Sii v Earthquake Commission
[2017] NZHC 2469
•9 October 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2013-009-002314 [2017] NZHC 2469
BETWEEN TING HUA SII
Plaintiff
AND
EARTHQUAKE COMMISSION First Defendant
AND
TOWER INSURANCE LIMITED Second Defendant
Appearances: M C Smith and S F Alawi for Second Defendant (Applicant for
costs)
G D R Shand for Plaintiff (Respondent on costs) (No appearance for First Defendant on this issue)
Judgment:
9 October 2017
(Determined on the papers)
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [on costs]
Introduction
[1] Tower Insurance Ltd, the second defendant, (“Tower”) was the insurer of the home of Ting Hua Sii, the plaintiff, (“Mr Sii”) at the time it was damaged in the Canterbury earthquake sequence.
[2] Mr Sii initially commenced this proceeding in the District Court in 2013 against the Earthquake Commission alone (EQC). Mr Sii subsequently in 2015 had the proceeding transferred to this Court and had Tower joined upon the basis that Mr Sii was now alleging that the damage to the house exceeded EQC’s statutory cap,
rendering Tower liable under the insurance policy. Mr Sii alleged that the repair cost
SII v EARTHQUAKE COMMISSION [2017] NZHC 2469 [9 October 2017]
of his damage was $733,242.85, and that Tower was liable for $402,474.39 of that together with general damages of $25,000 for stress.
[3] Tower filed a statement of defence (as had EQC). Tower asserted that the house had suffered relatively minor earthquake damage falling within EQC’s statutory cap.
[4] Thereafter Tower, in accordance with Court timetables, engaged experts in surveying, geotechnical engineering/structural engineering and quantity surveying. There were reports prepared and conferral and joint reporting processes.
[5] Those matters were completed in mid-2017 at which point it became common ground between the parties that Mr Sii’s claim was within EQC’s statutory cap. Mr Sii revised his estimate of the cost of repair to $77,604.05. EQC and Tower’s estimates were both close to $33,000.
[6] On 20 July 2017, Mr Sii accordingly discontinued his claim against Tower. The Court has since received memoranda as to costs and disbursements.
Costs – competing positions
Tower’s application
[7] Tower applies for costs on a 2B1 basis with a 50 per cent uplift. It relies both on the presumption (under r 15.23 High Court Rules) that costs should follow the event upon a discontinuance and upon the fact that Mr Sii’s claim against Tower failed in substance.
[8] For increased costs, Tower invokes r 14.6(3)(b)(ii) High Court Rules, upon
the basis that Mr Sii’s claim against Tower lacked merit.
[9] Tower also seeks recovery of its disbursements, including the substantial fees it has paid to its experts.
Mr Sii’s opposition
[10] For Mr Sii, Mr Shand concedes that costs should follow the event.
[11] While Mr Shand accepts a 2B approach to some items of cost, he submits that both discovery and inspection should appropriately be calculated on a 2A basis.2
[12] Mr Shand submits that increased costs are not justified. Mr Shand observes that the level of Mr Sii’s 2015 claim was based on expert structural engineering advice of Mr David Whitta who formulated a substantial structural reinstatement strategy based on a conclusion of very substantial damage. Mr Whitta, as a result of the expert reporting process, later revised his opinions both as to damage and reinstatement strategy which led to the conclusion that repair costs would be below the statutory cap.
[13] Mr Shand submits that it was responsible on the part of Mr Sii to act in reliance on competent advice from qualified experts and that an award of costs would be punitive.
Costs – analysis
Application of scale
[14] It is common ground that the commencement of Tower’s defence and its
memoranda filed should be dealt with on a 2B basis.
[15] In relation to discovery and inspection, Mr Shand submits that under r 14.5(2) High Court Rules a band A allocation of time (“a comparatively small amount of time”) is reasonable because discovery proceeded on an informal basis, without production of formal lists.
[16] Given that Tower’s stated position at the time it was joined as a defendant was that it had yet to assess whether Mr Sii’s house had suffered any earthquake damage, it would be remarkable if the time needed for its discovery was a normal
amount of time (as contrasted with that of Mr Sii and EQC who had been engaged in the claims process for some years). On the other hand, in order to comply with Tower’s agreed informal discovery, Tower’s solicitors prepared and provided a list of documents in a fully detailed format including a Schedule divided into Parts 1 – 5. It appears lengthy but 13 of the 15 pages which make up Part 1 simply list photographs.
[17] The fairest assessment of discovery is that it fell much closer to band A than to band B.
[18] When it came to inspection, Tower’s solicitors were faced with inspecting the full suite of documents which had been built up between Mr Sii and EQC over the previous years. A normal amount of time was reasonable for that.
[19] Accordingly, it is appropriate that the Court approach Tower’s discovery on a
2A basis but continue with a 2B approach in relation to inspection.
[20] The mixed 2A/2B approach to costs produces a total scale award of $11,150.
Application for increased costs
[21] In order to justify an award of increased costs, Tower asked the Court to categorise Mr Sii’s claim as one which lacked merit (from the outset). To reach that conclusion, Tower’s counsel noted that the original approach underlying Mr Sii’s claim (a very substantial demolition and replacement of the house’s existing foundation system) may be contrasted with the eventual assessment of relatively minor damage which was recognised by all parties as being repairable within the statutory cap. As Tower’s counsel noted:
Ultimately, the plaintiff’s experts agreed with that assessment.
[22] Central to most of the circumstances identified in r 14.6(3)(b) as justifying increased costs is the finding that the liable party has in relation to an important aspect of the litigation acted unreasonably. Thus, a party’s argument or claim which
“lacks merit” involves a party’s unreasonable or unrealistic assessment of its own
case. That may occur when a party’s allegations are made without foundation.3
[23] Here, Mr Sii took expert advice. His claim against Tower was pursued in accordance with that advice. When, through the expert reporting and conferral process, the advice to Mr Sii changed, he promptly discontinued the claim against Tower.
[24] Counsel for Tower have not produced any critique of Mr Whitta’s original advice such as would suggest that Mr Sii or his solicitor should have appreciated from the outset that the advice was or would prove to be flawed or inaccurate.
[25] In these circumstances, I do not find that the joinder of Tower lacked merit. Increased costs are not justified.
Tower’s disbursements – analysis
Filing fee
[26] Tower is entitled to the fee for the filing of the statement of defence ($110).
Tower’s claim
[27] Through an award of additional disbursements, Tower seeks recovery of the fees charged by the firms of its three experts:
(a) Elliot Sinclair & Partners Ltd (“Elliot Sinclair”) (surveyors) –
$19,768.55 (itemised in Schedule 1);
(b)Fraser Thomas (geotechnical and structural engineers) – $35,132.12 (itemised in Schedule 2);
(c) Rapid Project Solutions Ltd (“RPSL”) (quantity surveyors) – $2,200.
3 See Smithkline Beecham (NZ) Ltd v Minister of Health (2002) 16 PRNZ 361 at 363 per Young J:
“The plaintiffs had few substantive facts to support their propositions of law”.
[28] Tower appropriately excluded from its disbursement claim the GST content of each invoice.4
[29] Mr Sii accepts the recoverability of the RPSL fee of $2,200 (for pricing the remediation).
[30] Mr Sii objects to the amounts claimed in relation to the Elliot Sinclair and Fraser Thomas invoices. Mr Shand records that Mr Sii would accept disbursements of $15,000 for the Fraser Thomas work and $5,000 for the Elliot Sinclair work.
Fees and disbursements of expert witnesses – the High Court Rules as they apply
[31] The fees and expenses of expert witnesses are a “disbursement” under r 14.12
High Court Rules. Provided they are reasonable in amount and satisfy the criteria in r 14.12(2) they are generally recoverable in full.5
[32] Rule 14.12(2) High Court Rules provides:
(2) A disbursement must, if claimed and verified, be included in the costs awarded for a proceeding to the extent that it is—
(a) of a class that is either—
(i) approved by the court for the purposes of the proceeding; or
(ii) specified in paragraph (b) of subclause (1); and
(b) specific to the conduct of the proceeding; and
(c) reasonably necessary for the conduct of the proceeding; and
(d) reasonable in amount.
[33] Rule 14.12(3) imposes a proportionality requirement:
(3) Despite subclause (2), a disbursement may be disallowed or reduced if it is disproportionate in the circumstances of the proceeding.
4 In accordance with New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016) 27 NZTC 22-058.
5 Air New Zealand Ltd v Commerce Commission [2007] 2 NZLR 494, (2007) 18 PRNZ 406 (CA)
at [40], [47] and [64].
[34] The fees of an expert (subject to the reasonableness of the amount) will be recoverable under r 14.12(2) if the work of the expert was specific to and reasonably necessary for the conduct of the proceeding. Thus the fee may be recoverable even if the witness does not give evidence at trial.6 A fee may also be recoverable where the expert’s time is spent critiquing other party’s experts or assisting counsel in cross-examination.7
[35] The r 14.12(3) consideration of proportionality warrants a three step analysis:
(a) Was the fee sufficiently connected to the proceeding under r 14.12(2)(b) – (c)?
(b)Was the fee reasonable in amount (as between client and expert) under r 14.12(2)(d)?
(c) Was a fee of that level disproportionate under r 14.12(3)?
Surveying fees
[36] Elliot Sinclair charged two disbursements totalling $19,768.55 (GST
exclusive), as detailed in Schedule 1.
[37] In support of Tower’s application for costs and disbursements, its earthquake litigation manager, Julia Rose, exhibited the claimed invoices together with detailed costing information from the experts. She also explained the background to the expert reporting.
[38] The background to Elliot Sinclair’s involvement was that Mr Sii’s allegations of damage included that the house had suffered differential settlement and was out of level, had out of plumb internal walls and had dropped as a whole by 130 mm. Ms Rose instructed Elliot Sinclair to carry out a detailed floor level and wall verticality
survey. Over the following month, Warren Haynes of the firm, with assistance,
6 Murray v BC Group (2003) Ltd HC Wellington CIV-2007-485-198, 3 August 2009.
7 Air New Zealand Ltd v Commerce Commission, above n 5, at [62].
carried out survey field work and observations and prepared a report which was finalised in June 2016, after internal review.
[39] The fee note of $13,180.70 for attendances to 22 May 2016 is supported by time and attendance records which show Mr Haynes and other personnel engaged at varying hourly rates ($64 per hour up to $279 per hour for Mr Haynes). At those rates the subtotal of attendances recorded was $11,436. The fee charged is approximately 15 per cent higher than that.
[40] For attendances from 22 May 2016 to the production of the finalised report, recorded attendances totalled $6,435.70. The 22 June 2016 fee was approximately
17.5 per cent higher than that.
[41] Counsel for Mr Sii responded to Ms Rose’s affidavit with an affidavit of William Dwyer, a lawyer who is the current General Manager of the Claims Resolution Services Ltd (CRS) which has been managing Mr Sii’s claim since July
2013.
[42] Significantly, Mr Dwyer does not challenge Tower’s proposition that expert advice on survey matters was reasonably necessary for Tower’s defence. Given the size of the claim as it stood when Tower was joined and the significance of some pleaded measurements, detailed survey advice was reasonably required by the defendants.
[43] I am satisfied that Mr Sii’s pleaded case made it reasonably necessary for
Tower to obtain the expert surveying advice it obtained from Elliot Sinclair.
[44] The real issues for the Court are whether the Elliot Sinclair fees are reasonable in amount and whether they are proportionate in the circumstances of the proceeding.
[45] Mr Dwyer exhibits the reports on Mr Sii’s property which were obtained for Mr Sii from 2014 to November 2015. Mr Dwyer also refers to a report obtained by EQC East. Mr Dwyer compares the total charged by Elliot Sinclair with fees
charged for the three sets of reports which had already been obtained for Mr Sii (at
$461.15, $2,875 and $4,025). Mr Dwyer notes that the latter two fees also respectively included an entire building report and an entire engineering report.
[46] Mr Dwyer, having explained that CRS has been involved in over 1000 earthquake claims and is familiar with process and costs involved in diagnosing damage and remediation, observes:
I would maybe expect a charge of about $23K from an expensive surveyor post preparation of witness statements and giving evidence at a trial for at least a day.
[47] I cannot attach much weight to Mr Dwyer’s opinion. While he deposes as to the experience of CRS (in over 1000 earthquake claims), he has not deposed to his own specific experience either in relation to the total number of claims or those which have involved surveying fees which could be compared. It does not assist the Court greatly to refer to reports which the plaintiff received when no analysis is provided as to the work involved and comparative content of the two parties’ respective reports. The Elliot Sinclair report is clearly based on thorough investigation and is a detailed, measured analysis. I am satisfied that the fees charged by Elliot Sinclair were reasonable so as to qualify as a recoverable disbursement under r 14.12.
[48] In reaching this conclusion, I do not overlook the real possibility that had the plaintiff’s experts been commissioned to undertake more investigation and report in more detail the overstatement of the plaintiff ’s claim might not have occurred. The discrepancy in comparative fee levels for expert analysis and in outcome may in substantial measure flow from these different approaches of depth of analysis.
[49] I come then to proportionality. The combination of reports which Mr Sii had available in 2015 led to what transpires to have been a vast overstatement of his claim based on some erroneous conclusions as to what was required. In contrast, the reports obtained by the defendants appear to have led or at least substantially contributed to Mr Sii’s acceptance that his claim was not over cap.
[50] For Tower, a substantial sum of money was at stake. It was justified in expending a relatively high disbursement on survey costs (even with the expert charging a premium) to provide a verifiable basis on which a further tier of expert opinion might contribute to a more realistic assessment of the plaintiff’s case and the avoidance of costs such as those associated with preparation for and attendance at trial. Failing a discontinuance of the plaintiff ’s case, the expert reports would see Tower ready for trial preparation.
[51] The disbursement of $19,768.55 for Elliot Sinclair’s fees and disbursements
will be allowed.
Geotechnical and structural engineering fees
[52] Fraser Thomas charged Tower seven sets of fees. Tower pursues an award of disbursements in relation to six of the fees, as detailed in Schedule 2.8 Ms Rose exhibited the claimed invoices which each bear detail of the personnel involved, their charge-out rates and a brief narrative of the particular work covered.
[53] The fees charged by Fraser Thomas may be grouped in two sets. First are three invoices from May to August 2016 (totalling $25,241.10 GST exclusive) rendered in relation to geotechnical and structural investigation and reports. Second are three invoices from September to December 2016 relating to the conferral of experts and joint reporting. The joint report, to which Martin Webb of Fraser Thomas was a party, was dated 18 November 2016. The total charged for these three invoices was $9,891.02 (GST exclusive).
[54] The background to Fraser Thomas’s involvement was that Mr Sii’s structural engineering expert, Mr Whitta, had in his November 2015 report recommended that a site-specific geotechnical engineering investigation and analysis should be undertaken for the design of a new foundation.
[55] Ms Rose deposes that she engaged Fraser Thomas to provide engineering advice specifically on the structural damage their house had suffered and to
8 Recovery of the fee charged by Fraser Thomas in a third category of attendances (Land
Surveying surfaces) is not pursued by the Tower.
recommend a suitable repair strategy. She had observed that Mr Sii’s claim included allegations of foundation damage and structural cracking to other parts of the house, as well as an assertion that the house foundations needed to be rebuilt to particular specifications.
[56] It was Mr Webb of Fraser Thomas (as the principal expert retained for Tower) who was then required, in accordance with the Court’s usual directions in relation to proceedings on the Earthquake List, to carry out a joint review at the site and engage in the conferral and joint reporting process.
[57] The fee notes indicate that Martin Webb and other personnel charged hourly rates according to their positions ($105 per hour up to $250 per hour for directors and principals). Fees were charged in accordance with time recorded.
[58] Mr Dwyer, in his affidavit, critiqued the Fraser Thomas invoices in four paragraphs:
14. Tower engaged Fraser Thomas for engineering. This site is TC1.
So, it required little, if any, geotechnical investigation. Structurally, this house was not unusual. Fraser Thomas apparently charged
$43,898.76 for engineering work/advice in reporting on damage and remediation strategy and participating in the joint report process.
15. USS charged $4025 for an engineering report that included levels.
USS charged $3314.89 for the joint report process…
16.CRS uses a variety of engineers on claims. I recently saw a quote from a respected geotechnical consulting firm to do 3 CPT’s and 5 shallow tests and report for $4000 plus GST…
17.For structural investigation through the end of joint reporting the most CRS would expect to pay would be about $10,000 on a case like this.
[59] The issue raised by Mr Dwyer’s evidence is not as to whether it was reasonable to have geotechnical and structural analysis undertaken – it clearly was appropriate. Rather the issue he raises is as to an unreasonableness in the fee or a disproportionate amount of work.
[60] Mr Shand referred to Mr Dwyer’s evidence. He submitted that the geotechnical engineering fees charged by Fraser Thomas should be contrasted with
what Mr Shand calls the fee for the “full Geotec investigation from a credible consultant” of $4,000. Mr Shand then recorded that the plaintiff would accept an award of $15,000 for both the geotechnical and structural investigation reporting (by inference $4,000 plus $10,000, rounded to $15,000). Implicitly he submits that
$15,000 would have been the reasonable total fee.
[61] As with the Elliot Sinclair fees, Mr Dwyer’s evidence does not take matters significantly further for the Court. While reference is made to a $4,000 quotation for geotechnical consulting (the letter of quotation being exhibited) and some detail of the proposed tests is provided by Mr Dwyer, there is again no analysis as to the extent of work undertaken by Fraser Thomas and the comparative content of the respective reports (assuming the consulting firm referred to by Mr Dwyer eventually prepared a report in accordance with the quotation).
[62] In relation to the fees for the structural engineering investigation and reporting, Mr Dwyer did not support his expectation of a $10,000 fee by reference to any specific experience.
[63] As with the Elliot Sinclair reports, the Fraser Thomas reports are clearly based on thorough investigations and are detailed and measured analyses. The lack of any specific criticism for the plaintiff of the component of the Fraser Thomas fees relating to the expert’s joint site meeting and joint reporting process provides a measure of reassurance as to the reasonableness of the fee. That work is recorded as taking 20.4 hours for which fees of $6,100 were charged. If any aspect of those components of the total fees were open to challenge by reason of the knowledge of the plaintiff’s expert who was engaged in the same process, the Court would have expected evidence and submission on that aspect. There was none.
[64] I find the Fraser Thomas disbursements to have been reasonable in amount.
[65] As when considering the Fraser Thomas fees, I must then under rule 14.12(3)
consider proportionality.
[66] The same conclusions apply as those I have reached in relation to the Sinclair Elliot fees. In the context of the extent of damage and remedial requirements alleged by Mr Sii, it was of fundamental importance to Tower that its geotechnical and structural engineering advice be thorough and that the conclusions reached by Fraser Thomas be capable of justification and vindication through either the conferral/joint reporting process or at trial. It cannot be said that the fees which Tower has paid to Fraser Thomas were disproportionate in the circumstances of this proceeding.
Costs of submissions and evidence on costs
[67] Except in minor ways, Tower’s position in relation to its costs and
disbursements has been upheld.
[68] In order to have its disbursements fixed, Tower would have been required in
any event to provide evidence of the nature covered by Ms Rose’s affidavit.
[69] Mr Sii’s contest over the disbursements has nonetheless required the exchange of submissions, including supplementary submissions. The allowance for Tower’s costs should include an item for its submissions. By analogy with Item 11 of Schedule 3 (memorandum for a case management conference) I shall add, for Tower’s submissions on costs and disbursements, an additional $892.00 to the
$11,150.00 already assessed.
Orders
[70] I order:
(a) The plaintiff shall pay to the second defendant the costs and disbursements of the proceeding.
(b)The second defendant’s costs to be paid by the plaintiff are fixed in the sum of $12,042.00.
(c) The second defendant’s disbursements to be paid by the plaintiff are fixed in the sum of $55,010.67.
Associate Judge Osborne
Solicitors:
Gilbert Walker, Auckland
Grant Shand, Christchurch
Chapman Tripp, Wellington
SCHEDULE 1
Expert Invoice Date Invoice No Amount (ex GST) Surveying
Elliot Sinclair 27 May 2016 53693 13,180.70 Elliot Sinclair 22 June 2016 54032 6,587.85 Total for surveying $19,768.55
SCHEDULE 2
Expert Invoice Date Invoice No Amount (ex GST) Geotechnical and structural engineering reports
Fraser Thomas 27 May 2016 112990 2,953.13 Fraser Thomas 29 July 2016 113343 13,858.53 Fraser Thomas 17 August 2016 113512 8,429.44 Total for engineering
$25,241.10
Conferral and joint report
Fraser Thomas 28 September 2016 113774 2,932.10 Fraser Thomas 28 October 2016 114015 3,924.92 Fraser Thomas 19 December 2016 114429 3,034.00 Total for conferral and joint report
$9,891.02
0
2
1