs do not cover the time and effort that was spent on the proceeding. In the present case, the first defendant assessed its costs on a category
2B basis and then sought an uplift of three days as an increase over scale costs. Apart from the adjustment I have made for the preparation of witness statements (taking this from category 2B to category 2C), the first defendant has not made any claims based on category 2C. Until the first defendant has shown that the category 2 time bands do not cover all the costs it should be awarded, I am in no position to assess if costs should be increased in terms of the principles in Holdfast.
[41] I propose to reserve leave for the first defendant to revisit the costs application on the basis of the time bands it has applied. It may be that the additional time it seeks fits within band C. If that is so, the assessment I would then make would be simply based on the appropriateness of a claim for time band C rather than for an increase based on Holdfast. This means that the question of the
$12,800 uplift will be deferred. It also means that while I have in principle approved the first defendant’s costs in appendix 1 as presently itemised, the opportunity to revisit the time banding of some items means that no formal findings are being presently made on the amounts the first defendant may recover under appendix 1. This is to allow the first defendant to alter any items it considers should be given time band C. The plaintiff will have the opportunity to address any such alteration if he wishes.
Disbursements
[42] The disbursements/costs sought in the first defendant’s appendix 3 are not particularised. The first defendant will need to provide particulars so that a decision can be made on these items. The plaintiff can address any particulars so provided.
Who should pay the first defendant’s costs?
[43] When one defendant is successful while others are not, costs orders are based on an assessment of overall justice as between the plaintiff and the two such groups of defendants. Considerations include:
a) The reasonableness of the plaintiff initially suing both groups of defendants;
b)The extent to which each group of defendants caused/contributed to that decision;
c) Any change in the position or material development in the proceedings; and
d) The extent to which the plaintiff succeeded.
See Lane Group Ltd v D I & L Paterson Ltd [2000] 1 NZLR 129 at [83]-[84]
(“Lane Group Ltd”).
[44] Lane Group Ltd makes it clear that this exercise does not involve strict, inflexible rules. Instead the award of costs is discretionary, with the Lane Group Ltd principles providing guidelines as to the applicable principles and relevant considerations. Furthermore, the outcome will be tailored to whatever satisfies the overall justice of the matter as between the parties concerned in the particular case; there is no “all or nothing solution”: see Lane Group Ltd at [91]. Consequently, whether or not the unsuccessful defendants should pay the whole, or just a portion of the costs, and whether the Court directs a Sanderson order, a Bullock order, or neither all turns on the Court’s assessment of where the overall justice of the matter lies. I propose to consider the costs applications and the arguments for and against them in accordance with the principles identified in Lane Group Ltd.
Reasonableness of the plaintiff suing both groups of defendants
[45] In Lane Group Ltd at [3]-[5], Henry J describes the context in which querying the reasonableness of the plaintiff in suing both groups of defendants will arise. The authorities from which this principle is derived were cases where the plaintiff was unsure of whom, out of a number of potential defendants, to blame. Henry J states at [4]:
I doubt as to which defendant was responsible and the potentiality that the defendants would blame each other were the reasons given for the reasonableness of the joinder and the foundation of an award.
[46] In the present case, there was no doubt that the second defendants as the vendor of the defective property were potentially liable under the warranties in the sale and purchase agreement for selling property with a building which they knew was non-compliant with the terms of the building consent issued for that building. They knew the building was non-compliant because when one of the trustees of the second defendant, Michael Mullane, built the house, he disregarded the requirements of the first defendant’s amended consent. There is no doubt that as the builder of the non-compliant building, Mr Mullane was potentially liable in tort to the plaintiff. The finished building had external structural features that did not correspond with the amended consent. Thus the responsibility of the second and third defendants for those defects was readily recognisable.
[47] The first defendant’s contribution to the defective building was much less clear. After issuing the amended consent, its role in supervising the building’s construction was brought to an end with the appointment of a private certifier. The statutory scheme at the time gave building owners and builders a choice of having the new construction, subject to checks and certification from a territorial authority or a private building certifier. By commencing the proceedings against the first defendant, the plaintiff was attempting to establish that under the Building Act 1991 a territorial authority had some residual statutory or common law liability to building owners who had chosen to obtain their code compliance certification from private certifiers. The first defendant contends that the plaintiff’s claim against it was
untenable from the start and that it was always clear that the plaintiff could not succeed against the first defendant.
[48] The plaintiff, however, contends that the first defendant’s role in approving the building construction up to the time it issued the amended consent made it reasonable for the plaintiff to claim against the first defendant. However, I doubt that is so, given that the evidence clearly showed the building was not constructed in accordance with the amended consent and when the party responsible for supervising the construction and ensuring it did comply with the amended consent was a private certifier.
[49] The plaintiff has also pointed to the first defendant being a repository of relevant information for the plaintiff’s claim. However, this information could have been accessed through non-party discovery or the Local Government Official Information and Meetings Act 1987. The need for access to information is not a reasonable reason for joining a party to a proceeding.
[50] The plaintiff argues that it is in the interests of justice that the second and third defendants pay the costs of the first defendant. First, because the second and third defendants are the wrongdoers, not the plaintiff. My view is that despite their wrongdoing, it is hard to see why the second and third defendants should be liable for the costs that the plaintiff has incurred through his misguided pursuit of the first defendant. Secondly, the plaintiff contends he had no realistic option but to join the first defendant. However, in making this submission, the plaintiff fails to advance supporting reasons. Finally, the plaintiff contends that it would be unrealistic to suggest he should have discontinued against the first defendant given the findings that the first defendant owed a duty of care, but with no finding of causation of loss suffered. But here the plaintiff overlooks the fact that the first defendant’s admission that it should have obtained a geotech report before issuing a building consent was limited to the issue of the original consent. The first defendant acted on an engineer’s report when it issued the amended consent. This became the operative document. Regarding the amended consent, no breach of the duty of care was admitted. The plaintiff was unable to prove that the first defendant had failed in its duties of care when it came to the issue of the amended consent.
[51] The plaintiff submits that the failure of the foundations which led to the building being declared dangerous was due to issues identified in the first defendant’s notice to rectify. This may be so but, as I found, the plans approved in the amended consent addressed the issues in the notice to rectify. The bigger problem for the plaintiff all along was that the building was not built in accordance with the requirements of the amended consent. The first defendant could not be responsible for failing to detect this, because by then a private certifier had taken over its supervisory role. The obstacles the plaintiff faced in proving causation of loss against the first defendant were apparent from the outset. There were also the legal obstacles which the statutory scheme, including the statutory immunity against suit, placed in the way of any action against the first defendant.
[52] The plaintiff submits that the only first-hand witness (Mr Christiansen) was a witness of the first defendant. But this does not establish a basis for joining or continuing the claim against the first defendant. In fact, had the first defendant not been a party in the proceeding, the plaintiff could have called Mr Christiansen as a witness. Like any other witness, he could be the subject of a witness summons.
[53] As the building has been condemned by the first defendant seven years since the issue of a building consent, the plaintiff argues that the justice of the case is in its favour. The plaintiff also argues that any unfairness in making the second and third defendants pay the first defendant’s costs is outweighed by making the plaintiff pay those costs. However, this submission overlooks the fact that the plaintiff had freedom of choice as to whom he sued. The second and third defendants had no control over who else the plaintiff chose to sue. They could not control the amount of funds the plaintiff chose to waste in its pursuit of the claim against the first defendant. And they could not control the way in which the plaintiff ran its case against the first defendant, which resulted in the first defendant incurring the costs that it now claims.
[54] I have already commented that the commencement of proceedings against the first defendant was misconceived. The plaintiff sued for breach of statutory duty and negligence in circumstances where it knew that the building’s code compliance certificate was issued by a private certifier and that the first defendant’s supervisory
role over the building’s construction had ceased after it had issued an amended building consent. Whilst the claims against the second and third defendants were based on well established principles, the claim against the first defendant was novel. I acknowledge that once the plaintiff had decided to sue the first defendant as well as the second and third defendants, it made sense to do so in one proceeding. But given the weak and novel nature of the claim against the first defendant, I have difficulty in seeing why the second and third defendants should now pay for the loss of that claim.
Extent to which each group of defendants caused/contributed to the decision to join them all
[55] The plaintiff has failed to establish that the second and third defendants’ conduct caused or contributed to the decision to join the first defendant. Proof of the actual defects was not difficult and could have been achieved through interrogatories issued before trial. Apart from proof of the defects and proof of loss, there was no overlap between the claims against the first defendant on the one hand and the second and third defendants on the other.
[56] The plaintiff has referred to the cross-claims the first defendant issued against the second and third defendants and vice versa. This cannot be a logical reason for the plaintiff joining the first defendant, as the cross-claims followed the joinder. Whilst the potential for each defendant to blame the other can be a reason for joining all defendants, this is more relevant where there is either doubt as to which defendant is responsible, or where joint liability is in issue. Here, the potential liability as between each defendant was discrete. The obvious weakness of the claim against the first defendant was readily isolated from the strength of the claims against the other defendants. This would have allowed a clearer assessment to be made of each defendant’s potential liability. I was referred to nothing that might have suggested the second or third defendants were attempting to shift or to lay blame on the first defendant for the building’s defects.
[57] The plaintiff submits that when a Court is considering making a Sanderson
order, it must consider whether the unsuccessful defendant caused or contributed to
the original joinder. The plaintiff goes on to submit that here, the second or third defendants interacted with the first defendant through seeking a building consent from the first defendant and by involving it in performing its building control functions. I do not see that this demonstrates that the second and third defendants contributed to the joinder. The actions were mandated by legislation as the first defendant was the only entity that could grant the second and third defendants a building consent.
[58] The plaintiff also points to the lack of a “without prejudice save as to costs” offer as evidence of the reasonableness of suing the first defendant. I do not see the absence of such an offer as detracting from the weakness of the plaintiff’s case against the first defendant.
[59] The plaintiff refers to the first defendant’s abortive application for strike out or summary judgment. Whilst pursuit of that application may have short circuited the resolution of the claims against it, in the absence of evidence as to why the application was abandoned, I am not prepared to assume that the abandonment provides reasonable grounds to commence or to continue with proceedings against the first defendant.
[60] The plaintiff could have applied to have the claims against each group of defendants heard separately. That way he could have pursued his claim against the first defendant as a test case without exposing the other defendants to the risk of a costs award arising from the joinder of the first defendant.
Any change or material development in the proceedings
[61] The plaintiff refers to the second and third defendants’ conduct part way through the first week of the trial in offering no evidence and not defending the claims and cross-claims against them. The plaintiff says that at that stage, it was committed to the trial. I acknowledge that this is so. However, the strength of the claim against the second and third defendants was always obvious and the likelihood of those defendants recognising this before the trial should have been apparent to the plaintiff. It should also have been obvious to the plaintiff that the trial would mostly
be focused on the plaintiff attempting to prove liability against the first defendant and the first defendant resisting this outcome, as did in fact occur. Indeed the better part of the plaintiff’s efforts during the trial were focused on proof of the claim against the first defendant. This in itself indicates he was well aware that this was where his focus lay.
[62] Further, before the trial commenced, the second and third defendants were not legally represented. Once the first defendant had issued the order condemning the building (shortly before the trial commenced) successful proof of liability against the second and third defendants was obvious. When the trial commenced in the week of 17 August 2009, the second and third defendants appeared representing themselves. They had no expert evidence to challenge that of the plaintiff. Their participation in the trial was minimal. Later, when the trial resumed on 27 April
2010, the second and third defendants withdrew completely. Proof of the claim against the second and third defendants proceeded in a manner similar to a formal proof hearing.
[63] Other material developments during the course of the proceeding impacted on the award of costs. The trial ran well over time, due in part to the plaintiff underestimating the time required and presenting oral supplementary evidence (August 2009) and additional written briefs of evidence (April 2010). The plaintiff also presented evidence which addressed issues which each side’s expert witnesses had covered in their agreed statements. This means that settled topics were revisited when the experts gave their evidence. The fixture originally allocated for hearing the proceeding was to run from 17-21 August 2009.
[64] At the end of the first week of hearing in August 2009, the plaintiff had still not completed his case. He did not do so until 4.00 pm on Thursday, 29 April 2010. This means he took eight days to present his case, where the original time allocated for the entire hearing was five days. By the time the first defendant opened its case, the second and third defendants had withdrawn from the hearing. In summary, most of the hearing focused on proof of the claim against the first defendant – the only defendant putting up any effective opposition.
[65] A further contributing factor to the trial running over time was the plaintiff having poorly prepared briefs of evidence, including inadmissible evidence, which required editing. As mentioned, this required supplementary oral evidence to fill the gaps. This inevitably caused the first defendant to spend more time in dealing with the plaintiff’s evidence, as it had to cross-examine on evidence which it was only hearing in the course of the trial. Instructions needed to be obtained from its own experts and other witnesses for the purpose of dealing with this evidence. The opportunity to refine the issues for trial was therefore lost.
[66] Another contribution to the protracted nature of the trial was the plaintiff’s failure to ensure, before the trial commenced, that it had a qualified expert witness who was competent to address and provide expert opinion on issues of alleged fault on the part of the first defendant. At the first hearing the plaintiff attempted to establish the first defendant had not conducted itself in accordance with the accepted standards of conduct and practice of careful and competent territorial authorities through evidence from his engineering experts. I took the view that if those witnesses had sufficient experience in dealing with territorial authorities, they could describe their experiences of how other councils approached the issues of land stability and building structures. This was a very crude way of attempting to establish how territorial authorities that properly observed accepted standards of care behaved when issuing building consents and supervising the construction of buildings. The plaintiff was in no position to offer evidence from someone who was qualified to give an opinion on the accepted standards of conduct and practice followed by territorial authorities until the hearing resumed in April 2010. This necessary improvement of the plaintiff’s evidence was a material development which only happened part way through the trial.
[67] Another material development was the change in the plaintiff’s case part way through the hearing regarding the quantification of his damages claim against the defendants. There was no valuation evidence from the plaintiff either before or at the 2009 hearing to prove the effect of the building’s defects on the value of his property. In 2009 the plaintiff had chosen to focus his claims entirely on seeking damages based on cost of repairs. It was not until the resumed hearing in 2010 that the plaintiff recast his damages claim by claiming in the alternative for the
diminution in value of the property from the defective building work. This caused the first defendant to have to deal with new material issues in the proceeding part way into the trial. Again this prolonged the hearing time.
The extent to which the plaintiff succeeded
[68] The plaintiff did not succeed against the first defendant. Against the second and third defendants, the plaintiff failed to establish the original amount of its damages claim. The plaintiff originally sought full costs to repair the building, estimated at approximately $622,000. The repairs estimate well exceeded the difference in value between the then current value of the property and its value had it been built in accordance with the amended building consent and building code. When the hearing resumed, the plaintiff produced evidence of diminution in value at approximately $475,000. The first defendant’s valuation evidence put diminution in value at $400,000. In my judgment I adopted a figure between the two estimates, which resulted in the property’s diminution in value being quantified at $437,000. This figure was considerably less than that which the plaintiff originally sought. Furthermore, the basis on which the plaintiff sought to recover the $622,000 figure was flawed. Whilst cost of repair can form a basis for quantification of loss, it would be exceptional to achieve damages on that basis where the cost of repair well exceeded the diminution in value of the property. The principles to support this are well established: see Ruxley Electronics and Construction Ltd v Forsythe [1995] 3
All ER 268 and Vining Realty Group Ltd v Marlborough District Council [2010] NZCA 104 at [60]. Thus, I consider that it was unreasonable for the plaintiff to sue all defendants for a large sum when that sum was calculated on an unsustainable approach. This is consistent with the view taken in Ronaldson v Rankin [1948] NZLR 850 at 854. It follows that even as against the second and third defendants the plaintiff has not been entirely successful in that he has failed to establish the claim for damages on which the proceeding was brought.
[69] This is a case where the plaintiff has incurred considerable costs, both in relation to his own costs and the costs now payable to the first defendant. The second and third defendants played a comparatively minor part in the proceeding. Against this background and taking all the considerations I have identified into
account, I am not satisfied that I should make an order which either directly or indirectly makes the second and third defendants pay the first defendant’s costs.
[70] Even if there were a reasonable basis for joining the first defendant, which I doubt, the weight of the other relevant considerations is against ordering the unsuccessful defendants to pay the first defendant’s costs, either directly or indirectly. This is a case where neither a Sanderson order nor a Bullock order is warranted. Whilst these orders are not unusual where there are successful and unsuccessful defendants, I consider that the peculiar circumstances of this case warrant different treatment.
[71] I cannot see how the interests of justice would support ordering the second or third defendants to bear the costs the first defendant is entitled to. Those costs will exceed $215,000 (being an approximate total, appendix 1 and 2) if the items in appendix 3 are approved and if the time bands in appendix 1 are increased the amount may well exceed the damages award. I consider, therefore, that the plaintiff alone should bear the burden of paying those costs.
[72] In addition, it is likely that under a Sanderson order, the costs would not be paid. All the indications during the trial were that the second and third defendants were left to represent themselves as they could not pay their legal bills. It is difficult to see how they might then pay a costs award. The first defendant did not commence the proceedings and so it has had no control over its exposure to costs; rather, the plaintiff chose to sue the first defendant. In such circumstances, I see no reason why the first defendant should lose out on receiving costs to which it is properly entitled through the Court ordering the payment to be made by the unsuccessful defendants.
Plaintiff ’s costs against the second and third defendants
[73] I now deal with the plaintiff’s claim for his costs and disbursements. Ronaldson v Rankin [1948] NZLR 850 also makes it clear that the Court has a discretion as to whether or not the unsuccessful defendants should pay the whole of the plaintiff’s costs of the proceeding.
[74] The purpose of schedule 2, which sets out appropriate daily recovery rates, and the fixing of the appropriate category of costs in advance of a hearing, is to inform the parties of the likely amount of costs they will be facing, should their stance be unsuccessful. The general rule is that costs follow the event and, absent special circumstances, costs are awarded in accordance with that rate. Here, I am satisfied that recovery rates in category 2B provide a basis for calculating costs as against the second and third defendants.
[75] However, when it comes to the quantification of the costs and disbursements, I do not accept the plaintiff’s itemised schedules. This is because the plaintiff has approached the question of costs and disbursements against the second and third defendants as if the entire proceeding was taken up with bringing a claim against those defendants.
[76] Had the plaintiff’s claims been run against the second and third defendants only, I consider the costs claims would have been much smaller in scope. I have already outlined why I consider the plaintiff is not entitled to orders requiring the second and third defendants to pay the first defendant’s costs. The same reasoning leads me to conclude that it would be contrary to the interests of justice to require the second and third defendants to pay all the costs the plaintiff incurred in pursuing its claims. I consider, therefore, that it would not be reasonable to allow the plaintiff to claim against the second and third defendants’ costs or disbursements which he incurred as a result of the unsuccessful claims against the first defendant.
[77] Rule 14.7(g) of the High Court Rules permits a reduction in costs where some reason exists (other than those specified in r 14.7 (a) to (f)) which justifies the Court refusing or reducing costs. On a broad brush approach, I estimate that, at most, the trial time the plaintiff devoted to proof of claims against the second and third defendants would have involved one-third of the total time and effort. I consider that the claims against the second and third defendants would easily have been disposed of within the initial hearing time of five days, instead of the 15 full hearing days for which the plaintiff now claims. If the claim against the second and third defendants is understood to constitute approximately one-third of the time the plaintiff spent in running its case, the costs on that basis would come to
approximately $43,200. I am prepared to order this amount of costs against the second and third defendants.
[78] However, if the plaintiff wishes to revisit the question of these costs on the ground that he can provide an itemised account which will give a more accurate picture of the reasonable costs to which he is entitled against the second and third defendants, taking into account the findings made herein, I am prepared to provide him with an opportunity to do so. Equally, if the second and third defendants consider that the approach I have suggested does not reasonably reflect the time and cost of the claims made against them, they should also have an opportunity to comment on the course I have proposed. Whilst they have not participated in the costs argument to date, they are entitled to an opportunity to be heard on the issue of any adjustment made to the original costs claim. Consequently, any memoranda which makes that potentially impact on the second and third defendants’ claims is to be served on them.
[79] The plaintiff has until 28 April 2011 to file and serve a costs memorandum proposing a different approach to the one outlined herein. If no such memorandum is filed, the costs awarded against the second and third defendants will be $43,200, which is to be apportioned equally between the second and third defendants. If the plaintiff does file such a memorandum, the second and third defendants have 14 days from the date of receipt of the memorandum to file their response.
[80] The plaintiff’s itemised disbursements suffer from the same defect as the itemised costs schedule. As a claim against the second and third defendants would have taken no more than five days to hear, I consider that the disbursement claim needs to be adjusted to reflect a hearing time of five days. This will require an adjustment of the first and second category of disbursements. The plaintiff will have to file a memorandum which adjusts the disbursements claimed in category one and two of his disbursements schedule.
[81] Included in the third category of disbursements are fees for an expert witness, Kelvin Walls, whose evidence addressed the plaintiff’s claim against the first defendant. I do not consider that the plaintiff should be able to claim these fees as a
disbursement, as the evidence did not directly relate to the claim against the second and third defendants and the purpose of the expert’s evidence was a claim for which the plaintiff was unsuccessful. In addition, I consider that a large part of the time the other expert witnesses spent at the hearing was taken up with issues as between the plaintiff and the first defendant. Whilst there was a degree of overlap between these claims, the nature of the building’s defects did not take up too much time. The fact that the house had been condemned only a few years after it was built served to establish the factual basis for the claims against the second and third defendants. The major focus of the claim was whether the first defendant should have been aware of the defects at the time the house was built and whether it should bear any responsibility for the defects. Consequently, the experts’ fees need to be adjusted. Dr Walls’ fees need to be removed from the list of experts’ fees, and the plaintiff is not entitled to the full cost of the other experts’ fees, as much of their time was taken up with addressing issues that were relevant to the claims against the first defendant. To allow full recovery of their fees would not lead to a reasonable recovery of costs related to pursing the claims against the second and third defendants.
[82] It follows that in respect of the claim for disbursements, the plaintiff will need to file and serve a fresh memorandum which sets out the basis for a reasonable recovery of disbursements as they relate to the claims against the second and third defendants. This is to be done by 28 April 2011. If the plaintiff does file such a memorandum, the second and third defendants have 14 days from the date of receipt of the memorandum to file their response.
Result
[83] The first defendant is entitled to costs against the plaintiff. The first defendant will have to file and serve an amended assessment of its costs and disbursements in accordance with the findings made herein.
[84] The plaintiff is not entitled to either a Sanderson or a Bullock order regarding payment of the first defendant’s costs. They are to be paid directly by the plaintiff, who is not entitled to recover them from the second and third defendants.
[85] The plaintiff is entitled to costs against the second and third defendants but not at the level sought by him. He is to file and serve an amended assessment of his costs and disbursements in accordance with the findings made herein.
Duffy J
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