IAG NEW ZEALAND LTD v DEWES [2022] NZHC 3555

IAG NEW ZEALAND LTD v DEWES [2022] NZHC 3555 [20 December 2022]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2021-409-260[2022] NZHC 3555UNDER THE CANTERBURY EARTHQUAKESINSURANCE TRIBUNAL ACT 2019BETWEEN IAG NEW ZEALAND LIMITEDAppellantAND CATHERINE FRANCES DEWES,ROBERT DENTON GREEN AND DIANAROSEMARY SHAND (AS TRUSTEES OFTHE DEWES GREEN FAMILY TRUST)RespondentsHearing: 23 November 2021Appearances: C F Finlayson KC, S D McIntyre (in Person) and O V Collette-Moxon (by way of VMR) for AppellantT C Weston KC with A J Prebble as Counsel AssistingNo Appearance for RespondentsJudgment: 20 December 2022JUDGMENT OF EATON JThis judgment was delivered by me on 20 December 2022 at 11 ampursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Table of ContentsPara NoIntroduction [1]The appeal [5]Factual background [6]How the Tribunal operates and its costs jurisdiction [16]Leave to appeal granted [29]The Tribunal's costs decision [30]The decision regarding "without substantial merit" [36]Factors relied on by Family Trust in seeking costs [39]Bad faith [43]Tribunal's factual findings relating to "bad faith" and "substantialmerit"[47]The issues raised in this appeal [61]Approach on appeal [62]Consideration of scale costs regime in the context of a s 47 application [64]Conclusion on alleged error – commonality of costs regime [67]Analysis [67]Bad faith [68]IAG's submissions – test for "bad faith" [68]Family Trust's arguments – test for "bad faith" [77]Analysis – what is "bad faith" [83]Application of "bad faith" on the facts [97]Admissibility challenge [99]Conclusion – admissibility challenge – bad faith [106]Uncompromising approach by IAG [113]Errors by experts and a party's obligation to foster agreement betweenexperts[120]Analysis [120]Expert evidence on structural issues [124]Conclusion – structural issues [133]Steel windows [134]Conclusion – steel windows [147]Roof [150]Narrowing real issues as to bathroom [151]The Tribunal on the defective design/workmanship hypothesis [154]The Tribunal on the leak in the plumbing hypothesis [156]Decision – bathroom – bad faith [163]Substantial merit [166]IAG's submissions – what is "without substantial merit"? [166]Family Trust's submissions – what is "without substantial merit"? [169]What is "without substantial merit"? [170]Without substantial merit – application on the facts [183]Reliance on expert evidence [184]Dislevelment [187]Analysis [194]Bathroom floor [195]Steel windows [196]Roof [203]Argument for IAG – roof [213]Analysis [214]Result [227]Adjustment to costs award under appeal [228]Costs [230]Introduction[1] IAG New Zealand Ltd (IAG) appeals a costs determination by the CanterburyEarthquakes Insurance Tribunal (the Tribunal).1[2] The Dewes Green Family Trust (Family Trust) had issued proceedings in theHigh Court at Christchurch against IAG following an insurance dispute over damagesaid to have occurred to the property owned by the Family Trust at 35 Rata Street,Christchurch in the Canterbury earthquakes. The High Court proceedings weretransferred to the Tribunal and a hearing was held over three weeks from July toNovember 2020 to determine defects attributable to the earthquakes.1 Dewes, Green and Shand (as trustees of the Dewes Green Family Trust) v IAG New Zealand Ltd[2019] CEIT-2019-0037, May 2021 [Costs decision].[3] Following the Tribunal decision in relation to the defects, the Tribunal madethe costs award under appeal. The Tribunal found IAG had acted in bad faith and hadmade allegations and objections without substantial merit. The Tribunal awarded costsin the sum of $13,160 against IAG, being a proportion of the expert fees incurred bythe Family Trust.2[4] The opening line of the costs decision sets the tone of what was to follow:This decision should serve as a warning that this Tribunal will award costs ifit thinks that one party's conduct has caused one or more of the other partiesto incur unnecessary costs and expenses.The appeal[5] IAG appeals the costs decision on the grounds the Tribunal was wrong in factand in law in finding that the threshold for a costs award under the CanterburyEarthquakes Insurance Tribunal Act 2019 (the Act) was met.3 More particularly, IAGsubmitted the Tribunal erred in finding that IAG acted in bad faith and withoutsubstantial merit which must be established before the jurisdiction to order costsexists.Factual Background[6] The Family Trust owns the property at 35 Rata Street, Christchurch (theproperty). The property was about 85 years old as at the date of the CanterburyEarthquake Sequence (the earthquakes).[7] The house was insured by State Insurance, a business division of IAG, under aHome Comprehensive Insurance Policy which provided cover for any unexpected andunintended sudden physical loss or damage that happened between 5 June 2010 and 5June 2011. Claims were made and accepted.[8] The most serious damage to the property arose on 4 September 2010 when oneof three chimneys collapsed and fell through the roof into one of the upstairs2 The Family Trust had not incurred legal fees.3 Canterbury Earthquakes Insurance Tribunal Act 2019, s 47 [CEITA].bedrooms. Emergency repairs were undertaken. Further, lesser damage was sustainedin subsequent earthquakes in December 2010, February 2011 and June 2011.[9] Once EQC acknowledged that the cost of repairing the earthquake damagewould exceed its statutory cap, IAG and the trustees of the Family Trust agreed thatthe earthquake damage would be repaired under IAG's Managed Repair Programme.Canterbury Reconstruction Ltd (CRL) was identified as the builder responsible for therepairs. CRL entered into a contract with Max Contracts Ltd to undertake the repairwork as a subcontractor.[10] The repair work began on 1 July 2014 and was completed in about March 2015.As at the completion date the trustees of the Family Trust had become disillusionedwith Max Contracts, specifically the standard of repairs undertaken by thatsubcontractor, and raised concern that the original scope of works had been inadequateto properly repair the earthquake damage.[11] The Family Trust's claim—initially issued in the High Court—was transferredto the Tribunal on 11 December 2019. It was agreed the hearing of the claim shouldbe divided into stages, with the first stage dealing with the physical deficiencies of theproperty and the cause of these defects. The stage one hearing was conducted overthree weeks between 8 July and 6 November 2020.4[12] The respondents were unrepresented in the proceedings before the Tribunal butwere assisted by Mr Prebble of the Canterbury Community Law Centre. Mr Prebbleplayed an active role in the hearing. He presented written and oral submissions andcross-examined witnesses on behalf of the Family Trust. Counsel representing IAG inthe High Court, Mr Collette-Moxon, continued to represent IAG in the Tribunal.[13] Over 100 separate justiciable physical deficiency issues claimed as earthquakedamage were considered. Not surprisingly, the respective cases relied heavily onexpert opinion. The transcript of the evidence before the Tribunal runs to some 1500pages.4 At later stages the Tribunal would consider an appropriate scope of works for remedyingdefects and determining both quantum and liability for repairs.[14] On 8 July 2020, the Tribunal declined an application by IAG to ruleinadmissible evidence offered by the Family Trust.5 On 4 December 2020, theTribunal issued a decision determining defects and their causes.6 It is not necessaryfor the purposes of this appeal to consider whether the ultimate findings substantiallyfavour the case advanced by the Family Trust or by IAG.[15] The Tribunal issued the costs decision in May 2021, being the decision nowunder appeal.7How the Tribunal operates and its costs jurisdiction[16] The Tribunal's power to award costs is derived from s 47 of the Act whichprovides as follows:47 Costs(1) The tribunal may award costs against a party only in accordance withthis section.(2) A costs award may be made against a party whether the party issuccessful or not (with all or part of the party's claim or response) ifthe tribunal considers that—(a) the party caused costs and expenses to be incurredunnecessarily by—(i) acting in bad faith; or(ii) making allegations or objections that are withoutsubstantial merit; or(b) the party caused unreasonable delay, including by failing tomeet a deadline set by the tribunal without a reasonableexcuse for doing so.(3) A costs award must relate to costs and expenses incurred by the partiesonly and not to costs and expenses incurred by the tribunal.(4) If the tribunal does not make an order under this section, the partiesmust meet their own costs and expenses.5 Trustees of the Dewes Green Family Trust v IAG New Zealand Ltd [2019] CEIT-2019-0037, 8 July2020 [Admissibility decision].6 Dewes, Green and Shand (as trustees of the Dewes Green Family Trust) v IAG New Zealand Ltd[2019] CEIT 0037, 4 December 2020 [Substantive decision].7 Costs decision, above n 1.(5) An order for costs may, on registration of a certified copy of thetribunal's decision, be enforced in the District Court as if it were anorder of that court.[17] It follows the Tribunal only has jurisdiction to award costs if a party has causedcosts and expenses to be incurred unnecessarily by either acting in bad faith, makingallegations or objections that are without substantial merit, or causing unreasonabledelay. There is no presumption that costs reflect success in the litigation.[18] This costs regime closely aligns with that in s 91 of the Weathertight HomesResolution Services Act 2006 (WHRSA), which is worded as follows:91 Costs of adjudication proceedings(1) The tribunal may determine that costs and expenses must be met byany of the parties to the adjudication (whether those parties are or arenot, on the whole, successful in the adjudication) if it considers thatthe party has caused those costs and expenses to be incurredunnecessarily by—(a) bad faith on the part of that party; or(b) allegations or objections by that party that are withoutsubstantial merit.(2) If the tribunal does not make a determination under subsection (1), theparties to the adjudication must meet their own costs and expenses.[19] Section 56 of the Construction Contracts Act 2002 is worded in a similarmanner, requiring "bad faith" or an argument being brought without "substantialmerit" for a costs award to be made.[20] The starting point is that parties to proceedings before the Tribunal must meettheir own costs.8 This is consistent with the statutory purpose and proceduralprovisions of the Act:3 PurposeThe purpose of this Act is to provide fair, speedy, flexible, and cost-effectiveservices for resolving disputes about insurance claims for physical loss ordamage to residential buildings, property, and land arising from theCanterbury earthquakes.8 CEITA, s 47(4).20 Managing claims and natural justice(1) When managing claims, the tribunal must have regard to the purposeof this Act, which is to provide fair, speedy, flexible, and cost-effectiveservices.(2) In particular, the tribunal—(a) must encourage the parties to work together on matters thatare agreed; and(b) if experts are used (whether by a party or the tribunal), mustconsider using conferences of experts to avoid duplication ofadvice or evidence on matters that are or are likely to beagreed.(3) The tribunal must comply with the principles of natural justice.(4) However, subsection (3) does not require the tribunal to allow the useof an expert by a party in the tribunal's case management processes ifthe tribunal considers this is unnecessary.(5) For case management relating to adjudication of claims, see section37.30 Mediation services(1) The chief executive must employ or engage persons to providemediation services that are fair, speedy, flexible, and cost-effective toassist parties to resolve claims.(2) Nothing in this Act prevents any person from seeking and usingmediation services other than those provided by the chief executiveunder this subpart to settle a dispute to which this Act could apply.37 Managing adjudication of claims and natural justice(1) When managing the adjudication of claims (including at hearings), thetribunal must have regard to the purpose of this Act, which is toprovide fair, speedy, flexible, and cost-effective services.(2) In particular, the tribunal—(a) must encourage the parties to work together on matters thatare agreed; and(b) must not admit or permit unnecessary or irrelevant evidenceor cross-examination; and(c) if experts are used (whether by a party or the tribunal), mustconsider using conferences of experts to avoid duplication ofadvice or evidence on matters that are or are likely to beagreed.(3) The tribunal must comply with the principles of natural justice.(4) However, subsection (3) does not require the tribunal to—(a) permit the cross-examination of a party or person:(b) allow the use of an expert by a party in the tribunal's processesfor managing the adjudication of a claim, or allow a party'sexpert to give evidence, if the tribunal considers this isunnecessary.[21] Section 47 is far more circumscribed than the High Court Rules 2016 (theRules). It can be contrasted with r 14.1 of the Rules which provides as follows:14.1 Costs at discretion of court(1) All matters are at the discretion of the court if they relate to costs—(a) of a proceeding; or(b) incidental to a proceeding; or(c) of a step in a proceeding.[22] There is a paucity of cases discussing the meaning of "bad faith" and without"substantial merit" relevant to s 47, but analysis can be drawn from the cases relatingto comparative legislation.9[23] The Tribunal operates as an inquisitorial forum. It also operates on a docketsystem, allowing a single member to manage and preside over a particular proceeding.In LS v Medical Insurance Society Ltd the Tribunal said:10Unlike the High Court where different Judges manage and hear matters, thisTribunal uses a docket system with a single member managing and presiding,allowing for a high degree of oversight. In comparison with the High Court,this Tribunal exercises more intensive case management. This Tribunal is aninquisitorial forum which means that the presiding member may make wideenquiries and consider issues not put before them by the parties. 9 See Ace Structural Ltd v Green [2019] NZHC 1558 at [25].10 LS v Medical Insurance Society Ltd, CEIT 0024-2020, 22 March 2021 at [36].[24] Under this process the Tribunal is well resourced to ensure that a particularcase is managed in accordance with the statutory purpose of providing fair, speedy,flexible and cost-effective services for resolving disputes over earthquake insuranceclaims.[25] Whilst the Tribunal must have regard to the principles of natural justice, it hasthe power to prevent the very conduct that would otherwise trigger the costsjurisdiction. In my view, that is of some significance in considering what conductmight trigger a costs award. If a party has been permitted to act in a particular wayconsistent with its right to natural justice, it is unlikely that the very same conductmight appropriately be described as acting in bad faith or without substantial merit.However, this consideration can only go so far. Whether a party's conduct meets thethreshold for an award of costs in most cases will only become clear once it is seen inthe context of cross-examination, the opposing party's evidence, or submissions, or acombination of those considerations. The circumstances where a party's proposedaction will obviously meet the costs threshold in the Tribunal such that the Tribunalwould step in to prevent a party taking proposed steps in the proceeding are likely tobe few.[26] The Tribunal has broad powers to manage and regulate its procedures. Part 1of sch 2 of the Act provides:1 ProcedureThe tribunal may regulate its procedures as it thinks fit, subject to—(a) this Act and any regulations made under it; and(b) any practice notes issued under clause 2.2 Practice notes(1) The chairperson may issue practice notes for—(f) any other matter to facilitate the orderly and efficientoperation of the tribunal.[27] This power extends to the regulation of expert witnesses who appear before theTribunal. Pursuant to s 24(4) of the Act, expert witnesses must act in accordance withpractice notes issued by the chairperson of the Tribunal. A practice note dealingextensively with expert evidence has been issued, as set out below:11No expert witness is entitled to give evidence unless they have:• complied with the Tribunal's direction to file in the Tribunal, andcirculate to the parties an affidavit attaching their technical report; and• fully participated in an experts' facilitation from which a report hasbeen submitted to the TribunalWhere any party instructs an expert to give evidence or provide a report thatis to be part of that party's application, response or evidence, they must ensurethat the expert understands that they have a duty to assist the assigned memberof the Tribunal impartially in relation to technical matters that lie within thatexpert's area of expertise. All expert witnesses should be familiar with, andalways comply with, the Tribunal's Code of Conduct for Expert Witnesses.[28] The Tribunal's Code of Conduct for expert witnesses, which is embedded inthe practice note, provides as follows:12A party who engages an expert witness must give the expert witness a copy ofthis Code of Conduct.An expert witness has an overriding duty to assist the Tribunal impartially onrelevant matters within the expert's area of expertise. This duty continuesthroughout the adjudication process, including when participating in amediation and a facilitated experts' conference.An expert witness is not an advocate for the party who engages them andcannot act as a representative or an advocate for a party in the claim in whichhe or she is giving evidence.In any evidence given by an expert witness, the expert must:• acknowledge that the expert witness has read this Code of Conductand agrees to comply with it• state the witness's qualifications and experience as an expert11 Ministry of Justice Canterbury Earthquakes Insurance Tribunal Practice Note at 6.12 At 8.• identify the expert's area of expertise• state that the expert's evidence and the issues addressed are within theexpert's area of expertise• provide all instructions that define the scope of the expert's report• state the data, information, facts, and assumptions upon which theexpert's opinions are based• state the reasons for the opinions expressed• state that the expert witness has not omitted to consider material factsknown to the expert that might alter or detract from the opinionsexpressed• specify all literature or other material used or relied upon in supportof the opinions expressed• describe all examinations, tests, or other investigations on which theexpert witness has relied, and identify, and give details andqualifications of, any person who carried them out• identify any provisional opinions that are not fully researched andprovide the reasons why such opinions have not been or cannot befully researchedIf any expert witness believes that their evidence, or any part of it, may beincomplete or inaccurate without some qualification, that qualification mustbe stated in their evidence.If an expert witness believes that their opinion on any issue is not a concludedopinion because of insufficient research or data, this must be stated in theirevidence.If an expert witness has any reservations about the facts or opinions uponwhich their opinions are based then they should give the reasons for theirreservations.If an expert witness changes any of their opinions after providing a report oran affidavit, that must be communicated without delay to the party or partieswishing to call the witness and that party shall forthwith notify the Tribunal inwriting of such change of opinion.An expert witness must comply with any direction of the Tribunal to:• attend an experts' facilitation• confer with another expert witness• give evidence as part of a panel of experts• seek to reach agreement with the other expert witnesses on matterswithin the field of expertise of the expert witnesses• prepare and sign a joint witness statement identifying the matters onwhich the expert witnesses agree and the matters on which they donot agree, including the reasons for the disagreementLeave to appeal granted[29] Pursuant to s 54(2) of the Act, leave to appeal to this Court against the costsdecision was required. Leave was not opposed and was granted by a minute dated 30August 2021. The respondents were not separately represented. This Court appointedMr Weston KC as counsel to assist in the role of contradictor. Mr Prebble agreed toprovide assistance to Mr Weston.The Tribunal's costs decision[30] Before the Tribunal, IAG had submitted that costs ought not to be considereduntil the Tribunal had determined all issues of liability and quantum. The Tribunalconsidered IAG's position as having:13 more relevance to court proceedings where awards of costs depend on theoutcome, rather than costs claims in this Tribunal where costs are dependentupon conduct, can be made in relation to discrete parts of the proceedings, andcan be awarded against "successful" parties.[31] Recognising that many of the parties to claims in the Tribunal are litigants inperson, the Tribunal undertook an analysis of the Tribunal's costs jurisdiction with aview to exploring conduct that might trigger a costs award.[32] At the outset, the Tribunal recognised that the general rules on costs that applyin courts have a different starting point and do not apply in the Tribunal, butnevertheless found those general rules warranted examination "as their applicationreveals a similarity of purpose".14 The Tribunal summarised the costs jurisdiction inthe general courts as enabling those in dispute to have access to justice but alsoencouraging the parties to settle short of determination. By way of contrast, theTribunal found that tribunals have been established to bypass the high cost of13 Costs decision, above n 1, at [5].14 At [11].litigation.15 The costs jurisdiction in tribunals has a different starting point from thecosts jurisdiction in the courts in that each party bears its own costs, unless those costshave been unnecessarily increased by the conduct of the other party.16[33] The Tribunal found that, despite having different starting points, the costsjurisdiction of both tribunals and courts have the same general objective, being theprovision of access to justice by the discouragement of bad behaviour and thepromotion of compromise.17 The Tribunal considered the empowering legislation fortribunals had simply codified the conduct that might trigger awards for costs.18[34] It was noted that the claimants appearing before the Tribunal are residentialhomeowners, and the respondents are insurers, leading to a financial mismatch in allbut exceptional cases.19[35] The Tribunal noted that the Family Trust had incurred approximately $370,000at the interlocutory stages of the High Court proceedings. On the other hand, beingself-represented before the Tribunal, it had likely incurred only a fraction of the costsincurred by IAG over the 15-day hearing before the Tribunal.20The decision regarding "without substantial merit"[36] With reference to WHRSA costs decisions, the Tribunal drew the followingpropositions in relation to assessing "without substantial merit":21(a) "substantial merit" refers to claims that require serious considerationby the Tribunal, and the mere fact that an allegation or argument is notaccepted or upheld by the Tribunal will not of itself expose the partyconcerned to liability for costs;(b) claims which have substantial merit, even if ultimately rejected, willnot attract an order for costs;(c) the proper enquiry when considering whether a claim or a defence has"substantial merit" is to determine, without recourse to hindsight,15 At [18].16 At [19].17 At [22].18 At [22].19 At [23].20 At [24]–[25].21 At [31] (footnotes omitted).what the party and their advisors properly considered the strength ofthe case to be;(d) the bar for establishing "substantial merit" should not be set too highas the Tribunal should have the ability to award costs against thosemaking allegations which a party ought reasonably to have knownthey could not establish; and(e) only the costs "incurred unnecessarily" as a consequence of a partyadvancing arguments that lacked substantial merit are to be recovered.[37] The Tribunal also referred with approval to observations in KB v EarthquakeCommission, which it summarised as follows:22(a) "without substantial merit" involves establishing that the defects inthe allegations or objections made are such that there is no prospectthat the allegations or objections will advance the point they are madeto support, either because they are unsupported by evidence or theyare logically flawed; and(b) although there is a subjective element in considering "bad faith", thetest for "without substantial merit" is objective.[38] The Tribunal accepted that costs should only be awarded for acting "withoutsubstantial merit" after a careful factual enquiry.23Factors relied on by Family Trust in seeking costs[39] The particular matters raised by the Family Trust were summarised as:24[34] The Family Trust alleges that IAG caused it to unnecessarily incurcosts and expenses by advancing the following arguments withoutsubstantial merit:(a) challenges to the Trust's evidence;(b) any deficiencies in the foundations were eitherpresent before the earthquakes or were due todefective repairs;(c) any of the arguments supported by Mr McGunnigle'sflawed and unreliable evidence;(d) the hump in the bathroom floor was caused by thedeteriorated state of the floor and was decay damagecaused by pre-existing workmanship defects;22 Costs decision, above n 1, at [32], citing KB v Earthquake Commission [2020] CEIT 21 at [24].23 At [33].24 Costs decision, above n 1.(e) 10 steel windows had not been damaged by theearthquakes;(f) there were no aesthetic deficiencies with the othersteel windows;(g) there was no plausible evidence of:(i) any unrepaired earthquake damage remainingto the roof;(ii) any deficiencies in the method used to repairthe roof; and(iii) damage to the rafters.[40] Rather than deal with each of those matters, the Tribunal preferred to utilisethe headings from the substantive decision to review the issues and consider whetherany of IAG's arguments lacked substantial merit.25 In a general observation, theTribunal held its role was to determine what the relevant party and their advisorsproperly considered the strength of the case to be at the time the case was beingprepared and advanced rather than by reference to the substantive decision.26[41] With reference to Clearwater Cove Apartments Body Corporate170989 v Auckland Council (Clearwater Cove Apartments), it was found the Tribunalcan award costs against a party who ought reasonably to have known that it could notestablish the argument in question.27 The Tribunal described this test as objectiverather than subjective, posing the question of "in other words, what ought the partyand its advisors have known about the prospects of the argument in question beingsuccessful?" The Tribunal found this involved not simply an inquiry as to whetherthere was an evidential basis for the argument, but an objective assessment of thecredibility and reliability of supporting evidence. The Tribunal recognised that anargument cannot be said to lack substantial merit simply because the expert advancingthe argument lacks credibility.2825 At [35].26 At [37].27 Clearwater Cove Apartments Body Corporate No 1700989 v Auckland Council [2013] NZHC2824 at [27] [Clearwater Cove Apartments].28 Costs decision, above n 1, at [39].[42] With reference to Trustees Executors Ltd v Wellington City Council, theTribunal concluded that the Act's costs provisions are intended to ensure access tojustice, by discouraging bad behaviour and promoting compromise. 29Bad faith[43] The Tribunal referred to the Weathertight Homes Tribunal decision in BrodavLtd v Waters and the view expressed that the meaning of the phrase "bad faith" dependson the context in which the alleged conduct has occurred and can include a range ofconduct from the dishonest to a disregard of legislative intent. 30 The Tribunal notedthat in Brodav Ltd the Tribunal followed the High Court of Australia to conclude thatit should look "through the eye-glass of the overall statutory framework" to arrive atthe statutory meaning of the words.[44] The Tribunal described bad faith as the antithesis of good faith and as adichotomy rather than a continuum. The dichotomy was described as the boundarybetween the two points which are on a continuum, thus explaining why thecategorisation of conduct that amounts to bad faith varies depending on the context inwhich the expression is used, and the statutory provision being interpreted. TheTribunal found the definition of good faith or bad faith can assist with the meaning ofthe other. Reference was made to the Tribunal's behavioural guidelines, a truncatedversion of which was incorporated in the Homeowners' Guide to the CanterburyEarthquakes Insurance Tribunal. The Tribunal recorded that within the guidelines,what exemplifies good faith is captured under the heading "Conduct Expectations" asfollows:31The Tribunal expects that at all times the party and their advocates will:Act honestly.Cooperate with the other parties, their advocates, and the Tribunal.Act respectfully towards other parties, their advocates, and theTribunal.29 Costs decision, above n 1, at [27]–[28], citing Trustees Executors Ltd v Wellington City CouncilHC Wellington CIV-2008-485-739, 16 December 2008 at [66]–[67].30 At [65], citing Brodav Ltd v Waters WHT TRI 2008-101-000059, 31 March 2009 at [18]–[22].31 Costs decision, above n 1, at [68].Not engage in conduct which is misleading or deceptive or knowinglyencourage or assist any other participant to engage in conduct whichis misleading or deceptive.Not make any claim or respond to any claim where a reasonableperson would believe that the claim or response to claim is frivolous,vexatious, for a collateral purpose, or does not have merit.Use reasonable endeavours to resolve the dispute by agreementbetween the parties, including, in appropriate cases, using mediation.Use reasonable endeavours to resolve such issues as may be resolvedby agreement and to narrow the real issues remaining in dispute incases where the dispute is unable to be resolved by agreement.Use reasonable endeavours to ensure that the legal and other costsincurred in connection with the proceeding are minimised andproportionate to the complexity or importance of the issues and theamount in dispute.Use reasonable endeavours to act promptly and to minimise delay.Disclose, at the earliest practicable time, to each of the other relevantparties, the existence of all documents in their possession, custody orcontrol of which they are aware, and which they consider are relevantto any issue in dispute in the proceeding, other than any documentsthe existence of which is protected from disclosure on the grounds ofprivilege.[45] The Tribunal concluded that the following conduct, which was essentially theinverse of the conduct set out in the guidelines, would constitute bad faith:32(a) acting dishonestly;(b) failing or refusing to cooperate with the other parties, their advocates,and the Tribunal.(c) acting disrespectfully towards other parties, their advocates, and theTribunal.(d) engaging in conduct which is misleading or deceptive or knowinglyencouraging or assisting any other participant to engage in conductwhich is misleading or deceptive;(e) making any claim or responding to any claim where a reasonableperson would believe that the claim or response to the claim isfrivolous, vexatious, for a collateral purpose, or does not have merit;(f) failing or refusing to use reasonable endeavours to resolve the disputeby agreement between the parties, including, in appropriate cases,using mediation;32 At [69].(g) failing or refusing to use reasonable endeavours to resolve such issuesas may be resolved by agreement and to narrow the real issuesremaining in dispute in cases where the dispute is unable to beresolved by agreement;(h) failing or refusing to use reasonable endeavours to ensure that thelegal and other costs incurred in connection with the proceeding areminimised and proportionate to the complexity or importance of theissues and the amount in dispute;(i) failing or refusing to use reasonable endeavours to act promptly andto minimise delay; and(j) failing or refusing to disclose, at the earliest practicable time, to eachof the other relevant parties, the existence of all documents in theirpossession, custody or control of which they are aware, and whichthey consider are relevant to any issue in dispute in the proceeding,other than any documents the existence of which is protected fromdisclosure on the grounds of privilege.[46] The Tribunal advanced the following propositions:33(a) "bad faith" is to act unreasonably, or improperly, and knowingly doso;(b) the meaning of the phrase "bad faith" depends on the context in whichthe alleged conduct has occurred and can include a range of conductfrom the dishonest to a disregard of legislative intent.(c) a party alleging bad faith must discharge a heavy evidential burden,commensurate with the gravity of the allegations made;(d) although "bad faith" sets a relatively high bar in terms of misconduct,the phrase should not be given too restrictive a meaning;(e) "bad faith" may apply to parties who obfuscate or take few or no stepsand refuse to participate in the process of settlement negotiations andwho in so doing jeopardise the settlement process;(f) in the CEIT context, "bad faith" may involve attempting to gain anunjustified advantage by taking unreasonable and unnecessaryactions, such as pressuring settlement or withdrawal of an action,reneging on promises made, applying unfair pressure to increase asettlement offer, pursuing pedantic lines of argument, ignoring orrejecting reasonable settlement proposals, or withholding agreementas leverage; and(g) only the costs "incurred unnecessarily" as a consequence of a partyacting in bad faith are to be recovered.33 At [72] (footnotes omitted).Tribunal's factual findings relating to "bad faith" and "substantial merit"[47] The Tribunal considered the allegations of bad faith under the headings, ActingDisrespectfully, Acting Frivolously or Vexatiously, Uncompromising, Proportionalityand Delay. The Tribunal then canvassed a range of issues that were said to engage"bad faith" by IAG.[48] The Tribunal found IAG's conduct towards the Family Trust's witnesses wasnot inappropriate such as to amount to bad faith.[49] The Tribunal considered there was no need for IAG to have formallychallenged the admissibility of the evidence to be given by Dr Dewes and otherwitnesses for the Family Trust.34 This finding was based on IAG having previouslyappeared before the Tribunal and, in a previous case, merely drew the Tribunal'sattention to admissibility issues in memorandum form. However, here, IAGmaintained the admissibility arguments prepared for the High Court, despite beingaware that the hearing was not being undertaken by a court, but by a tribunal. TheTribunal considered this amounted to bad faith and had deferred the start of theevidence by half a day.[50] Conversely, the Tribunal rejected the Family Trust's submission that IAG hadadopted a pedantic line of argument in relation to procedural matters.[51] Under the heading "Uncompromising", the Tribunal raised the issue of whetherIAG had acted in bad faith by overriding attempts by its experts to establish commonground, failing to identify and recognise areas of agreement or common ground, andfailing to focus on the limited number of fundamental matters in dispute. The Tribunalhad been told that serious attempts had been made in the High Court proceedings toreduce the scale of dispute by filing a joint memorandum of issues, facilitating twomeetings of experts and conducting an attempt at mediation. However, the Tribunalnoted the parties were still "far apart" when the matter was transferred to the Tribunal,with the Family Trust estimating the repairs would cost $1,038,000 and IAG34 At [78].suggesting the liability might only be $15,000. This issue is reflected in much of theTribunal's reasoning that follows.[52] The Tribunal then traversed the way IAG dealt with a variety of issues relatingto defects in the house and considered whether this amounted to "bad faith" in eachinstance.[53] An allegation of bad faith in the handling of the roof issue was rejected.35[54] The Tribunal found that IAG's position in relation to relevelling the area at thefoot of the stairs was not appropriately raised at the first hearing. In addition, theTribunal considered much of the evidence adduced by IAG in relation to the piles wasunnecessary because of the agreement that had been reached between the engineerswho had met at the direction of the Tribunal. The Tribunal was critical of the fact thatthe engineers had not met prior to the hearing and noted that the concessions made byIAG's expert engineer, Mr Cook, were not made as a result of cross-examination or asa consequence of him learning information during the course of the hearing.36 TheTribunal considered that IAG continued to argue matters that had been conceded byits own expert and made comprehensive closing submissions in relation to matters thatought not to have been in dispute. The Tribunal found this was an example of IAGemploying arguments that its own expert, in this instance Mr Cook, did not support.It was not reasonable for IAG to advance those arguments in that circumstance.Consequently, the Tribunal found IAG acted in bad faith in relation to the floor levelsand sub floor issues, "by overriding attempts by its engineer to establish commonground, failing to identify and recognise areas of agreement or common ground, andfailing to focus on the limited number of fundamental matters in dispute".37[55] The Tribunal also found IAG acted in bad faith in relation to the steel windowson the very same grounds.38 At the stage one hearing, the evidence available warranteda concession by IAG in relation to some of the 21 steel windows. IAG's expert,Mr McGunnigle, had formed the view 17 of the windows should be replaced and35 At [96].36 At [86].37 At [89].38 At [94].IAG's counsel, in opening, had acknowledged that at least 14 showed clear signs ofearthquake damage. The Tribunal noted that at the time the case was closed IAG hadchanged its position and would only concede that eight or possibly 10 of the windowswere earthquake damaged. The Tribunal found it was disingenuous of IAG to claimin closing that its expert did not have actual or apparent authority to make concessionsand observed that the experts' first duty was to the Tribunal.39 The Tribunal found theinitial concession was appropriate, but retracted in the hope "something might comeup".40[56] The Tribunal found that although the bathroom issue was complex and none ofthe arguments advanced were without merit, that issue took undue hearing timebecause of IAG's failure to carry out a proper investigation of the leak and theperformance of its expert, Mr McGunnigle. The Tribunal described Mr McGunnigle'sapproach to the bathroom leak as being at odds with his approach to the roof leaks, inthat he had failed to test his hypothesis. The Tribunal concluded that hadMr McGunnigle carried out a simple inspection, as he was directed to halfway throughthe hearing, he would never have raised what was described by the Tribunal asa "misleading hypothesis".[57] The Tribunal found that IAG should have applied the same rigour whenexamining the evidence of its own experts as it does to those of its opponents.41 TheTribunal concluded that if it had done so, IAG would have appreciated thatMr McGunnigle was vacillating between two hypotheses in a manner that couldimpact on his credibility. The Tribunal described IAG's "over-reliance" upon MrMcGunnigle as acting in bad faith when combined with its failure to carry out a properinvestigation.[58] The Tribunal rejected the allegation IAG acted in bad faith in not accepting MrMcGunnigle's concession that the slate roof should be replaced, but found IAG'sargument that the "black sealant" method of repair was sufficient lacked substantialmerit.4239 At [93].40 At [93].41 At [100].42 At [95].[59] The Tribunal found IAG's argument that the dislevelment still evident was dueto either pre-earthquake settlement or ineffectual releveling was without substantialmerit.43A without substantial merit finding was also made in relation to the argumentthat seven of the 15 steel windows conceded as damaged by Mr McGunnigle in hissecond brief had not been damaged in the earthquakes.44[60] The Tribunal summarised its findings in relation to without substantial meritand bad faith.45 The Tribunal then determined, in the exercise of its discretion, that anaward of costs was "desirable to ensure access to justice in this Tribunal, bydiscouraging bad behaviour and promoting compromise".46 Costs of $13,610 wereawarded against IAG alone, assessed as the expenses unnecessarily incurred as aconsequence of the manner in which IAG conducted the case.47The issues raised in this appeal[61] The issues raised are as follows:(a) The definition of "bad faith" in the context of s 47 of the Act.(i) Whether the Tribunal erred in finding commonality between thescale costs regime and s 47 of the Act.(ii) Whether the Tribunal erred in finding that "good faith" is theantithesis of "bad faith", and that the Tribunal's proceduralguidelines were the standard needed for "good faith" (such thatcontravening the guidelines would be "bad faith").(b) The definition of "substantial merit".(i) Whether the Tribunal misstated and misdirected itself by relyingon the scale costs regime.43 At [106(a)(i)].44 At [106(a)(ii)].45 At [106].46 At [128].47 At [135].(c) Whether errors of fact were made under both limbs of the test (whetherIAG acted in "bad faith" and "without substantial merit").Approach on appeal[62] I adopt the approach preferred by this Court in Clearwater Cove Apartments.48The Court said there were two stages to a costs appeal:49(a) Was the claim in the Tribunal "without substantial merit", or broughtor pursued in bad faith?(b) Did the Tribunal properly exercise its discretion to award costs?[63] At the first stage the Court is required to examine the issues of lack ofsubstantial merit or bad faith by way of rehearing in accordance with the principlesestablished by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.50If the Court determines there was jurisdiction for a costs award (because the caselacked substantial merit or was pursued in bad faith), then a second stage would engagea review of the exercise of the Tribunal's discretion. When reviewing the Tribunal'sexercise of discretion, the Court will not interfere unless there has been an error of lawor principle; the Tribunal has taken into account an irrelevant consideration or failedto take account of a relevant consideration; or has made a decision that is plainlywrong.Consideration of scale costs regime in the context of a s 47 application[64] IAG submitted that the Tribunal erroneously presumed similarity of purposebetween the scale costs regime and s 47 of the Act. IAG contended this was erroneousbecause the tests for costs in the Tribunal require specified conduct by a party and acausative effect on the costs actually incurred. Conversely, IAG noted the scale costs48 Clearwater Cove Apartments, above n 27, at [10]–[12]. See also TrusteesExecutors Ltd v Wellington City Council, above n 29, at [46]; and Riveroaks Farm Ltd v W BHolland HC Tauranga CIV-2010-470-584, 16 February 2011 at [6]–[7].49 Clearwater Cove Apartments, above n 27, at [10]–[12].50 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.regime is based on the presumption that costs should follow the event (subject to aresidual discretion) and does not usually involve impugned conduct or causation.[65] Mr Finlayson KC, for IAG, submitted it was an error to find that both regimeshave the same general objective.51 He submitted the scale costs regime compensates asuccessful party at the expense of the unsuccessful party and generally has nothing todo with conduct. It was submitted that the consequence of the error is that theTribunal's analysis was affected by an implicit assumption that the "follow the event"scale costs regime can inform the statutory threshold under the Act.[66] Mr Weston submitted IAG's complaint is misperceived and does not accuratelyreflect the position taken by the Tribunal. He submitted that, to the extent the Tribunalconsidered the scale costs regime, it did so to contrast it with the regimes in thetribunals. Mr Weston submitted the finding that the costs jurisdictions of tribunals andthe general courts have the same general objective of providing access to justice bythe discouragement of bad behaviour and the promotion of compromise must be right.Furthermore, Mr Weston submitted it was clear the Tribunal did not wrongly allowitself to assume that the costs approach in the general courts somehow colours theapproach taken in the Tribunal. He said this is supported by the Tribunal's reasoningpreceding their comment and an earlier point in the decision where it was made clearthe difference in regimes was understood, as follows:52[5] Moreover, IAG's complaint has more relevance to court proceedingswhere awards of costs depend on the outcome, rather than costs claims in thisTribunal where costs are dependent upon conduct, can be made in relation todiscrete parts of the proceedings, and can be awarded against "successful"parties.Conclusion on alleged error - commonality of costs regimesAnalysis[67] In my view, the Tribunal was alert to the difference between the two regimes(as demonstrated in the quotation above) and, even if their comment as to the similarityin objective is erroneous (which is not necessary to decide upon), it did not colour their51 Costs decision, above n 1, at [22].52 Costs decision, above n 1.analysis. The Tribunal understood the framework it was working under and describedit correctly in its decision at paragraphs [23]–[27].Bad FaithIAG's submissions - test for "bad faith"[68] IAG submitted that an allegation of bad faith is extremely serious as itinherently alleges improper conduct, abuse of process or other impropriety verging ondishonesty. The High Court in Clearwater Cove Apartments (a s 91 WHRSA case)said: 53[48] As the Tribunal observed, the meaning of "bad faith" depends on thecircumstances in which it is alleged to have occurred. The range of conductconstituting bad faith can range from dishonesty to a disregard of legislativeintent. It is well established that a party alleging bad faith must discharge aheavy evidential burden, commensurate with the gravity of the allegationsmade.[69] To justify a finding of bad faith IAG submitted the Tribunal was obliged toidentify specifically what IAG is alleged to have done, or failed to do, and explainwith reasons why that conduct was illegitimate and what unjustified advantage wassought. At the second stage, IAG submitted the Tribunal must identify what cost orexpense was incurred and what cost or expense was unnecessarily caused. IAGemphasised orders under s 47 are not compensatory, tariff-based or punitive.[70] With reliance on Body Corporate 170989 (In administration) v AquilaHoldings Ltd, IAG submitted that a bad faith costs award would require carefulconsideration of: 54(a) the meaning of "bad faith" depending on the circumstances in which itis alleged to have occurred;(b) the range of conduct constituting bad faith, which can range fromdishonesty to a deliberate disregard of legislative intent (a high bar);and53 Clearwater Cove Apartments, above n 27.54 Body Corporate 170989 (in administration) v Aquila Holdings Ltd [2020] NZHC 758.(c) the fact there is a heavy evidential burden.[71] To the extent the Tribunal imposed on the insurer a good faith duty, IAGsubmitted that the good faith duties in insurance end when litigation begins, withreference to the observation of Winkelmann J in Pegasus Group Ltd v QBE Insurance(International) Ltd.55[72] IAG submitted it was wrong for the Tribunal to attempt to assess bad faith byreference to what it regarded as the converse test for good faith. While acknowledgingthere are dicta that good faith and bad faith can be antithetical concepts, IAG submitsthis is irrelevant because the applicable statutory test is bad faith.[73] IAG submitted that the test for bad faith cannot be just the absence of goodfaith.56 While accepting the Tribunal's comment that "'[b]ad faith' is the antithesis of'good faith'" can be correct in broad terms, IAG noted that "good faith" has widelydifferent meanings in different contexts.57[74] IAG submitted the Tribunal erroneously assumed that its conception of goodfaith (in its own procedural guidelines) was the converse of the applicable statutorytest for bad faith in the Act.[75] The Tribunal said its behavioural guidelines were a clear description of what itconsiders exemplifies good faith conduct, and included reference to a guideline,namely the expectation that parties and advocates will not "respond to any claim wherea reasonable person would believe that the response does not have merit."58IAG submitted that it follows the Tribunal categorised defence arguments which itconsidered lacking in merit as not meeting its own concept of good faith. IAG saidthis is contrary to s 47(2)(a)(ii) of the Act, which expressly addresses "allegations or55 Pegasus Group Ltd v QBE Insurance (International) Ltd HC Auckland CIV-2006-404-6941, 1December 2009 at [280].56 See Costs decision, above n 1, at [66] and [67].57 Counsel did not provide the dicta they said supported this proposition, however I assume they arereferencing generalised comments such as those in Commercial Factors Ltd v Meltzer [2019]NZSC 17 at [10]; and The New Zealand Tramways and Public Passenger Transport AuthoritiesEmployees' IUOW (Wellington Branch) v Mana Coach Services Ltd ERA Wellington 5096809, 20December 2007.58 Costs decision, above n 1, at [68].objections that are without substantial merit". It was submitted that Parliament couldnot have intended the "acting in bad faith" test at s 47(2)(a) could be engaged by theabsence of merit assessed by a reasonable person. The Tribunal erred in issuing itsown procedural guideline as to good faith and then relying on that guideline to findbad faith. IAG submitted this reflects a conflation of the concepts of merits and badfaith, whereas the statute explicitly deals with them separately.[76] Finally, IAG submitted that the Tribunal's test for good faith in its proceduralguideline was both wrong and inapt. It was submitted that although an argument mightultimately fail, that does not mean the argument did not have merit. It could notreasonably be suggested a party acts otherwise than in good faith only because itadvances an argument that fails. In both judicial review and patent cases bad faith andbeing wrong on the merits are manifestly different. The s 47(2)(a) test sets the barconsiderably higher than what a reasonable person may think. A reasonable personcannot say whether a party's response to litigation has merit. Assessing the merits ofan argument is a judicial function requiring specialist skill. In summary IAG said theTribunal reasoned that either failing to comply with the Tribunal's guidelines oradvancing arguments without merit equates to bad faith. Finally, the Tribunal failedto identify any unjustified advantage that IAG sought to obtain by advancing itsvarious arguments.Family Trust's arguments — test for "bad faith"[77] On behalf of the Family Trust, Mr Weston submitted the insurer waschallenging the exercise of the Tribunal's discretion to award costs. He submitted thatthe very essence of the Act was a cost-effective process and that this case was anexample of an insurer over-lawyering and adopting an overly legalistic approach todispute resolution.[78] More specifically, as to the meaning of "bad faith" Mr Weston first addressedthe Tribunal's use of its procedural guidelines to assess what might be "bad faithconduct" for the purposes of the Tribunal's assessment. Mr Weston noted the Tribunal,in its factual analysis, ended up only relying on two of the 10 procedural guidelines itset out. In relation to IAG's argument at [75] above, Mr Weston submitted the Tribunaldid not rely upon that part of the guideline, and consequently did not conflate theconcepts of merit and bad faith.[79] Mr Weston then helpfully set out the case law relating to the meaning of "badfaith", which derived heavily from decisions made pursuant to the WHRSA, set outabove at [43]. This is reflected in the Tribunal's decision and my analysis below.59[80] As to the definition of good faith generally, Mr Weston noted that good faithwas a legal standard found throughout the law. He submitted these obligations aregenerally expressed as obligations of good faith, rather than a prescription againstacting in bad faith. However, Mr Weston submitted it is usually the case that a failureto act in good faith is regarded as a finding of bad faith conduct, as this is a logicalextension of what happens when a party fails to act in good faith.[81] Mr Weston also submits that the definition of "good faith" in contexts outsideof the Tribunal do not displace the meaning of "bad faith" as established in the Tribunalcontext. The meaning of bad faith, as set out in Clearwater Cove Apartments, iscontextual, and that bad faith can range from dishonesty to disregard of legislativeintent.[82] Overall, Mr Weston submitted the correct test for bad faith is set out inClearwater Cove Apartments, which he noted is front and centre of the Tribunal'ssummary of the law and their reasoning, as it is in IAG's submissions. Mr Westonsubmitted the Tribunal was clearly aware of the legal test and carried out an assessmentthat was far more nuanced than IAG submitted. Mr Weston acknowledged the Tribunalhad derived a list of "bad faith" conduct from its procedural guidelines, but submittedits conclusions were driven by the purpose of the Act. In response to IAG'ssubmission that the Tribunal needed to set out its detailed reasoning explaining whyIAG acted in bad faith, Mr Weston noted it has done so in some detail.59 Costs decision, above n 1, at [65] and [72].Analysis — what is "bad faith"?[83] In Clearwater Cove Apartments, a WHRSA case, Katz J accepted that themeaning of bad faith will depend on the circumstances in which it is alleged. It washeld:60[48] As the Tribunal observed, the meaning of "bad faith" depends on thecircumstances in which it is alleged to have occurred. The range of conductconstituting bad faith can range from dishonesty to a disregard of legislativeintent. It is well established that a party alleging bad faith must discharge aheavy evidential burden, commensurate with the gravity of the allegationsmade.[84] It was also noted that only costs that are incurred "unnecessarily" as aconsequence of a party acting in bad faith are able to be recovered.61[85] The Tribunal, in Clearwater Cove Apartments, had found that the BodyCorporate acted in bad faith by failing to produce all relevant documents and failingto comply with specific orders for discovery.62 The Tribunal was described as being"deeply troubled" by the Body Corporate's failure to discover relevant documents anda failure to do so despite both general and particular discovery having been ordered.63On appeal, Katz J considered that the relevant documents were not discovered in aflagrant breach of specific discovery orders. Katz J found this was motivated byknowledge that disclosure would seriously undermine the Body Corporate's claim.64[86] In Ace Structural Limited v Green the issue of bad faith was raised in thecontext of the Construction Contracts Act 2002.65 Although the issue of "bad faith"was resolved on another basis, the Court referred to the test in Clearwater CoveApartments.6660 Clearwater Cove Apartments, above n 27.61 At [68].62 At [49].63 At [50].64 At [56]–[57].65 Ace Structural Ltd v Green, above n 9.66 At [31].[87] Both Mr Weston and IAG, in their submissions, agree that this summary setout above at [83]–[86] accurately reflects the law in relation to "bad faith" under s 47of the Act. I agree.[88] The parties' main contention seems to be whether the Tribunal's reference to"bad faith" being the antithesis of "good faith" is correct.[89] The concept of "bad faith" and "good faith" are nuanced, context driven andvarying depending on the area of law.67 The Tribunal's reference to "bad faith" beingthe antithesis of "good faith" seems to be most heavily contested by the parties interms of the Tribunal approaching the issue on the basis the inverse of the Tribunal'sprinciples constitutes "bad faith" behaviour.[90] I agree that the statement made by the Tribunal that good faith is the antithesisof bad faith appears to be an oversimplification of the position (in an academicsense).68[91] Although the comment about good faith being the antithesis of bad faith maybe debated, this is not the nub of the appeal (although it was a proposition the Tribunalrelied on to "flip" their guidelines to create the list of what they believed constitutedbad faith). The real issue in dispute is whether the Tribunal in defining "bad faith" asthe inverse of its behavioural guidelines, as set out above at [44], was correct in thiscontext (as the remainder of the Tribunal's analysis on the meaning of "bad faith"appears to have been accepted by counsel).69[92] In this regard, I observe the Tribunal's attempt to list conduct that amounted tobad faith, in a seemingly exhaustive manner, may have been problematic. Given theunpredictable range of conduct which may constitute "bad faith", whether such hasbeen established is best left to be assessed on a case-by-case basis.67 See Heli Holdings Ltd v The Helicopter Line Ltd [2016] NZHC 976 at [98]–[118]; and LyntonTucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet and Maxwell,London, 2020) at [29.018] and [29.034].68 Edward Bayley "A doctrine of good faith in New Zealand contractual relationships" (LLB (Hons)Dissertation, University of Canterbury, 2009).69 Costs decision, above n 1, at [69].[93] The Tribunal recorded that its definition of "bad faith", in list form, was madewith propositions drawn from costs decisions of the Weathertight Homes Tribunal,appeals to the High Court, and the recent Tribunal decision in KB v EarthquakeCommission in mind.70[94] No issue can be taken with the proposition that "acting dishonestly", as theTribunal sets out in their first point, would be in "bad faith" as it accords with thedefinition set out in Clearwater Cove Apartments.71 In certain circumstances it is alsoclear that the Tribunal's next three points, as well as its last, of what may constitutebad faith are sound (failing or refusing to cooperate with other parties or the Tribunal;acting disrespectfully towards the other parties and the Tribunal; engaging inmisleading or deceptive conduct; and failing or refusing to disclose documents). Thesebroad categories may have encompassed the behaviour that was considered to be "badfaith" by Katz J in Clearwater Cove Apartments. However, as noted above at [92], thecircumstances would still need to be assessed on a case-by-case basis. Simply failingto disclose a document due to explainable human error would not constitute bad faith.[95] This leaves the issue of whether the fifth to ninth bullet points may constitutebad faith in certain circumstances.[96] IAG takes particular issue with the Tribunal's fifth point which is making aclaim that is frivolous, vexatious, for a collateral purpose, or does not have merit. IAGsays this blurs the line between the "substantial merit" and "bad faith" test. So muchis true but there is not a bright line between a party acting in bad faith and that partyadvancing a wholly meritless submission—for example, one inconsistent withevidence they have called. I agree with Mr Weston's submission that the Tribunal didnot blur the "bad faith" and "substantial merit" tests when applying those tests to thefacts.Application of "bad faith" on the facts[97] The Tribunal found IAG acted in bad faith in:70 KB v Earthquake Commission, above n 22.71 Clearwater Cove Apartments, above n 27.(a) formally challenging the admissibility of the Family Trust's evidence;(b) its uncompromising approach including overriding attempts by itsexperts to establish common ground; and(c) failing to narrow the real issues in relation to the bathroom.[98] I will deal with each finding in turn.Admissibility challenge[99] At the outset of the stage one hearing, the Tribunal considered IAG's objectionto the admissibility of evidence. The objection was three-fold. Firstly, counsel forIAG objected to passages in Dr Dewes' affidavit that incorporated submission.Second, there was an issue of whether the respondent's affidavit included evidenceirrelevant to stage one. Thirdly, there was a hearsay objection, with particularreference to reports of third-party non-witnesses being produced by the respondents.[100] The Tribunal allowed the clauses in the briefs or affidavits of the witnesses tobe given in evidence, but gave notice that a party wishing to rely on a document, themaker of which has not been called to give evidence, will be expected to makesubmissions as to the weight to be given to that document.72 The Tribunal referred toits function of providing fair, speedy, flexible, cost effective services for resolvingdisputes about an insurance claim and the potential for homeowners to appear beforethe Tribunal without incurring the expense of engaging counsel.73[101] Notably, the decision records that IAG could have elected not to engagecounsel "but chose to continue instructing the same lawyers they had used in the HighCourt".74 The Tribunal noted those lawyers continued to adopt the same practices theyhad pursued in that forum.72 Admissibility decision, above n 5, at [22].73 At [2].74 At [3].[102] The Tribunal accepted that Dr Dewes' evidence contained content thatamounted to submissions and acknowledged the difficulty this might cause foropposing counsel in determining whether or not to cross-examine on such matters.75The Tribunal indicated that it did not expect counsel to cross-examine on anything thatresembles argument but declined to rule the offending paragraphs to be inadmissible.[103] Although acknowledging evidence addressing matters beyond stage one wouldonly be "necessary and relevant" at a later time in the proceeding, the Tribunalconcluded it was useful to have all the evidence in one place. However, the Tribunalindicated it did not expect counsel to cross-examine on any evidence that was notrelevant to stage one and noted that counsel for IAG had carefully considered theevidence and marked those passages that were irrelevant to stage one.[104] As to the alleged hearsay evidence, the Tribunal considered it would be unfairto IAG if the Dewes were allowed to table reports in a bundle of documents so as to"automatically assume authority they may not deserve". The Tribunal acknowledgedthat counsel for IAG would not be able to cross-examine the persons who wrote thereport, but the relevance was a matter that would depend on the opinion beingexpressed and whether it logically followed from other matters considered by thereport-writer. The Tribunal ruled that the hearsay evidence was admissible, and thereal issue was what weight ought to be attached to those reports.[105] More generally, the Tribunal noted that self-represented litigants will notunderstand the rules of evidence and may have a sense of unfairness if admissibilityobjections are taken on "technical grounds" with reliance on the Evidence Act.76 TheTribunal further noted that it was not fair that an insurer face a decision based on areport it was unable to challenge.77Conclusion - admissibility challenge - bad faith[106] I do not agree that IAG acted in bad faith in making the admissibilityobjections.75 At [5].76 Costs decision, above n 1, at [20].77 At [21].[107] The Tribunal found it significant that at a previous hearing IAG had electednot to advance admissibility submissions that had been prepared for a High Courthearing. In that case, IAG elected to draw those objections to the Tribunal's attentionand asked that it note that its failure to cross-examine on the issues challenged asinadmissible should not be interpreted as an acceptance of those matters. The Tribunalwas concerned that in the present case IAG maintained its admissibility arguments thathad been flagged in the High Court. Whilst the Tribunal did not find that IAG intendedthe evidentiary challenge to unsettle the claimants, it was found that the objection was"frivolous/vexatious, amounted to bad faith conduct, and deferred the start of theevidence by half a day".78 No details were provided as to the "previous hearing"involving IAG. It is quite conceivable that the different position IAG was said to havetaken in the previous case might reflect dissatisfaction with the process adopted in thatcase.[108] Section 37(2)(b) of the Act provides the Tribunal "must not admit or permitunnecessary or irrelevant evidence or cross-examination". Although the challengedevidence was not ruled inadmissible, the Tribunal admissibility decision accepted thecriticisms raised by IAG. That decision records that counsel for IAG had carefullyidentified the passages in dispute. Regardless of a formal admissibility ruling,identifying unnecessary or irrelevant evidence at the outset of a lengthy hearingdelineated matters upon which IAG was obliged to cross-examine and those that couldbe discarded as either merely submission or irrelevant to the stage one enquiry. It putthe parties and the Tribunal on notice as to what evidence might carry less weight ashearsay evidence.[109] Giving advance notice of evidentiary objections allowed both theunrepresented Family Trust, counsel assisting the Family Trust and the Tribunal tofocus on admissible and relevant evidence and to identify matters in issue. Analternative response might have necessitated frequent objections as the evidence wasgiven or required counsel to embark on a cross-examination out of caution pending anindication from the Tribunal that cross-examination was unnecessary.78 At [79].[110] I understand and agree with the Tribunal that it is important that its processesrecognise that a number of houseowners may be unrepresented and thereforeunfamiliar with the general principles of evidence. That was not of particular concernin this case as the Family Trust was being assisted by legal counsel who had filed fullwritten submissions in response to the admissibility challenge.[111] I agree it was open to counsel not to take a formal objection to admissibility,but to generally flag a concern there were matters in the evidence on which counselmight from time to time seek clarification as to whether cross-examination wasrequired. To bring a formal challenge to admissibility and require the Tribunal to givea reasoned decision might reasonably be found to be inconsistent with the objectivesof a speedy and efficient resolution of disputes, but that does not, in my view, justifya finding of frivolous/ vexatious conduct amounting to bad faith. If the Tribunaldetermines evidential objections ought not be formally raised it should make that clearduring the pre-hearing management process.[112] I find the Tribunal erred in concluding that the objection to the admissibility ofevidence was an act of bad faith triggering a s 47 costs award. I agree with counselthat it is difficult to discern any costs consequence of the Tribunal's finding.Uncompromising approach by IAG[113] The majority of the Tribunal's reasoning concerning whether arguments aboutthe defects in the property involved "bad faith" or were brought without "substantialmerit" related to the Family Trust's suggestion that IAG had been uncompromisingthroughout the Tribunal process. This suggestion encapsulated an allegation that IAGhad overridden attempts by its experts to establish common ground and failed tonarrow the grounds of appeal to the fundamental issues.[114] Before analysing whether the IAG had brought arguments about the defects in"bad faith" or "without substantial merit" the Tribunal set out the hearing time thatwas devoted to certain issues.79 IAG challenges this, saying the Tribunal's findings inthis regard were erroneous.79 Costs decision, above n 1, at [84].[115] IAG submitted the Tribunal erred in failing to recognise that experts are notagents of the party which engaged them and that experts owe duties to the Tribunal,not the parties. On this basis, IAG submitted any failings or omissions by its expertcannot constitute bad faith on their part. Accordingly, IAG submitted that relying onexpert evidence, whether that expert's view changes or not, cannot in principle be anact of bad faith.[116] IAG submitted that if an expert regards themselves as qualified, and expressesthat to the party who engages them, the party is entitled to proceed on the basis theevidence given by the expert is within their remit (with reservation made for"extremely unusual" situations where an expert is so obviously wrong as to their ownexpertise and qualifications). IAG said its experts were highly qualified and theirstatements of qualifications and experience attached to their briefs speak forthemselves.[117] As regards a shift in position, Mr Finlayson submits that if an expert changestheir opinion about an issue on which they have given evidence, then it cannot be badfaith for that change to be raised by the expert or counsel. Further, IAG submittedcounsel would be ethically obliged to bring this to the Tribunal's attention.[118] In response to IAG's generalised submission that it bears no responsibility forthe conduct of its own expert witnesses, Mr Weston submitted this ignores the realityof how cases are run. Mr Weston accepted that a witness cannot bind the party whocalls that witness and that an agreement between experts is not formally binding oneither party. However, he submitted the reality of running a case requires a party tocheck what their experts are likely to say and ensure the expert does their job properlyon the basis that if the expert falters, the party's case falters. Mr Weston submitted itis not enough to say that a particular expert is well qualified and, thereafter, it is up tothe expert.[119] Mr Weston accepted that IAG's expert witness, Mr McGunnigle, is anexperienced building surveyor and a licenced building practitioner. However,Mr Weston submitted Mr McGunnigle was not a specialist in relation to the steelwindows or the slate roof. These are areas where Mr Weston noted the Tribunal wascritical of Mr McGunnigle's evidence. Mr Weston also submitted the fact that theFamily Trust bore the onus of proof does not provide a complete answer here. He citedLS v Medical Insurance Society Ltd, in which the Tribunal confirmed that an insuredis required to prove their claim but considered this only goes to advising of the claim,cooperating with the assessment of the claim and complying with requests forinformation.80 It further found that an insurer is obliged to assess its liability to fulfilits contractual duty to pay valid claims. Mr Weston endorsed these findings andsubmitted the manner in which IAG and the witnesses acted reflects this. He submittedthey did not simply put the claimants to proof, instead they came up with their ownhypothesis and evidence (at least in respect of the bathroom).Errors by experts and a party's obligation to foster agreement between expertsAnalysis[120] The central issue here is twofold. First, whether IAG can be found to haveacted in bad faith due to alleged errors of their expert witness(es). Second, whetherIAG overrode attempts of its experts to reach common ground or failed to narrow theirsubmissions to the relevant issues accordingly.[121] On the first point, assistance can be derived from the learned author of ExpertEvidence in Civil Proceedings.81 An expert's overriding duty is to the court.[122] In circumstances where the expert has represented themselves as suitablyqualified (and there is no strong indication to the contrary), has indicated theirunderstanding of the relevant code of conduct, and there is no evidence of counselinterfering with the witnesses' independence, I do not consider it appropriate toattribute any deficiencies in the expert evidence to the party itself.82 How and whenany such deficiency becomes apparent and how a party responds once the deficiencyis known, may be relevant and might then reflect adversely on the conduct of the party.80 LS v Medical Insurance Society Ltd, above n 10, at [34].81 John Katz Expert Evidence in Civil Proceedings (Thomson Reuters, Wellington, 2018).82 See Sadat v Tower Insurance Ltd [2018] NZHC 2375 at [42]–[65]; and John Katz, above n 81, at547–563 for discussion on the appropriateness of awarding costs against an expert witness, as wellas the liability of experts and lawyers for any breach by an expert.[123] On the second point, whether IAG overrode its expert's attempts to reachcommon ground or failed to narrow their submissions to the relevant issuesaccordingly, this issue relates to specific factual matters, and is raised in the relevantfactual analysis sections below.Expert evidence on structural issues[124] IAG submits it did not argue that the relevelling at the foot of the stairs wasproblematic. Rather, IAG argued in closing that the out-of-level floors had not beenshown accurately. IAG said this submission was reflected by the Tribunal'ssubstantive finding on that issue. Namely, the Tribunal observed the work forrelevelling would "probably benefit" from a more accurate floor level survey.83 IAGalso said it did not argue for performance-based relevelling, instead their closingsubmission specified that relevelling was not for determination in this part of the case.Thus, IAG submitted the Tribunal criticised IAG for addressing issues that IAG itselfdid not seek to address, despite the Tribunal itself having made obiter comments onthe issue. It is submitted these errors by the Tribunal are fundamental and undermineits findings in this part of the costs decision.[125] IAG submitted the Tribunal's finding that IAG employed "arguments that wenow know Mr Cook did not support" was wrong, as IAG examined Mr Cook in amanner that was consistent with his brief.84 Counsel submitted that IAG accepted theagreement that was reached between experts after cross-examination. As an example,in its closing, IAG accepted that other piles "agreed by the experts" were damaged.Counsel submitted the Tribunal did not identify any examples of IAG going againstexpert consensus or supporting arguments that went against the experts' evidence.Further, it was submitted the Tribunal did not address which experts made whichconcessions, noting that far more concessions were made by the Family Trust's expertwitness than by Mr Cook. The Tribunal found IAG "should have" canvassedarguments with Mr Cook before the hearing, but IAG submitted this overlooks the factthe Family Trust's expert witness moved towards Mr Cook's opinion, not vice versa.8583 Substantive decision, above n 6, at [88].84 Costs decision, above n 1, at [88].85 At [88].[126] As to limiting the number of fundamental issues in dispute, IAG submitted itscross-examination on the subfloor components was related to issues that affected theexperts' approach to other issues arising with the property.[127] The Tribunal found that, had the experts met before the hearing, none of theevidence about the subfloor would have been necessary. IAG submitted there was nobasis for this finding and the cross-examination and IAG's closings on these issuesshow the opposite is true. Additionally, IAG submitted the Tribunal had overlookedthe fact that conferral is a matter for all experts, not just one party's experts. It wasemphasised that experts are not agents of the parties.[128] Overall, IAG submitted the Tribunal made fundamental errors and failed totake all factors into account, so its conclusions were without basis, unsound andwrong.[129] In response, Mr Weston accepted that the Tribunal misstated IAG's argument.86However, he did not accept this error can be characterised as fundamental andundermining the Tribunal's findings.[130] Mr Weston submitted that IAG had cross-examined on matters that had beenagreed between the expert witnesses. He referred to the transcript taken from thehearing, in which the Tribunal very clearly implied that after the expert witnessesagreed with each other, IAG was wanting to reopen whether or not Mr Cook shouldhave agreed on those matters. Mr Weston noted there was no transcript for the last twodays of evidence.[131] Mr Weston submitted that IAG's closing accepted parts of the agreementbetween the experts but disputed other aspects. Mr Weston refers to "Appendix 2"which was agreed to by the engineers. He submitted that IAG did not utilise this toidentify or focus the engineering issues regarding relevelling and the subfloor issuesthat were still in dispute. Instead, Mr Weston submitted IAG took a point-by-pointanalysis of the differences between the engineers' evidence.86 See the Costs decision, above n 1, at [85].[132] In response to IAG's submission that the Tribunal had erroneously singled itout in terms of responsibility for the conferral of experts, Mr Weston submitted thatthis reflects the reality that IAG was the only party to openly challenge the jointstatement by cross-examining the other expert in detail and then closing on a similarbasis.Conclusion – structural issues -bad faith[133] Without the transcript for the last two days,87 it is not possible to determine theextent (if at all) to which IAG did seek to cross-examine on matters the experts hadagreed. To the extent IAG's closing submission proceeded on a basis different fromthat agreed by their expert, such submissions would not have been supported byevidence – their witness on such points not maintaining the opinion relied on by IAG.It follows the relevant submission had little prospect of success, and the hearing mayhave been unnecessarily prolonged. That exposes IAG to costs liability, but in myview that arises under the umbrella of acting without substantial merit. I do not agreethat such conduct amounts to bad faith. IAG was entitled to run its case either with orwithout the agreement or supporting evidence of its experts.Steel windows[134] The Tribunal found IAG had acted in "bad faith" in relation to the steelwindows by overriding attempts by its experts to establish common ground and byfailing to focus on the fundamental issues in dispute.[135] IAG submitted the Tribunal's substantive decision ignored IAG's primarysubmission on this issue entirely. It was submitted the Tribunal was also wrong tocriticise IAG for departing from its opening statement about the windows, given thatduring the hearing new evidence had emerged. While IAG said the Tribunal did notaccept Mr McGunnigle's changed view, it was logical and consistent with evidencegiven orally on the issue by Mr Cook, and as such IAG submitted it was entitled torely on that evidence.87 This was not transcribed and therefore did not form part of the case on appeal.[136] IAG submitted that, in rejecting Mr McGunnigle's evidence on the windows(in its substantive decision),88 the Tribunal placed undue weight on an early remark bythis witness, and in doing so overlooked Mr McGunnigle's detailed oral evidence89.IAG submitted it should not be criticised because it made submissions based on theweight of Mr McGunnigle's evidence, not his early remark that was not representativeof his full analysis. IAG said it could not have predicted what the Tribunal decidedabout Mr McGunnigle's evidence.[137] It was submitted the Tribunal was wrong to find IAG's claim thatMr McGunnigle had no authority to make concessions in any issues was"disingenuous".90 IAG reiterated that experts are not agents of the party which engagesthem and cannot concede claims or issues in claims. IAG submitted it was able toreject concessions by their expert on the reasonable grounds provided by evidencefrom an engineer.[138] Similarly, IAG submitted they did not continue to litigate in the hope that"something might come up", as the Tribunal had found.91 Rather, IAG said whenMr McGunnigle provided a written statement of his changed view IAG sought to relyon it, and when the Tribunal ruled against Mr McGunnigle's expertise IAG reliedinstead on Mr Cook's oral evidence.[139] IAG submitted they did not override Mr McGunnigle's attempt to establishcommon ground, as Mr McGunnigle's statement of changed view was initiated by himas the action of an experienced expert witness who realised his brief was no longercorrect.[140] Further, IAG submitted the Tribunal's implicit criticism of IAG for raising achange of view by its experts was erroneous as the Tribunal's own code of conduct forexperts required it to be done (as set out above at [28]).9288 Substantive decision, above n 6, at [142]–[147].89 IAG, in its submissions, referred to Mr Cook's evidence, however the substantive decision, aboven 6, at [152], which it cited in submissions suggests this was in error.90 See Costs decision, above n 1, at [93].91 At [93].92 At [84(b)] and [94].[141] IAG said it should not be found to have acted in "bad faith" where it madereasonable submissions based on mainly uncontested evidence which was overlookedby the Tribunal at first instance.[142] Mr Weston submitted that much of what IAG argues appears to re-litigate thesubstantive decision (which is not under appeal). He distilled IAG's arguments to fourpoints.[143] First, he addressed IAG's contention that the relevant windows were notdamaged and there was uncontested evidence for this. Mr Weston said this submissionamounted to a challenge of the Tribunal's substantive decision.[144] Second, Mr Weston addressed IAG's argument that Mr Cook (the engineer)gave evidence and IAG was entitled to rely upon his "careful analysis". Mr Westonsubmitted the Tribunal did not uphold Mr Cook's evidence on that score. Again, hesubmitted IAG's submissions sought to challenge the substantive decision. Inparticular, Mr Weston noted the "remark" the Tribunal relied on was actually aconcession by Mr Cook that he could not rule out the possibility that the steel windowshad been damaged by the earthquake.93[145] Third, Mr Weston submitted IAG overrode attempts by its experts to establishcommon ground because its closing sought to resile from Mr McGunnigle's writtenevidence that 15 steel windows had suffered earthquake damage. Mr Weston said IAGcontinued to litigate the issue, pivoting to rely upon Mr Cook's evidence onceMr McGunnigle's third written statement was ruled inadmissible.[146] Fourth, IAG accuses the Tribunal of inconsistency in that on one hand it reliedupon Mr McGunnigle but, on the other, denied his expertise. Again, Mr Weston saidthis was a substantive matter not under appeal. Additionally, Mr Weston said thissubmission is incorrect on the basis that the Tribunal refused to acceptMr McGunnigle's third brief because it said he did not have the necessary expertise togive it, an issue that wasn't applicable to his first two briefs.93 The substantive decision, above n 6, at [152(e)].Conclusion – steel windows-bad faith[147] I accept Mr Weston's submission that many of the issues raised by IAG appearto cross into an effective re-litigation of the substantive decision, so do not need to beventilated here.[148] Within the restrictions created by the missing transcript, as highlighted atparagraph [133] above, the analysis of whether IAG acted in "bad faith" by relying onMr Cook's evidence is somewhat hindered. However, my view is that IAG's conductwas not such that it amounted to "bad faith".[149] What is clear, is that at the heart of the Tribunal's finding that IAG acted in badfaith as regards the steel windows is the deficiencies the Tribunal found in the evidenceof Mr McGunnigle. For the reasons set out at [122], I find the Tribunal erred inattributing those deficiencies to IAG. In those circumstances, the finding of bad faithcannot be sustained. The relevant evidence in relation to this finding is provided inmore detail throughout the analysis of "substantial merit" at paragraphs [196]–[202]below.Roof[150] The Tribunal rejected the allegation that IAG acted in "bad faith" in this matterand accordingly it was not raised on appeal.Narrowing real issues as to the bathroom[151] The third bad faith finding made by the Tribunal was in relation to thebathroom.[152] The Family Trust claimed leaks in a bathroom were caused by unrepairedearthquake damage. The Tribunal explained that the Family Trust's expert, MrBrooks, believed the waterproof membrane became torn by the earthquake above thethreshold between the shower and bathroom, but Mr McGunnigle believed:9494 Substantive decision, above n 6, at [92]. this membrane failed from a combination of design and workmanshipdefects. Mr McGunnigle also advanced an alternative hypothesis that thesource of the moisture was a leak from the plumbing behind the wall betweenthe shower and the laundry and that this moisture had tracked north along theplate at the bottom of the wall and into the particle-board under the bathroomfloor.[153] In the substantive decision the Tribunal addressed Mr McGunnigle's twohypotheses as the "defective design/workmanship" hypothesis and the "leak in theplumbing hypothesis".The Tribunal on the defective design/workmanship hypothesis[154] Mr McGunnigle and Mr Martin, an expert for the Family Trust, took samplesfrom the particle board in the bathroom prior to the hearing.[155] The Tribunal seems to accept the defective design/workmanship hypothesis (orat least in addition to elements of the earthquake damage hypothesis), concluding thatthere must have been some unknown defect of design or workmanship in the 2003renovations that resulted in water escaping from the shower into the particle boardsubstrate of the bathroom floor.95The Tribunal on the leak in the plumbing hypothesis[156] The substantive decision records that the plumbing hypothesis "was disprovedduring the hearing by the removal of the laundry wall lining to expose the back of theshower".96[157] The Tribunal was critical of Mr McGunnigle's purported independence as anexpert in relation to his approach to the leak in the plumbing hypothesis.97 TheTribunal set out a collation of Mr McGunnigle's evidence and suggested it was notevidence of a witness who has an open mind to new information. Instead, the Tribunalsaid it showed a witness who is actively intervening to improve the case of the partyhe represents.95 Substantive decision, above n 6, at [107].96 Substantive decision, above n 6, at [108].97 At [108]–[112].[158] The Tribunal criticised IAG for failing to carry out a proper investigation ofthe bathroom leak and was critical of Mr McGunnigle for putting up an untestedhypothesis. IAG submitted the onus to investigate the bathroom and adduce evidenceas to damage lay with the Family Trust as it was their case to prove. IAG said therewas no obligation on IAG either under the policy or implied by law to carry out thisinvestigation. As such, IAG said shortcomings of the investigations could, at worst, besomething all experts were jointly responsible for. IAG said they could not haveknown that Mr McGunnigle's hypothesis would change after a further investigationwas directed overnight during the hearing. IAG submitted it was not bad faith toadduce tenable evidence given by an expert.[159] IAG submitted the Tribunal erred in finding that Mr McGunnigle's plumbing-leak hypothesis was "misleading" as there was never an attempt to mislead. IAG saidMr McGunnigle's hypothesis had been considered valid on the strength of theobservations as they appeared to the expert at the time but were later shown to bewrong and Mr McGunnigle responsibly accepted this.[160] IAG submitted the Tribunal was wrong to criticise IAG for failing to appreciatethat Mr McGunnigle was "vacillating between two hypotheses", as he was notvacillating at all. He simply accepted the analysis changed part-way through thehearing.[161] Mr Weston submitted the shortcomings in undertaking investigation did not liewith the Family Trust. Instead, he submitted the untested hypothesis was put forwardby Mr McGunnigle and that is where the sole problem lay.[162] In terms of avoiding any liability on the basis IAG was relying on its expertwitness, Mr Weston submitted IAG must have known that Mr McGunnigle was puttingup this hypothesis before it was disclosed to the Tribunal and the Family Trust, socould not "wash its hands" of any responsibility for that process.Conclusion – bathroom – bad faith[163] Although I consider a party must, in a practical sense, carry out due diligencein relation to an expert witness (mostly in relation to knowing about the expertthemselves),98 this cannot extend to accepting liability for the expert's mistakes.[164] Counsel may or may not have known Mr McGunnigle's leak theory had notbeen confirmed by onsite testing. The weight such an untested opinion could carrywas potentially minimal. However, it was an opinion advanced by a qualified expert,albeit perhaps as little more than informed speculation. Nonetheless it was evidencethe expert was prepared to give. It is the counsel of perfection to say IAG should haverejected this part of their expert's opinion and called upon him to carry out furtherinvestigation.[165] In my view, the Tribunal erred in equating what it saw as failures by IAG'sexpert with bad faith by IAG. If a party is let down by an expert, that does not justifya finding that a party has acted in bad faith, unless there are additional relevant factors.A finding of bad faith requires evidence that counsel or the party themselves wascomplicit in the experts conduct in advancing a theory they knew was without meritor otherwise attempting to mislead. I accept IAG's submission that it did not act inbad faith in relation to the bathroom leak.Substantial meritIAG's submissions – what is "without substantial merit"?[166] IAG submitted that, as with "bad faith", this is a narrow ground for costs underboth s 47 of the Act and s 91 of the WHRSA. Although acknowledging considerationof the party's position is often necessary, IAG cautioned this inquiry should avoidunwarranted and unnecessary satellite litigation on past trial issues.[167] The relevant authorities, which are discussed in my analysis below, wereaddressed by counsel.99 IAG also referenced KB v Earthquake Commission, a decision98 Katz, above n 81, at 229.99 Clearwater Cove Apartments, above n 23.by the Tribunal. In that decision the Tribunal noted in relation to substantial merit that"[t]he defects must be such that there is no prospect that the allegations, or objectionswill advance the point they are made to support".100 IAG said this extends to anallegation that is made without any evidence in support or an allegation that is logicallyflawed.[168] IAG submitted the Tribunal had not applied the correct legal test throughoutits decision but had instead referred to and applied a test of "reasonable prospects".101Accordingly, IAG submits the Tribunal's findings of "without substantial merit" areerroneous as they related to whether IAG's arguments had a reasonable prospect ofsuccess, rather than accurately assessing "substantial merit".Family Trust's submissions – what is "without substantial merit"[169] Mr Weston submitted the Tribunal summarised the test for "substantial merit"correctly and in a way that aligns with the law presented in IAG's submissions.102 Hesubmitted that after the Tribunal had correctly set out this legal test, it used theshorthand reference of "no reasonable prospect of success" at three points whenimplementing this legal test in relation to the factual issues. Mr Weston submitted thissubsequent use of shorthand does not impact the Tribunal's overall summary of"substantial merit".What is "without substantial merit"?[170] Simon France J considered the meaning of "without substantial merit" (in s 91of the WHRSA) in Trustees Executors Ltd v Wellington City Council.103 The case wasthe first where costs had been awarded under that Act. The Weathertight HomesTribunal had determined the "no substantial merit" limb was made out. Theadjudicator held no evidence was advanced by the claimants that could provide ananswer to a limitation defence. The claimants had argued that particular leaks werefresh damage arising from an unknown latent defect and could, therefore, be the100 KB v Earthquake Commission, above n 22, at [24].101 With reference to the Costs decision, above n 1, at [43], [53] and [58].102 Citing the Costs decision, above n 1, at [30]–[39].103 Trustees Executors Ltd v Wellington City Council, above n 29.subject of fresh claims. However, it was found that no evidence had been presentedto support that analysis.[171] The defendants had applied unsuccessfully pre-hearing to strike out the claimwith a major focus on the limitation defence. Simon France J rejected the argumentthat the fact the strike-out application was unsuccessful assisted the appellant. Instead,he held it had the opposite effect because the claimants had said in evidence inopposition to that application that they had evidence that would address the limitationissue. The promised evidence did not come to fruition.[172] Having found that the defendants had advanced a case without substantialmerit, the Judge considered whether it was appropriate to exercise the discretion toaward costs and considered the important issues to be whether the appellants shouldhave known about the weakness of their case and whether they pursued litigation indefiance of common sense.104[173] The observations of Simon France J were endorsed by Allan J in RiveroaksFarm Ltd v W B Holland:105[9] The mere fact that an allegation or argument is not accepted orupheld by the Tribunal will not of itself expose the party concerned to liabilityfor costs. In many cases a party will advance a claim or argument that requirescareful consideration by the Tribunal, but which is ultimately rejected. Suchclaims may properly be characterised as of substance, as opposed to lackingsubstance. In other words they are "substantial". In my opinion, theLegislature has used the expression "substantial merit" in s 91(1)(b) in thatsense, as denoting claims which do require serious consideration by theTribunal.[10] Claims which have substantial merit, even if ultimately rejected, willnot attract an order for costsMr Lewis likens the proper approach to the"serious question" test commonly applied in respect of applications forinterim injunctions. While in some cases the inquiry may be similar, it ispreferable in my view to adopt the approach of Simon France J in TrusteesExecutors and to refrain from applying any gloss to the legislatively struckbalance. The facts of individual cases will vary widely and the better courseis simply to approach the necessary inquiry by reference to the language ofthe subsection.104 At [52].105 River Oaks Farm Ltd v Holland (HC) Tauranga CIV-2010-470-504, 16 February 2011 (footnotesomitted).[174] These observations were further endorsed by Katz J in Clearwater CoveApartments.106 Katz J concluded that a careful enquiry is necessary in order todetermine if a claim is properly categorised as one that lacks substantial merit andspecifically observed, in my view correctly, that the enquiry must be conductedwithout the benefit of hindsight. As Gordon J said in Ace Structural Ltd v Green andFirma Construction Ltd, "[t]he fact that a claim is unsuccessful does not necessarilymean that it lacked substantial merit from the outset".107[175] Further, and with reference to the Tribunal decision in Phon v Modern HomeDevelopments Ltd108 Katz J in Clearwater Cove Apartments found that the bar forestablishing "substantial merit" should not be set too high and that the Tribunal shouldhave the ability to award costs against those making allegations which a party oughtreasonably to have known could not be established.[176] Again, IAG does not dispute the Tribunal's initial summary of the law. IAG'smain contention is that the "shorthand" of "no reasonable prospect" used by theTribunal in their analysis was inappropriate.[177] The Tribunal first used this wording when setting out the applicable law for thesubstantial merit test. As set out above at [37], the Tribunal cited comments in KB vEarthquake Commission that "without substantial merit" involves establishing thereis no prospect that the allegations will advance the point they are made to support,either because they are unsupported by evidence or logically flawed.109[178] The Tribunal then used this wording in analysing IAG's conduct as follows:110[38] The test is objective rather than subjective: in other words, what oughtthe party and its advisors have known about the prospects of the argument inquestion being successful?106 Clearwater Cove Apartments, above n 27.107 Ace Structural Ltd v Green, above n 9, at [47].108 Clearwater Cove Apartments, above n 27, citing Phon v Modern Home Developments Ltd [2011]NZWHT Auckland 24 at [8].109 Costs decision, above n 1, at [32].110 Costs decision, above n 1.[179] The Tribunal also incorporated this wording into its analysis concerning thefactual issues, as follows:[43] To summarise, it was likely that the floor had been left satisfactorilylevel after the re-piling undertaken in the 1960s/70s, it was apparent from theengineering reports undertaken prior to the repairs in 2014 that the floors hadearthquake damage and needed relevelling, IAG knew that the repairs had notachieved relevelling to the policy standard, yet it persisted with arguments itmust have known had no reasonable prospect of success.[180] And:[53] I have taken the following factors into account in deciding that, hadIAG and its advisors properly considered the strength of its case, it ought tohave concluded that there was no reasonable prospect that its arguments aboutthese 13 steel windows would be successful[181] Then in relation to the black adhesive slate tile repair the Tribunal found IAG"ought to have concluded that there was no reasonable prospect that itsargumentswould be successful".111[182] I consider this "shorthand" used by the Tribunal does not undermine its correctsummary of the law.Without substantial merit – application on the facts[183] The Tribunal found that the following allegations made by IAG were withoutsubstantial merit:(a) That the dislevelment still evident was due to either pre-earthquakesettlement or ineffectual releveling.(b) That seven of the 15 steel windows conceded as damaged by MrMcGunnigle in his second brief had not in fact been damaged in theearthquakes.(c) That using black adhesive to repair damaged slate tiles was anacceptable repair method.111 At [58]. See also [62].Reliance on expert evidence[184] Again, I will deal with each finding.[185] IAG relies on many of its submissions set out above at [115]–[117] in relationto its reliance on expert witnesses. It reiterates that relying on evidence by an expertwho maintains they are qualified means the points being advanced have substance andcannot be without substantial merit. It is submitted that if an expert is of a particularview any party is entitled to rely on that evidence, whether the expert's view is achanged view or one held from the outset. IAG submitted it was not for them to assesswhether expert evidence will be accepted by a judicial decision maker.[186] For the reasons set out in my analysis at [122] above, I accept this submission.That leaves the issue of whether IAG advanced submissions contrary to the evidenceof its experts.Dislevelment[187] The Tribunal was critical of the manner in which IAG dealt with the dispute inrelation to the floor levels, the sub-floor issue and the windows.[188] The Tribunal recorded IAG's concession in their final submissions that thehouse was not relevelled sufficiently during earthquake repairs, but maintained asubmission that the dislevelment still present was either pre-existing or due toineffectual relevelling. The Tribunal found that IAG knew or ought to have knownthat any floor dislevelment arising during construction in 1925 or over the following40 – 50 years was likely to have been addressed when the house was re-piled in the1960s or 1970s. The Tribunal found it was likely the earthquakes contributed to thefloor dislevelment evident in 2010/2011 because the house was likely to have beendesigned by a builder without oversight from architects or engineers. Further, IAGeither knew or ought to have known that further floor relevelling was required afterthe repairs because the scope of works for earthquake repairs included floor levellingand three separate floor level surveys carried out after the repairs confirmed thoserepairs had not relevelled the floor to policy standard. IAG knew or ought to haveknown that it was likely some of the floor dislevelment related to unrepairedearthquake damage because none of the spalled perimeter foundation concrete hadbeen rebuilt and no relevelling had been undertaken to the perimeter foundations,floors in the kitchen, around the bottom of the stairs, in the centre of the bedroom, andthe lounge and bedroom one on the first floor.[189] The Tribunal found there was no substantial merit to IAG's argument that allthe current dislevelment was due to either pre-earthquake settlement or ineffectualrelevelling because, as a simple matter of causation, that cannot have been the case.112[190] The Tribunal found that IAG must have known that its arguments in relation tothe relevelling of the floor had no reasonable prospect of success.[191] IAG said these findings were erroneous and inconsistent with the substantivedecision for the following reasons:(a) In its substantive decision the Tribunal found re-piling "appeared" tohave been done in the 1960's or 1970's,113 so there was no basis for theTribunal to find in its costs decision that IAG ought to have known thehouse had been re-piled.114 Additionally, IAG said it was notresponsible if its experts had overlooked this fact.(b) IAG said the Tribunal did not find that historical dislevelment hadlikely been addressed when the house was re-piled in its substantivedecision, rather that it would have had "an effect" on settlement.115 IAGsubmitted the Tribunal therefore assumed a factual finding that wasabsent from its substantive decision.(c) In its substantive decision the Tribunal referred to elements in the housewhich exhibited pre-existing locked-in settlement. On this basis, IAGsaid it was clear re-piling had not addressed all such pre-existingsettlement, as the Tribunal said was likely.116 IAG said the Tribunal's112 Above n 13, at [42].113 Substantive decision, above n 6, at [33].114 Costs decision, above n 1, at [41(a)].115 Substantive decision, above n 6, at [33].116 Costs decision, above n 1.finding was also inconsistent with Mr Cook's evidence, which IAGcannot be criticised for relying upon.[192] IAG submitted it did not argue that all dislevelment was pre-existing, or"persist" with arguments that it "must have known had no reasonable prospect ofsuccess".117 IAG said it was plain from its closing and Mr Cook's evidence that it infact did the opposite. The relevant closing was that "it appears to be common groundthat the house was not re-levelled sufficiently during the earthquake repair work Whether this was defective workmanship by Max and/or Hawkins is a liability issuefor stage two".[193] Mr Weston relied mostly on his submissions above at [129] and [132].Analysis[194] The difficulty for IAG in responding to this item of damage was that prior tothe repair being carried out in 2014, the engineering reports recorded the floors hadearthquake damage and needed relevelling. IAG accepted the earthquakes causedsome dislevelment and that the repairs left the floors out of level and the dislevelmentdid not meet the policy standard. Having accepted these points IAG, in a real sense,took on a heavy evidential burden to show that nonetheless the remaining dislevelmentwas pre-existing or due to ineffective releveling. The Tribunal's finding was that therewas no evidence that much of the required releveling work was in fact carried out.118Hypothetical propositions are not enough. Evidence is required. Here, evidence thatthe accepted earthquake damage had been relevelled was not produced. IAG,represented by experienced counsel119, must be taken to know its position on this issuelacked substantial merit.Bathroom floor[195] The Tribunal rejected the submission that the case advanced by IAG in relationto the bathroom floor was without substantial merit.117 At [43].118 Substantive decision, above n 6, at [62].119 Mr Collette-Moxon appeared for IAG before the Tribunal.Steel windows[196] There are 21 steel framed windows within the dwelling. The Tribunal notedthat IAG had relied on the evidence of its expert witness, Mr McGunnigle, that mostof the steel windows had been damaged in the earthquakes. In May 2020, having metwith Mr Richardson (The Family Trust's window expert), Mr McGunnigle concluded15 of the 21 steel windows required replacing. Dr Dewes was cross-examined by IAGonly about the windows that were in dispute. The Tribunal, in its substantive decisionat [151] said:I was surprised, therefore, when IAG's counsel announced, midway throughthe expert evidence about the windows, that IAG no longer considered thatany windows should be replaced. Apparently, Mr McGunnigle had renouncedthe views he had expressed in his May 2020 brief and had returned to theopinion he had expressed nine months before in his earlier brief. Accordingto IAG's counsel, this change of heart was prompted by a sudden revelationthat the steel windows were likely to have been damaged by dynamicsettlement caused when the house was re-piled, something Mr McGunnigleonly became aware of when listening to the evidence of the engineers a weekearlier. Although IAG's counsel attempted to lead Mr McGunnigle throughan explanation of how the re-piling might have damaged the steel windows, Iruled that this evidence was inadmissible as Mr McGunnigle did not have theengineering expertise to proffer this opinion evidence. Counsel then discussedthis theory with the two engineers who were part of the witness paneldiscussing the windows.[197] IAG's explanation for what was described as a dramatic change wasMr McGunnigle reconsidering his opinion as to the cause of window damage, havingheard for the first time that it was likely the house had been re-piled in the1960s/1970s.[198] The Tribunal found that IAG's argument that seven of the 15 damaged steelwindows had not been damaged in the earthquake lacked substantial merit and thatIAG ought to have concluded there was no reasonable prospect that its argument aboutthe steel windows would be successful. The critical factors relied upon were:120(a) the evidence of Dr Dewes that all but two of the 21 steel windowswere fully functional and waterproof prior to the earthquakes;(b) the May 2017 report from Terra Consulting that nine of the steelwindows had functional defects;120 Costs decision, above n 1, at [53].(c) Mr McGunnigle's earlier considered view, after conferring withMr Richardson, that the damage to 15 of the steel windows showedsigns of earthquake damage independent of any damage they mighthave previously suffered because of static settlement;(d) IAG and its expert advisers (Mr Cook and Mr McGunnigle) ought tohave known and accepted that a 90-year-old house resting on concretepiles was likely to have been re-piled at some stage;(e) if either of those experts had recognised the likelihood of re-piling,they would have mentioned it in their extensive briefs, which neitherdid; and(f) Mr McGunnigle did not have the engineering qualifications orexperience on which to base his changed opinion about the cause ofthe window damage.[199] Counsel submitted the Tribunal erred in finding that IAG and its advisorsought to have concluded there was no "reasonable prospect" on its arguments about13 of the steel windows. It was said the Tribunal overlooked uncontested evidence byMr McGunnigle and Mr Richardson (as well as oral evidence given by Mr Cook) thatthere was no damage. IAG submitted it was entitled to rely on this evidence.[200] The Tribunal decided that had IAG's counsel and its advisers stood back andproperly assessed the strength of the basis for Mr McGunnigle's change in position,counsel should have concluded that IAG's argument reliant on that change of positionhad no substantial merit. Mr McGunnigle's evidence on this point had moved frominitial uncertainty in July 2009 as to the cause of damage to the steel windows,121 thatnine were likely distorted by static sediment pre-quake and another five he wasconvinced were already damaged by the time of the quakes.122 Mr McGunnigle thenin May 2020, agreed with the Trusts' experts as noted at paragraph [203] below andthen further changed his mind at the hearing as noted at paragraph [209].[201] Counsel have a responsibility to assess the merits of the submissions they areadvancing, particularly when the submissions are reliant on a witness who has changedtheir evidence more than once, as happened here. Further, IAG's submissions calledinto doubt Dr Dewes' credibility that pre-quake all but two of the 21 steel windowswere fully functional and waterproof. Dr Dewes was only cross-examined about121 Substantive decision, above n 6, at [142].122 Substantive decision, above n 6, at [144].seven out of a total of 32 windows, including wood and aluminium windows. In theabsence of Dr Dewes being cross-examined beyond the seven windows that remainedin dispute at the time of her cross-examination, there was no basis for IAG advancinga submission that to be accepted would have required the Court to make an adversecredibility finding in relation to Dr Dewe's evidence on this issue.[202] I accept that the Tribunal had a valid basis for finding IAG's position in respectof the steel windows lacked substantial merit.Roof[203] While the experts for IAG and the insured had agreed in writing on 8 July 2020(the date of the first of five two-day hearings held to identify earthquake damage) thatthe roof needed to be replaced, this agreement did not resolve the issues relevant tostage one, being the physical deficiencies of the property and the cause of thesedefects.[204] It seems that IAG's counsel may only have found out about the experts'agreement immediately prior, or at the commencement of, the hearing.[205] When the 8 July 2020 agreement was produced, the Tribunal said while it wasnot binding on the parties, a witness who wished to disagree with what they hadpreviously agreed, would have to provide an explanation in that regard.[206] IAG advanced a number of arguments in relation to the repair of the roof. TheTribunal found in its substantive decision that there was substantial merit in all but oneof the arguments raised by IAG, albeit the Tribunal deferred setting out its reasons foraccepting IAG's submissions until a subsequent stage of the hearing.[207] The one exception related to IAG's argument that repairing the damaged slatesusing a black adhesive met the policy standard for repair.[208] In the Tribunal's decision in relation to the identification of the defects andtheir causes, the Tribunal noted that the use of black adhesive was not a method ofrepair mentioned in any of the literature and is not included in the United KingdomStandards for repairing slate roofs.123 Mr McGunnigle accepted in both of his briefsthat he prepared for the High Court before the proceeding was transferred to theTribunal, that this technique of repair was not good trade practice, did not providelike-for-like and did not have the required durability.[209] During his oral evidence before the Tribunal Mr McGunnigle changed his viewof this repair method albeit he did not wholeheartedly endorse the use of adhesives torepair the slates. The Tribunal recorded that IAG and the construction companyresponsible for the repair considered the use of adhesive complied with the BuildingCode's requirement that an agent such as an adhesive have a 15-year durability.[210] IAG argued that the black adhesive supporting each slate was likely to supportthe slate for 20–30 years. The Tribunal referred to the traditional method of fixingslates with wire and nails. The Tribunal noted that the proposed repair methodinvolved the replacement slates being glued to the underside of the surrounding slatesand that they would rely on those existing slates, which presumably would be nailedin the traditional way, for support. If this method was adopted, it would significantlyreduce the number of nails per square metre holding the slates in place and inevitablyreduce the durability not only of the replaced slates but also of their neighbours.[211] The Tribunal, in concluding IAG's submission that using black adhesive torepair slate was an acceptable method of repair lacked substantial merit stated:[58] I have taken the following factors into account in deciding that, hadIAG and its advisors properly considered the strength of its case, it ought tohave concluded that there was no reasonable prospect that its arguments aboutthe black adhesive slate tile repair would be successful:(a) this method of repair is not mentioned, let alonerecommended, anywhere in the literature;(b) Mr McGunnigle, the only expert it produced at the hearing,did not have the qualifications or experience to comment onthis method of repairing slate tiles;(c) IAG had no properly qualified expert supporting this repairmethod; and123 Substantive decision, above n 6, at [207].(d) it should have been cautious about accepting Mr McSorley'sevidence about this method bearing in mind his lack of expertstatus and his vested interest.[212] Absent from the Tribunal's summary set out in the preceding paragraph is thepoint referred to at paragraph [208] above, that Mr McGunnigle rejected the use ofadhesives as a repair methodology and agreed that the roof should be replaced in bothbriefs he had prepared for the High Court.Argument for IAG - roof[213] IAG advances a number of arguments in support of its submission the proposedrepair of the slate roof using black adhesive did not lack substantial merit. Ithighlighted the uncontested evidence the black adhesive could last 20 or possibly 30years thereby meeting the Building Code requirement of 15 years for durability. Itsubmits there is no evidence of the likely durability of the original slate roofconstructed in 1925 and therefore no basis for a conclusion that fixing the slates withthe 20 to 30 year durability repair methodology was any less durable than methodsused in 1925.Analysis[214] IAG's submissions on the acceptability of the use of adhesives was based onselective quoting from Mr McGunnigle's evidence, and conflated compliance with theBuilding Act 2004 with meeting the policy standard. As to the first point, MrMcGunnigle, in his first affidavit prepared when this proceeding was before this Court,said that the use of adhesives was: " not a satisfactory repair method", that the useof adhesives was: " not a like-for-like technique or good trade practice for repairinga slate roof", and that "slate roofs have a very long durability of up to 150 years ifmaintained adequately. Sealant has a limited service life of 20–30 years, which issignificantly less than the service life of the slate roofing".[215] In Mr McGunnigle's May 2020 affidavit, he described the use of sealantadhesive and temporary steel wire as unsatisfactory and said this method: " wouldhave a service life of only 20-30 years which is significantly less than a slate roofgenerally (150 years)".[216] IAG's submission that there was unchallenged evidence the black adhesivewould last 20 or 30 years ignores that the acknowledgement given by Mr McGunniglewas in the context of his rejection of the use of adhesives as an appropriate repairmethod. Further, IAG's submissions in support of the appeal that there was noevidence of the likely durability of the original slate roof ignored that MrMcGunnigle's evidence dealt with that expressly.[217] As to the second point, IAG has treated satisfying the durability requirementsof the Building Code as being sufficient to demonstrate that the policy standard hasbeen met. The relevant policy standard requires that damage be repaired to a conditionas similar as possible to when it was new, using current materials and methods. Thepolicy standard is the minimum called for to satisfy the requirements of the BuildingCode.[218] If IAG wanted to establish that the durability of repair methods to slate roofsin 1925 was 20-30 years, then it needed to lead that evidence rather than relying onthe insured not leading evidence as to repair methods from the 1920s. It also ignoresthe fact the proposed repair method – replacing the old slates and fixing them to theroof structure with wire and nails, was the method used to attach the slates whenthe house was built.[219] The Tribunal's reference to "The literature" is criticised by IAG and it is furthercriticised for departing from "largely uncontested evidence". I do not accept thiscriticism of the Tribunal particularly when the uncontested evidence could, with somejustification, be said to be reflected in the agreement reached by the parties' expertsthat the roof should be replaced.[220] IAG contend the Tribunal was in error in concluding that Mr McGunniglelacked expertise in relation to slate roofs. IAG submit there is no finding thatMr McGunnigle was not qualified to give evidence about repair methods for slateroofs, or the merits of using sealant to achieve durability. I do not accept thatsubmission. The Tribunal said: "The only witness who qualified as an expert atinstalling and repairing slate roofs was Mr McKinley." 124 This carries with it the124 Substantive decision, above n 6, at [168]. See also the Costs decision, above n 1, at [62(c)].necessary finding that Mr McGunnigle was not so qualified. Mr McGunnigle did notclaim to be an expert on slate roofs acknowledging his experience in that area waslimited albeit he had some experience with slate roofs.[221] At the heart of IAG's objection at being found to have advanced an argumentwithout substantial merit on this point is that where an expert has previouslymaintained that they were qualified, the party calling them cannot be criticised for asubsequent adverse finding as to their expertise that was not obvious at the time. IAGalso submitted that the standard adopted by the Tribunal in the passage set out atparagraphs [179]–[181] above of there being "no reasonable prospect" is not thecorrect test.[222] This submission does not address the basis for the Tribunal finding IAG'sargument as to the roof repair lacked substantial merit. Mr McGunnigle was qualifiedto give evidence in respect of general building issues. IAG's submissions relied inpart on the evidence of Mr McSorley. Mr McSorley had experience in the constructionof roofs and some limited experience in relation to slate roofs. He did not claim to bea specialist in slate roofs.[223] Accordingly, IAG advanced a repair methodology rejected by Mr McGunniglein his briefs in the High Court and at least implicitly rejected by him when he agreedthe roof should be replaced. Indeed, Mr McGunnigle cannot be said to have embracedthe use of adhesive saying in cross examination: " I believe that the gluing down[of] slates wasn't a satisfactory approach" and he referred to "glued down slateswhich I believe are of course unsatisfactory and poor workmanship".[224] The repair of slate roofs is a specialist area. IAG pursuing a repairmethodology, rejected by its own expert, was to pursue an argument that lackedsubstantial merit. The lack of substantial merit arises because IAG's argument thatadhesive was a suitable repair was not supported by the evidence of its own expertindeed, was inconsistent with his evidence. It required IAG to take parts ofMr McGunnigle's brief out of context and to advance the proposition that meeting theBuilding Code is equivalent to fulfilling the policy requirements.[225] When the Tribunal referred to IAG and its advisers properly considering thestrength of its case on this point, the context was the background of Mr McGunnigle'sevidence and his lack of specialist knowledge, IAG's position was in substanceunsupported. Mr McGunnigle did not endorse the use of adhesives when his evidenceis examined yet IAG submitted adhesive was an acceptable repair methodology.[226] I accept that the Tribunal used the expression "reasonable prospects" but as MrFinlayson properly accepts, the Tribunal in its conclusion on this point found thatIAG's argument about the use of the adhesive as an acceptable repair method lackedsubstantial merit. In reaching that conclusion I am satisfied the Tribunal did not departfrom the appropriate test.Result[227] The appeal is allowed in part. The findings that IAG acted in bad faith arequashed. The findings that IAG acted without substantial merit are upheld.Adjustment to costs award under appeal[228] IAG has been partially successful in this appeal. Ordinarily that would resultin an adjustment to the costs award of $13,160 made in favour of the Family Trust. Atthe hearing, Mr Finlayson indicated that IAG was proposing to pay the full sum of theaward regardless of the outcome of this appeal.[229] In light of that indication, unless IAG's position has shifted, I do not proposeadjusting the award to reflect IAG's success on appeal. If IAG's position has shifted,I invite counsel to file brief memoranda accordingly.Costs[230] Given the Family Trust was not represented on appeal and the position asoutlined at [228] above that IAG have taken more generally in relation to the issue ofcosts, I am not minded to award costs on the appeal. Again, I invite counsel to file abrief memorandum in the event that there is a live costs issue to be resolved....................................................Eaton JSolicitors/Counsel:Duncan Cotterill, AucklandCommunity Law, CanterburyChristopher Finlayson KC, Barrister, Auckland