Zhou v Watson

[2024] NZHC 496

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-435

[2024] NZHC 496

BETWEEN

LEI ZHOU AND QIUYING ZHANG

Plaintiffs

AND

THE PERSONAL REPRESENTATIVES OF THE ESTATE OF ALAN GORDON

WATSON AND ELIZABETH WATSON

Defendants

Hearing:	29 February 2024
Counsel:	E S K Dalzell and D A Fry for Plaintiffs D M Fraundorfer for Defendants
Judgment:	8 March 2024

JUDGMENT OF RADICH J

[1]    The plaintiffs and the defendants were involved in a two-week hearing in the High Court on whether the defendants were liable for leaks in their family home following its sale to the plaintiffs. Just under $500,000 (together with a range of other costs and damages) was claimed for remedial work, or, alternatively, damages for a loss of value. Gendall J awarded $286,600 and interest to the plaintiffs.1 Some causes of action were made out. Others were not.

[2]    The defendants have appealed and the plaintiffs have cross-appealed. The defendants have applied for a stay of execution of the judgment pending the outcome of the appeal. The plaintiffs resist the stay. They say that they are entitled to their money at once.

1      Zhou v Watson [2023] NZHC 2328, (2023) 24 NZCPR 480.

ZHOU v WATSON [2024] NZHC 496 [8 March 2024]

[3]    Mr Watson, the first-named defendant, passed away after the proceedings were issued but before the High Court hearing. The second-named defendant, Mrs Watson, is 83 years old. She is undergoing treatment for cancer. Her income is limited to superannuation payments. The equity she has in the house that she now has ownership of with her son and daughter-in-law  is  limited  and  she  has  few  other  assets.  Mrs Watson’s son and daughter-in-law are her carers. The appeal is to be heard in three months’ time. If Mrs Watson is required to pay the judgment debt before the appeal, she would have to sell the house.

[4]    Accordingly, the Court is required to balance the competing rights of Mr Zhou and Ms Zhang to have the benefit of their judgment against the need to preserve   Mrs Watson’s position against the event of the appeal succeeding.

[5]    Moreover, Mr Zhou and Ms Zhang seek scale costs, expert costs and disbursements, totalling just on $190,000. The claim includes an uplift on scale costs. Mrs Watson does not believe that, through the plaintiffs’ conduct, costs should be awarded. If they are to be awarded then deductions are sought.

The High Court decision

[6]    Mr and Mrs Watson built their house in Maungaraki in 1969. They raised their family in it. When they sold it to the plaintiffs in February 2020, it was largely in original condition. Mr and Mrs Watson sold the house so that they could pool resources with their son and daughter-in-law and buy a house in Tauranga with a “granny flat” to allow their son and daughter-in-law to care for them as their health was declining.

[7]    Soon after settlement, Mr Zhou and Ms Zhang observed leaks in the house. They want to carry out substantial repairs. Lengthy correspondence was exchanged but a negotiated outcome could not be found. The respective expectations of the parties were quite different. The parties went to court, calling expert evidence from a number of witnesses.

[8]    Mr Zhou and Ms Zhang’s case was based on breach of a vendor warranty in the sale and purchase agreement, contractual misrepresentations and mistake. They

claimed the cost of the remedial work they sought to undertake or, alternatively, the loss in value. The Watsons argued that the standard of proof had not been met, that a causative link to the damages claimed had not been proved and relied upon defences founded in estoppel, contractual waiver, failure to mitigate and betterment.

[9]The causes of action, and Gendall J’s findings on them, were these:

(a)The first cause of action alleged a breach of warranties under the agreement for sale and purchase about building consents for work undertaken in relation to an upper deck area, a retaining wall and drainage work. Gendall J found that there had been a breach by Mr and Mrs Watson of their warranty relating to the retaining wall (only) but that damages would be limited to the $15,000 (plus GST) cost of repair.2

(b)The second and third causes of action alleged that Mrs Watson had made oral misrepresentations about the weathertightness of the property and that weathertightness issues at the property had been concealed. Gendall J found that Mr Zhou and Ms Zhang had not been able to establish the representations they alleged and that the concealment claims were not made out. 3

(c)The fourth and fifth causes of action alleged both unilateral and common mistakes. Gendall J found that the parties were acting under a common mistake about the weathertightness of the house.4 He found that the mistake was as to the essential nature of the subject matter of the contract, which he saw as being “the physical characteristics and watertightness of the house”.5 In finding that this mistake was common to the parties, the Judge did not go on to consider unilateral mistake.

2 At [72].

3      At [112] and [120].

4 At [136].

5 At [136].

[10]   Gendall J concluded that the appropriate measure of the plaintiffs’ loss was the difference in the flawed and unflawed value of the property, which was assessed as being $388,000. He found Mr and Mrs Watson to be responsible for 70 per cent of that difference and awarded damages at $271,600 on that basis.

[11]   Significant expert evidence on the cost of repairs and on the prospect of betterment, given the measure of damages preferred by the Judge, was given only brief mention in the decision.6

[12]   The affirmative defences raised by Mr and Mrs Watson did not succeed and judgment was entered for the sums of $15,000 and $271,600.

A postscript to the High Court decision

[13]   The tragedy in this proceeding is that the costs incurred by each party are likely to exceed the value of the claim. Certainly, the plaintiffs’ claim for costs founded in the High Court schedule, plus an uplift, together with expert witness fees is in the order of $240,000, which approaches the value of the High Court judgment. Actual costs are likely to be considerably more. Nothing can be agreed and so the parties forge on. This application alone has been the subject of extensive affidavit evidence and bundles of authorities. Even the application for costs which, in accordance with Gendall J’s directions, were to be the subject of a five-page (only) memorandum saw an affidavit for the plaintiffs with over 50 pages of exhibits.

[14]   The financial consequences of the hole that has been dug become apparent in the discussion that follows.

Principles for a stay of execution

[15]   Under r 12 of the Court of Appeal (Civil) Rules 2005, pending the determination of an appeal, this Court may, among other things, order a stay of the execution of a decision.

6      See, for example, at [190] in relation to betterment.

[16]   The Court of Appeal in Bathurst Resources Ltd v L & M Coal Holdings Ltd recounted – and supplemented a little – the factors that are to be taken into account in considering an application for a stay under r 12.7 Those factors are as follows:

(a)whether the appeal may be rendered nugatory by the lack of a stay;

(b)the bona fides of the applicant as to the prosecution of the appeal;

(c)whether the successful party may be injuriously affected by the stay;

(d)the effect on third parties;

(e)the novelty and importance of questions involved;

(f)the public interest in the proceeding;

(g)the apparent strength of the appeal;

(h)where a money judgment is appealed, whether the applicant proposes a condition that some or all of the judgment be paid or secured; and

(i)the overall balance of convenience.

[17]Overall, the objective is to do justice between the parties.8

Application of the principles

Whether the appeal may be rendered nugatory by the lack of a stay

[18]   Mrs Watson has filed relatively detailed information which explains her financial position. Her evidence has been challenged in an affidavit filed by Mr Zhao. He expresses concern and doubt about Mrs Watson’s evidence on her inability to sustain further borrowings and about the ability of her son and daughter-in-law to

7      Bathurst Resources Ltd v L & M Coal Holdings Ltd [2020] NZCA 186 at [6], citing and adding to the tests in Keung v GBI Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].

8      NZ Insulators Ltd v ABB Ltd (2006) 18 PRNZ 459 at [13], citing Minnesota Mining & Manufacturing Co v Johnson & Johnson [1976] RPC 671 (CA) at 676.

borrow further on her behalf. That evidence was the subject of affidavits in response from Mrs Watson and from her son.

[19]   In the interests of the parties’ privacy, I will not refer to the monetary values of Mrs Watson’s assets and liabilities or of her income or expenditure or to the assets and liabilities of her son and daughter-in-law. But I will describe the position that emerges.

[20]   The reason for Mr and Mrs Watson selling their Maungaraki property was to enable them to buy a property in Tauranga with their son and daughter-in-law. Their health was declining in material ways and they needed carers in order to get by. Unfortunately, Mr Watson passed away before trial. Mrs Watson suffers from cancer and underwent relatively significant surgery at the end of last year.

[21]   Mrs Watson has a 74 per cent interest in the Tauranga property. Her son and daughter-in-law own the balance. There is a mortgage over the property in favour of a bank. A further loan was needed from the bank to help fund the litigation. And Mrs Watson needed to borrow a further, relatively significant, sum from her son and daughter-in-law to fund the litigation. The sum involved was borrowed by her son and daughter-in-law and is secured, in their favour, against the property also.

[22]   Mrs Watson’s equity in the property is less than the value of the judgment debt together with interest. That is before the plaintiffs’ costs claim.

[23]   Mrs Watson’s only income is superannuation payments she receives. The income does not cover her expenses. There are no other assets of any material worth.

[24]   Why, it is asked for the plaintiffs, could not Mrs Watson’s son and daughter- in-law, upon sale of the house, purchase a new property with the equity they have in the house they own jointly with Mrs  Watson  and  following  the  repayment  of  Mrs Watson’s loan to them? I do not know if that would be possible but it would seem sufficiently clear that Mrs Watson and her son and daughter-in-law would not be able to purchase a property like their current property which, through the granny flat it includes, enables Mrs Watson’s son and daughter-in-law to care for her. The evidence

demonstrates that Mrs Watson could not afford replacement accommodation or to pay for other carers.

[25]   Mr Fraundorfer puts it on the basis that, in circumstances in which she would lose the house she is in – its purchase being the very reason for the sale of the house that is the subject matter of the litigation – there could be no point in proceeding with the appeal.

[26]   However, Mr Dalzell is right to say that the appeal would not be rendered nugatory. Mrs Watson has been granted legal aid for her appeal and the sale of her house would not prevent the appeal from proceeding. The effect of a stay not being granted is most relevantly considered in the context of other factors that need to be taken into account.

[27]   The case for Mrs Watson under this head is not so much that the appeal would be rendered nugatory but that the consequences for her in the absence of a stay would be severe.

[28]   It is said for Mr Zhou and Ms Zhang that Mrs Watson’s concerns should be discounted given the terms of a proposal made by them to Mrs Watson in advance of the hearing of this application. That proposal involved an agreement on the part of the plaintiffs to a stay in return for a number of things including an undertaking not to borrow further against the property, the provision to the plaintiffs of a registered mortgage against the property for the judgment debt, interest, costs and disbursements, an agreement that the mortgage is to rank ahead of the mortgage to Mrs Watson’s son and daughter-in-law, and an agreement “not to seek any material increase to the existing grant [of legal aid] or seek further legal aid grants”. During the hearing of this application, counsel for the plaintiffs suggested that another option, insofar as the defendants’ grant of legal aid is concerned, would be a condition requiring notice to be given to the plaintiffs of any application to extend the legal aid grant or to seek a further grant so that they could bring any concerns on their part about further legal aid back to the Court for a decision.

[29]   I agree with counsel for Mrs Watson that the conditions proposed by Mr Zhou and Ms Zhang could not be tenable. At one level, the value of the mortgage sought exceeds the equity in the property. But, in any event, for the respondents in the appeal before the Court of Appeal to seek to limit, or oversee, the grant of legal aid to the appellant in that proceeding could not on any view of it be appropriate.

[30]   Moreover, the plaintiffs have produced as evidence on this application, and in their application for costs, correspondence between the parties from March 2022 until June 2023 in which settlement offers were made. They say that Mrs Watson had the opportunity to provide financial information and to reach a settlement in the period leading up to trial. Accordingly, it is said, the Court should be slow to let her current position motivate its decision on a stay. That, in my view, can be no answer to the situation. Both parties made settlement offers to the other. They each moved some way towards middle ground but remained over $100,000 apart at the time of trial. It is not appropriate to micro analyse the terms of those sometimes lengthy exchanges between counsel. It is unfortunate that settlement could not be achieved but it cannot properly be said that Mrs Watson’s position should be prejudiced on this application because she did not accept an offer to settle, as was claimed.

The bona fides of the applicant as to the prosecution of the appeal

[31]   Mr Zhou and Ms Zhang accept that there is no question but that Mrs Watson’s appeal is brought on a bona fides basis.

Whether the successful party may be injuriously affected by this stay

[32]   Mr Zhou and Ms Zhang have a strong desire to undertake remedial work on the property to address the water ingress issues that concern them. There is a presumption that a successful party should have its money at once. As Mr Dalzell has said, they, too, suffer injury and they do not have family that they could live with, or who could otherwise support them, while these issues are being addressed. The underlying issues are, it is said, taking a substantial toll on an already heavily burdened couple.

[33]   That must certainly be so. However, bearing in mind that the appeal is to be heard in just three months’ time, that they continue to have a place to live, that the dispute has been  ongoing  since  2020,  that  they  have  a  charging  order  over  Mrs Watson’s Tauranga home and that interest continues to accrue on the judgment sum, the injurious effects are moderated to some extent.

The effect on third parties

[34]   If the Tauranga house is to be sold, then Mrs Watson’s son and daughter-in-law will be adversely affected. The evidence they have provided shows that they do not have the ability to purchase Mrs Watson’s 74  per  cent  interest  in  the  property. Mrs Watson’s son is a pastor and his wife is an occupational therapist.

[35]   It is suggested for Mr Zhou and Ms Zhang that they might have enough equity to purchase another house. That would appear to be challenging on the financial information that has been provided. But, even if they were able to do so, losing the house in which they and their children live and in which they care for Mrs Watson would certainly have an adverse effect on them.

The apparent strength of the appeal, the novelty and importance of questions involved and the public interest in the proceeding

[36]I will deal with these three factors together. They are interlinked.

[37]   Mrs Watson’s appeal will centre upon Gendall J’s finding that the parties were influenced in their decisions to enter into the contract for the sale and purchase of the Maungaraki property by the same mistake; a mistake that was essential to the nature of the subject matter of the contract. Gendall J described the common mistake that he had found in the following way:9

The alleged mistake that I accept occurred in the present case is about the physical characteristics and water-tightness of the house, the house obviously being a major part of the subject matter of the [sale and purchase agreement].

9      Zhou v Watson, above n 1, at [136].

[38]   It is understood that submissions for Mrs Watson on appeal will include the following points:

(a)She was not mistaken about the condition of the property. She knew that it had issues of the type that might be expected in a 50-year-old property. As Gendall J found, she did not make a representation to the contrary.

(b)The case differs from cases in which both parties were mistaken in a common way.10

(c)Mrs Watson was an inexperienced vendor. She understood that prospective purchasers would undertake their own due diligence, obtain building reports and satisfy themselves as to the condition of the property. The offer made by Mr Zhou and Ms Zhang was unconditional. Mrs and Mrs Watson did not turn their minds to the issue on which they were found to have been mistaken.

(d)In any event, the 70/30 split that Gendall J ordered in favour of Mr Zhou and Ms Zhang should, it will be argued, be reduced.

[39]   Mr Zhou and Ms Zhang say that the merits of the appeal are not strong and that the key findings are factual in nature. Arguments to be made are, it is said, a re-run of the High Court arguments and that accordingly, there is no novelty, no important question and no public interest that would justify a stay.

[40]   There is in my view something in the point advanced for Mrs Watson that this case stands aside from the more common leaky home situation in which neither party knew of fundamental defects with the integrity of a property. Whether, on the facts of this case, Mr and Mrs Watson were mistaken about the property’s condition at the time of the sale and whether that mistake aligned with a mistake on the part of Mr Zhou

10 Reference is made by counsel for Mrs Watson to Shen v Ossyanin (No. 2) [2019] NZHC 2430, (2019) 20 NZCPR 590 at [27] and to Professor McLaughlan’s analysis of Magee v Mason [2017] NZCA 502, (2017) 18 NZCPR 902 in his article, David McLaughlan “Misrepresentation? Or was it case for relief on the ground of common mistake?” [2018] NZLJ 13.

and Ms Zhang does raise arguable points that have the potential to be of importance in the context of a purchaser’s obligations.

[41]   While counsel for the plaintiffs refers to a 1 February 2024 minute of Goddard J in Mrs Watson’s appeal – in which it was found that the appeal does not raise novel issues that would warrant it being heard by a Permanent Court – that does not mean that there is no public interest, novelty or importance. Certainly, the case has been the subject of media attention and will highlight, one way or another, the extent of the exposure that vendors of an older property, whose quirks may have been taken for granted by them, might have.

Whether the applicant proposes a condition that some or all of the judgment be paid or secured

[42]   It is said for the plaintiffs that at the very least security of the type mentioned in [28] above would need to be given in the event that a stay is granted.

[43]   It is common for security for a plaintiff’s exposure to be required in circumstances in which it is found that the refusal of a stay could create a substantial injustice should an appeal be successful.11

[44]   Mr Zhou and Ms Zhang do have a form of security. They have a charging order registered on the title to Mrs Watson’s Tauranga property and Mrs Watson would offer a condition that she would not take on any further secured debt on that property apart from that associated with her legal aid grant.

[45]   The plaintiffs’ concern is that a charging order does not provide them with any proprietary interest over the property and they perceive there to be a risk of dissipation of the equity in the property given in particular the legal grant that is associated with the grant of legal aid. Reference is made to the Court of Appeal’s decision in Bathurst Resources Ltd v L & M Coal Holdings Ltd in which it was said that an applicant for a stay of execution may be expected to put its best foot forward and that the Court’s

11   See, for example,  Contributory Mortgage Nominees Ltd v Harris Road No. 10 Ltd  (2006)      22 NZTC 19,752 (HC) and Eden Refuge Trust v Hohepa  (HC) Auckland CIV-2003-404-539,  21 December 2011.

restraint of its own orders should be the least necessary to preserve the losing party’s position against the prospect of the appeal succeeding.12

[46]   The Court of Appeal in Bathurst said that, in the case of a money judgment, a debtor needs to make some concession towards the existence of the judgment and that here, the applicant for the stay had not put its best foot forward in the sense that evidence about its financial position, prejudice and capacity to raise the judgment sum was woefully inadequate. Moreover, security was not offered. In this case, by way of contrast, Mrs Watson has provided extensive evidence of her financial position. She has exhibited to affidavit evidence her property-sharing agreement with her son and daughter-in-law, her term loan agreement with them, a statement of her means (which includes an itemised breakdown of her income, expenditure, assets and liabilities), a copy of the Legal Services Commissioner’s letter to her with details of her legal aid grant, information from her bank outlining the balances of her accounts and relevant transactions and information from her bank that the limit on her credit card could not be increased. She was hoping to have an increase in the limit so that she could pay for the hearing aid she needs.

[47]   Equally, Mrs Watson’s son has provided evidence about the loan that he and his wife provided to his mother and in support of his position that he and his wife are the only family members who are able to lend money to his mother but they have reached their own borrowing limits.

[48]   Accordingly, there is good reason in my view for this case to be seen as an outlier, with good cause, from the underlying principle that the injustice that may be addressed in granting a stay will typically be balanced by the giving of security. A charging order is in place preventing sale of the property. A condition not to take on further secured debt can be imposed. And, for reasons discussed in [29] above, it could not be appropriate for a party in proceedings to have the ability to intervene in the legal aid arrangements of their opponent. Moreover, as counsel for Mrs Watson has said, legal aid rates are such that the equity in the property would not be likely to be at risk.

12     Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 7, at [19].

[49]   Mr Dalzell promoted as a fall back from the plaintiffs’ position in opposing the stay, an arrangement of the type that was put in place by Skelton AJ in Mills v Dalzell.13 There, the Associate Judge adjourned the stay application to allow steps towards enforcement to be taken but on the basis that, in the event that those steps reached the stage of sale, then a stay of execution could be ordered depending on the circumstances at the time. That sort of arrangement would allow the time until delivery of a judgment on appeal to be used productively towards enforcement in the event that, ultimately, the appeal was to fail. The pragmatic nature of an approach of that sort is acknowledged. However, because in my view the particular circumstances of this case are such that a stay would best serve the interests of justice, I do not see alternative measures of that sort as being warranted.

The overall balance of convenience

[50]   The overall balance of convenience favours the interests of Mrs Watson in material ways. I have mentioned in [3] the factors that give rise to this view. Essentially, she would lose her Tauranga house which is configured in such a way that her son and daughter-in-law can care for her there. She could not afford replacement accommodation or alternative care arrangements.

[51]   The appeal is to be heard in three months’ time. The potential for adverse effects on the part of Mrs Watson if she needed to sell, or to take steps towards selling, the Tauranga house now, and if she was then to succeed on appeal, are significant. They outweigh the adverse effects on Mr Zhou and Ms Zhang in having to endure the current state of affairs until the Court of Appeal’s judgment is available.

[52]   Counsel for Mr Zhou and Ms Zhang says that there are real risks in waiting a little longer as the equity in the Tauranga home may be eroded further. However, as has been discussed, the circumstances of this particular case, the plaintiffs’ charging order and the condition on the stay are such as, in the round, to do justice to both parties.

13     Mills v Dalzell [2023] NZHC 1530.

Result on stay application

[53]   Mrs Watson’s appeal does not apply to the orders made by Gendall J at [195] of his decision in which he ordered the payment by Mrs Watson  to  Mr Zhou and  Ms Zhang of $15,000 as damages representing the cost to make the retaining wall compliant, plus interest on that sum. Accordingly, the stay of execution can relate only to the orders made at [194] of Gendall J’s decision in which he ordered the payment by Mrs Watson of $271,600 being 70 per cent of the difference in value in March 2020 between the property in its damaged and its value if it had been in an undamaged state, together with interest.

[54]Accordingly, I order a stay of the execution of the orders made by Gendall J in

[194] of his judgment in this proceeding pending the determination of the appeal from that decision.

[55]              The stay is ordered on the condition that Mrs Watson must not take on any further secured debt over the Tauranga house, with the exception of any charge that might be associated with her grant of legal aid for the hearing of the appeal in this proceeding.

[56]              The orders made by Gendall J at [195] of his decision are not affected by the stay.

Costs

[57]              At [197] of his decision, Gendall J said that in his view the plaintiffs, as successful parties, are entitled to costs and reasonable disbursements, which may include claims for expert witnesses. He said:

I expect the parties should be able to agree on this based upon my findings. If they are unable to do so, memoranda on costs (maximum five pages each) may be filed sequentially …

[58]              The parties should have been able to agree upon costs. But they could not and, despite Gendall J’s five-page limit, memoranda were filed which, including schedules, exceeded that limit. In addition, an affidavit was filed for the plaintiffs with over 50

pages of exhibits and then a memorandum of counsel was filed for them in response to the costs memorandum for Mrs Watson.

[59]              That in my view is far from being in keeping with the objective of the High Court Rules 2016, which is to “secure the just, speedy and inexpensive determination of any proceeding or interlocutory application”.

[60]              It is all the more so in circumstances in which much of this material is devoted, by both parties, to arguments – with reference to correspondence exchanged between counsel – that the conduct of the other party in not accepting offers put to them and in adopting certain views about the litigation were unreasonable such that costs should be uplifted, or reduced, as the case may be, in their favour.

[61]              The comments of Cooke J in Lepionka & Company Investments Ltd v Gibson Sheat are apposite.14 There, Cooke J said:

[3] A large number of issues are raised in the memoranda that have been filed. The issues raised evidence of a misunderstanding of the costs regime set out in pt 14 of the High Court Rules 2016 (the Rules). This misunderstanding is not unusual – it is becoming increasingly common for there to be applications to depart from a standard award of costs determine under pt 14. That is a practice that should be discouraged unless there is a clear basis for such departure in accordance with the Rules. Most cases can be expected to involve costs being calculated on a 2B basis, with perhaps some adjustments to the time bands for some steps. But costs should normally be straightforward. This case is a striking example of an attempt to depart from the regime set by pt 14, and explains the gulf between the costs assessments made by the parties.

[62]              As Cooke J went on to say in that case, a key principle of the costs regime in pt 14 of the High Court Rules is that a determination of costs should be predictable and expeditious. Given the scheduler approach the Rules provide, the Court should only be involved in the determination of cost in a limited number of cases. Yet, increasingly, the Court is being asked to grant uplifts or discounts most routinely.15 This case is another example of those concerns in play.

14     Lepionka & Co Investments Ltd v Gibson Sheat [2023] NZHC 2745.

15     At [4] and [7].

Scale costs

[63]Counsel for the plaintiffs have calculated scale costs, on a 2B basis, at

$109,522. Counsel for the defendants accept that the 2B categorisation is appropriate and that the cost calculations are correct.

[64]              In addition, counsel for the defendants accepts that the disbursements claimed by counsel for Mr Zhou and Ms Zhang for filing fees, scheduling fees, hearing fees and fees for translation costs, which total $27,887.75, are in order.

[65]These, then, are the starting points.

Claims for uplifts and discounts

[66]              It is said for the plaintiffs that increased costs  should be awarded under        r 14.6(3)(b)(v) of the High Court Rules which enables increased costs to be awarded if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it by failing, without reasonable justification, to accept an offer of settlement, whether in the form of an offer under r 14.10 (written offers made without prejudice except as to costs) or some other offer to settle or dispose of the proceeding.

[67]              The plaintiffs have annexed to an affidavit correspondence between the parties showing the various offers made by each of them from March 2022 until the trial began in June 2023. The correspondence shows the ways in which, and the basis upon which, the defendants’ position shifted from an offer of just on $31,000 to an offer of $250,000 and the way in which the plaintiffs’ position moved from an offer of $585,000 to an offer of $355,000. The correspondence involved is lengthy and features the liberal use of intensifiers.

[68]              Mr Zhou and Ms Zhang say that  there is  no  reasonable justification  for  Mrs Watson to refuse certain offers that were made to her in May and June 2023 and that, therefore, from one of those points in time, costs should be increased by 50 per cent. The costs uplift sought is to a value of just under $40,000.

[69]              On the other hand, it is  said for Mrs Watson  that the quantum sought  by   Mr Zhou and Ms Zhang made settlement impossible and that the only reason the case went to trial was the plaintiffs’ refusal to accept reasonable settlement offers that were at around the level of damages awarded by Gendall J. Accordingly, they say that costs should lie where they fall or that costs should be awarded in Mrs Watson’s favour from certain points in time at which it is said that reasonable offers were made which     Mr Zhou and Ms Zhang failed to accept.

[70]              The fundamental point on the positions of both parties is that, in terms of      r 14.6(3)(b), increased costs are not caused because a defendant does not accept an offer to settle for less than is claimed or because a plaintiff does not accept an offer to settle that a defendant regards as reasonable.

[71]              There will be situations where refusal to settle can demonstrate that a party is acting without reasonable justification such as to cause unreasonable expense.16

[72]              But the rejection of offers made on a pragmatic basis will not necessarily be unreasonable. It does not necessarily mean that more costs have been incurred in pursuing or defending a proceeding than would have been the case in any event. I do not see that there was, on the part of either party, unreasonable justifications in their positions that would provide a rationale to uplift or reduce scale costs in any way.

[73]              The plaintiffs’ claim for uplifted costs and the defendants’ claim for no, or reduced, costs are both declined.

Expert costs

[74]Mr Zhou and Ms Zhang claim expert costs totalling $52,482.90.

[75]              Under r 14.12(2) a disbursement must, if claimed and verified, be included in the costs award for a proceeding to the extent that it is – as relevant here – specific to

16   See, by way of example, Jones v W H K Sherwin, Chan & Walsh  (2011) 25 NZTC 20-095 (HC) at [41], Weaver v HML Nominees Ltd [2016] NZHC 473 at [31]–[34], this part of the decision being upheld on appeal (see Weaver v Auckland Council [2017] NZCA 330); and MacKenzie v MacKenzie [2018] NZHC 2292 at [17] and [18].

the conduct of the proceeding, reasonably necessary for the conduct of the proceeding and reasonable in amount.

[76]              Under r 14.12(3), despite subcl (2), a disbursement may be disallowed or reduced if it is disproportionate in the circumstances of the proceeding.

[77]              Counsel for the defendants says that a number of the invoices rendered by the experts were not reasonably necessary for the conduct of the proceeding and were disproportionate. The experts’ charges themselves are regarded as being reasonable but the challenge is to their necessity and their relevance. There were four experts for the plaintiffs. I look at each in turn.

Mr Miller from Central Adjusters

[78]              Mr Miller provided building surveyor evidence on the location of defects and leaks causing damage and requiring remedial work. He rendered five invoices to the value of $18,103.65. The plaintiffs say that the value of the damages could not have been assessed without an understanding of the issues requiring repair. Counsel for the defendants says that his evidence was not used at all because Gendall J measured damages on the basis of difference in value between a defective and a non-defective house. The defendants had already accepted, it is said, that the house leaked and so the evidence was not necessary. The plaintiffs’ claim includes, it is said, the cost of two pre-proceeding reports from Mr Miller which are subject to a claim of privilege. A discount of 50 per cent of the cost of Mr Miller’s invoices is sought.

Mr Robertson from Robertson Surveying Ltd

[79]              Mr Robertson provided quantity surveyor evidence about the cost of the remedial work. It was necessary, the plaintiffs say, because it assisted in the assessment of loss of value in Gendall J’s decision. Invoices totalled $10,384.50.

[80]              The defendants say that Mr Robertson’s evidence was, as with Mr Miller, only referenced briefly by the Court in saying that a betterment approach was not

appropriate.17 Moreover, it is said that included in the claim for Mr Robertson’s fees is a pre-proceedings invoice which should not be claimed. A reduction of 50 per cent is sought.

Mr Tidd from Maiden Group

[81]              Mr Tidd provided expert evidence on building consent issues. The evidence was necessary, the plaintiffs say, to support the claims for breach of vendor warranties. His invoices total $11,776.

[82]              The defendants say that Mr Tidd’s evidence was unnecessary and speculative that ultimately it was relevant only to the need for a consent for the retaining wall; a point that was accepted by the defendants. Accordingly, it is said that none of his invoices should be paid.

Mr Bills from Trubridge Partners

[83]              Mr Bills gave valuation evidence on the value of the property with and without defects. It formed the basis for Gendall J’s award of damages. Invoices totalling

$12,218.75 were rendered.

[84]Counsel for the defendants agrees that these costs are payable.

Assessment

[85]              The difficulty the Court faces is that there are no details of the expert fees; no breakdown of time taken at various stages of the process, no separation between disbursements and charges. It is sufficiently clear from Gendall J’s judgment that the valuation evidence of Mr Bills was used as the basis of his award of damages and that the approaches to calculating loss of others were not much used. It is apparent also that several invoices do relate to time spent before the proceedings were filed, and are the subject of claims of privilege.

17     Zhou v Watson, above n 1, at [90].

[86]              The circumstances here have much in common with those in Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd where, because of a lack of information, Katz J said that she was not satisfied that the entirety of the expert fees claimed were reasonably necessary for the conduct of the proceeding or reasonable in amount.18 She determined that a practical approach to costs meant that the successful party should still be entitled to recover some of the disbursements charged, so she discounted the claim by 30 per cent, saying that this was “possibly on the high side” but that “[it] is appropriate to err on the side of caution” given the onus to prove the disbursements were reasonable.19

[87]              In Semple v Wilson, it was found that an expert’s evidence was not reasonably necessary for the conduct of a proceeding because it was not relied on by the Judge in making his decision.20 Again, similar considerations arise.

[88]              In circumstances here where some invoices would appear to relate to work undertaken before the case began – privileged work in some cases – and where material parts of the expert costs claimed relate to evidence that was not used by the Judge, I see an adjustment as being warranted under rr 14.12(2)(c) and 14.12(3). I apply a discount of 20 per cent to the expert costs claimed and will, accordingly, allow expert costs in the sum of $41,986.32.

Costs on costs and costs on stay

[89]              The plaintiffs seek costs on a 2B basis for preparing their costs memoranda. Given the observations I have made in [57] to [62] above, a costs award in favour of either party relating to the costs process would not be appropriate.

[90]              Equally, an award of costs on the application for a stay of execution of the proceeding would not be appropriate. As with the approach taken on the costs application, the interlocutory stay process was more complex than it needed to be and,

18     Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2015] NZHC 470 at [51].

19     At [53] and [54].

20     Semple v Wilson [2018] NZHC 1703.

coming back to r 1.2, it would not in the interests of the just, speedy and inexpensive determination of the proceeding to apply another layer of costs.

Result on costs

[91]I make the following awards of costs in favour of the plaintiffs:

(a)$109,522, being scale costs on a 2B basis.

(b)$27,887.75 for disbursements relating to filing, scheduling and hearing fees and costs relating to translation.

(c)Expert costs in the sum of $41,986.32.

Radich J

Solicitors:

Dalzell Wollerman, Wellington for Plaintiffs Bush Forbes, Tauranga for Defendants