GOODIER v THE EARTHQUAKE COMMISSION [2020] NZHC 64

GOODIER v THE EARTHQUAKE COMMISSION [2020] NZHC 64 [3 February 2020]IN THE HIGH COURT OF NEW ZEALANDWHANGANUI REGISTRYI TE KŌTI MATUA O AOTEAROAWHANGANUI ROHECIV-2016-483-000016[2020] NZHC 64BETWEEN MARK ALBERT GOODIER ANDNICHOLA JANE GOODIERAS TRUSTEES OF THE GOODIERFAMILY TRUSTPlaintiffAND THE EARTHQUAKE COMMISSIONFirst DefendantAND IAG NEW ZEALAND LIMITEDSecond DefendantHearing: 17 – 28 September 20188 – 10 October 201812 October 201816 October 20187 February 2019, 27 February 2019 and 14 March 2019 (furthersubmissions received)Counsel: G D R Shand and N T P Lala for the PlaintiffsB A Scott and J Y Moran for the First DefendantR W Raymond QC and S K Swinerd for the Second DefendantJudgment: 3 February 2020JUDGMENT OF CULL J[1] Following my judgment of 2 September 2019,1 the Earthquake Commission(EQC) and IAG New Zealand Ltd (IAG) have filed memoranda seeking costs, and aninterlocutory application seeking non-party costs against the litigation funder Claims1 Goodier v The Earthquake Commission [2019] NZHC 2176.Resolution Service (2015) Ltd (CRS). This judgment deals only with that first issue:whether and what type of costs should be awarded.2[2] EQC and IAG accept that category 2B is the appropriate scale for the most partand seek an uplift on those scale costs of 25 per cent as well as reasonabledisbursements.[3] Of relevance to this stage of the proceeding, the following costs orders aresought:(a) EQC seeks that the plaintiffs pay EQC's costs of this proceeding in theamount of $140,107.92 and EQC's reasonable disbursements of$124,343.41, being a total of $264,451.33.(b) IAG seeks that the plaintiffs pay IAG's costs of $111,867.80 andreasonable disbursements of $30,910.96, being a total of $142,778.76.[4] The plaintiffs to this proceeding, Mr and Mrs Goodier, oppose the cost orderssought on a number of grounds.Background[5] In June 2015 there was a landslip at the Goodiers' property which causeddamage. The Goodiers lodged claims for the damage with EQC under theEarthquake Commission Act 1993 (the Act) and IAG under their insurance policy.[6] EQC accepted liability under the Act and paid the Goodiers $136,790.21 (lessexcess) in respect of the building, retaining walls and land. IAG made a furtherpayment of $36,776.05 to the Goodiers for the damage to the paved driveway. BothEQC and IAG maintained this was the limit of their liability under the Act and theinsurance policy respectively.2 Whether costs should be awarded against CRS is the subject of a hearing set down for this week,for which I will issue a further judgment after the parties have provided oral argument.[7] The Goodiers disagreed with EQC and IAG's positions and issued proceedingsin May 2016. At trial, the Goodiers sought $76,709.79 from EQC under s 18 of theAct, and a full sum insured from IAG of $369,972.95, along with $2500 forlandscaping costs, $20,000 for retaining wall costs, $1000 for stress and $50,000 forgeneral damages.[8] In September 2019, I gave judgment for EQC and IAG. I found that EQC andIAG had no further liability beyond that which had already been accepted.[9] The Goodiers have appealed the judgment to the Court of Appeal. TheGoodiers have asked that the issue of costs be deferred until the appeal process iscomplete. EQC and IAG oppose deferral. I consider it is appropriate to determinecosts now. There is no presumption that a determination of costs should be deferreduntil an appeal is heard.3 In this case, much like that in He v The EarthquakeCommission, the parties have gone to the trouble of filing costs submissions and it isappropriate that the determination of costs is not deferred too far into the future.4Legal principles[10] Part 14 of the High Court Rules 2016 governs the award of costs. All mattersare at the discretion of the Court, though this discretion is not unfettered. It is a generalprinciple that a party who fails with respect to a proceeding should pay costs to thesuccessful party,5 and an award of costs should reflect the complexity and significanceof the proceeding.6[11] Counsel for both EQC and IAG submit that as they were successful in theirdefence of the proceeding brought by the Goodiers, the Goodiers should pay costs toEQC and IAG. EQC and IAG accept that category 2B is the appropriate scale with afew exceptions, and seek an uplift on those scale costs of 25 per cent as well asreasonable disbursements. I turn to discuss scale costs, whether an increase isappropriate, and then reasonable disbursements.3 He v The Earthquake Commission [2018] NZHC 67 at [71].4 At [71].5 High Court Rules 2016, r 14.2(a).6 Rule 14.2(b).[12] Before doing so, I deal with the issue of whether both EQC and IAG shouldreceive costs. Rule 14.15 of the High Court Rules 2016 provides that the Court mustnot allow more than one set of costs between defendants if they defended theproceeding severally and it appears to the Court that they could have joined in theirdefence, The Goodiers submit that EQC and IAG should not be awarded two sets ofallowances for every step in the proceeding because the defendants ran the same caseand led the same witnesses.[13] I am not satisfied that both defendants could have appropriately joined in theirdefence. They had different interests and were dealing with distinct issues regardingthe insurance policy and the Act. Further, as EQC have explained, although thedefendants shared some common interests in the proceeding, they are distinct entities– one with statutory responsibilities and the other with separate contractualresponsibilities.7 There was the potential for conflict between the interests of the twodefendants even though that conflict did not eventuate. That IAG ultimately relied onthe expert witnesses of EQC does not detract from the appropriateness of their havingengaged separate representation. In such circumstances, I consider their separaterepresentation was appropriate.Scale costs[14] In 2016, Associate Judge Smith directed that the proceeding was category2, band B, for costs purposes.8 All parties accept this scale of costs generally and Iagree it is appropriate for the reasons outlined by Associate Judge Smith.[15] However, both EQC and IAG submit that the following exceptions should bemade to the 2B band. The first is a memorandum dated 6 September 2017. Both EQCand IAG submit this should be calculated on a 2A basis as it was a joint memorandum.There is no opposition to such a calculation and I accept the 2A band for thatmemorandum is appropriate.7 Hoju v Earthquake Commission [2018] NZHC 2138 at [25].8 Goodier and Goodier v The Earthquake Commission and IAG New Zealand Ltd HC WhanganuiCIV-2016-483-16, 10 August 2016 at [16].[16] The second exception is for memoranda dated 25 May, 5 June and22 June 2018 and teleconferences on 6 June and 28 June 2018. Both EQC and IAGsubmit these were required as a result of the Goodiers' unexplained failure to providetheir evidence in accordance with timetable directions. As to costs on these steps,Associate Judge Johnston's minute dated 6 June 2018 recorded that EQC and IAG areboth entitled to costs in relation to the two conferences and preparation for both, beingbrought about by the Goodiers' "blatant disregard of their obligations."9 He directedthese costs were to be on a solicitor-and-client basis. For the reasons articulated inAssociate Judge Johnston's minute, costs on a solicitor-and-client basis for thememoranda and teleconferences noted above and the preparation involved for them isappropriate.[17] The third exception is for the preparation of briefs and preparation for thehearing. EQC seeks the band C allowance in respect of each of those steps, which isfive days each, rather than the band B allowance of two and a half days for briefs andthree days for hearing preparation. EQC submits band C is appropriate as acomparatively large amount of time was reasonable for each of those steps. Counselsubmits EQC prepared a detailed set of written briefs, the majority of which dealt withtechnical expert evidence, and the hearing occupied three weeks' time requiringlengthy preparation. I note that IAG does not seek any scale costs for the preparationof briefs given EQC's experts were called jointly at trial, and does not seek band Cscale costs for preparation for the hearing.[18] I do not find it appropriate to alter the scale from band B to band C in thisinstance. The proceedings were categorised at the outset as band B. It is true the detailof the case unfolded as the hearing progressed, with further evidence being broughtthroughout the course of the hearing, and this may have complicated mattersparticularly in terms of hearing preparation. However, this is part and parcel of arelatively lengthy civil matter, involving building and geotechnical issues and does notmove the band from the position of band B in the circumstances. I consider band Bfor both the preparation of briefs and hearing is appropriate.9 Goodier v The Earthquake Commission and IAG New Zealand Ltd HC Whanganui CIV-2016-483-16, 6 June 2018 at [9].[19] Beyond the usual Schedule 3 step allocations, EQC has also claimed a secondallowance for briefing at the band B allowance (two and a half days) as EQC had tore-brief its structural engineer and its builder during the hearing to respond to theevidence of Mr Hunt, the Goodiers' building expert, who gave new evidence regardingthe pile under the southwest corner of the garage during the hearing. EQC submitsthat a second allowance is appropriate given that both of these briefs needed to besubstantially rewritten as a result of Mr Hunt's new evidence and the defendants'experts' subsequent investigations.[20] I do not consider it is appropriate to allow a second allowance for re-briefingEQC's experts during the trial to respond to Mr Hunt's evidence about the pile at thecorner of the garage. As the Goodiers have submitted, no one has suggested Mr Huntshould not have carried out that exercise. The defendants acknowledged his work andthanked him for undertaking the exercise, and despite being critical of Mr Hunt'srelevant expertise, EQC's experts altered their views and evidence on the informationprovided by Mr Hunt. In such circumstances it was helpful of Mr Hunt to conduct theexercise he did, even if it did occur later than might have been expected. It providedall the experts involved in the case with further information relating to the pile andhow the landslip mechanism occurred. That EQC's briefs needed to be substantiallyrewritten as a result is not the fault of the Goodiers, nor of Mr Hunt. To the contrary,EQC's experts had the same if not more access to the site and could have conductedthe exercise themselves at an earlier date if they had thought it might alter or influencetheir position. I do not accept the second allowance for re-briefing.[21] The final exception to the standard Schedule 3 step allocations is a request fromboth EQC and IAG for another allowance for the preparation of further closingsubmissions. These were required because the Goodiers' amended their statement ofclaim at the end of their lawyer's reply closing submissions. EQC and IAG submitthat had the Goodiers' amended their claim earlier, EQC could have addressed theamendment in its primary closing submissions. EQC seeks two days allowance andIAG seeks one and a half days.[22] I accept an allowance for further closing submissions is warranted. Thesubmissions were both necessary and important due to the amendment of theGoodiers' statement of claim, which involved 34 particulars of damage (compared tothe 11 original particulars) and their belated submission on multiple landslips. Iconsider that two day's preparation for EQC one day's preparation for IAG isappropriate, given that IAG's submissions substantially reflected those of EQC.[23] I direct the parties to update their actual scale costs in accordance with thedecisions made above, and provide Registry with the final figures. For clarity, I amallowing costs on a 2B basis to be awarded in favour of EQC and IAG, as set out inSchedule 1 of both EQC's and IAG's submissions dated 20 September 2019 and25 September 2019 respectively, with the following exceptions:(a) 2A costs for the joint memoranda dated 6 September 2017.(b) Solicitor-and-client costs for the memoranda dated 25 May, 5 June and22 June 2018 and teleconferences on 6 June and 28 June 2018.(c) I do not accept that band C costs is appropriate for EQC's preparationof briefs or the hearing. The appropriate band is band B, that is, twoand a half days for the briefs and three days for the hearing. This needsto be updated on EQC's schedule.(d) I do not accept that EQC is entitled to a second allowance for re-briefing its experts. That step needs to be removed from EQC'sschedule.(e) I accept that EQC and IAG are entitled to an allowance for furtherclosing submissions. I consider that two day's preparation for EQC andone day's preparation for IAG is appropriate. This needs to be updatedon IAG's schedule.[24] Given I have found for both parties on some issues, I consider any allowancefor the preparation of the costs memoranda in relation to this decision is inappropriate.Increased costs[25] The High Court Rules provide that the court may make an order increasingcosts otherwise payable under the rules if, among other things, the party opposingcosts has contributed unnecessarily to the time or expense of the proceeding or a stepin it.10 On the basis that the Goodiers contributed unnecessarily to the time andexpense of the proceeding, EQC and IAG seek an uplift of 25 per cent on their overallscale costs.11[26] The leading authority on the correct approach to increased costs is the four-step approach explained by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd:12(a) Categorisation: the first step is to categorise the proceeding underr 14.3. This proceeding has been categorised as category 2.(b) Standard time allocation: the second step is to work out a reasonabletime for each step in the proceeding under r 14.5. This has beencategorised as band B.(c) Increased time allocation: a party can, under r 14.6(3)(a) apply for extratime for a particular step. It is possible to get a greater time allocationfor a particular step if the party can show that the step in the proceedingwas such that the time required by the party would substantially exceedthe time allocated under band C.(d) Overall assessment: the fourth steps requires the applicant for costs tostep back and look at the costs award it could be entitled to at this point.If it considers it can argue for additional costs due to the way the otherparty conducted the case in terms of r 14.6(3)(b), it should do so. Anincrease of more than 50 per cent is unlikely.10 Rule 14.6(3)(b).11 High Court Rules 2016, r 14.6(b).12 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [40]-[48].[27] EQC and IAG submit that a 25 per cent uplift on its scale costs (not includingthe solicitor-and-client costs) is appropriate under r 14.6. They submit the Goodierspursued a number of arguments that lacked any merit:(a) The Goodiers' second cause of action was a land claim under s 19 ofthe Earthquake Commission Act 1993. The pleaded claim sought abuilding "cap" payment, which EQC submits was legally untenable andirreconcilable with the basis on which land and retaining walls areinsured under s 19 of the Act. The Goodiers did not abandon the s 19claim until opening submissions on 17 September 2018.(b) The Goodiers' case was that the landslip adjacent to the garage on theedge of the driveway had caused substantial structural damage to boththe garage and the house. The case was always to be determined oncausation, which in turn depended on evidence from geotechnicalengineers as to the landslip mechanism. Despite this, the Goodiers didnot call any evidence on causation from a geotechnical engineer. Thisis notwithstanding that EQC advised as early as 17 February 2017 thatgeotechnical evidence was required. In those circumstances, EQCsubmits that the Goodiers' case concerning the alleged damage to thehouse and garage was fundamentally flawed from the start. It issubmitted it lacked any merit and should never have been broughtwithout taking expert advice.(c) The Goodiers' pleaded claim was that the house could not be legallyrepaired or rebuilt on its current site because of a s 124 Notice issuedby the Whanganui District Council and therefore it was a total loss.13The Court of Appeal in Kraal v Earthquake Commission had rejected asimilar argument in 2015.14 It is submitted the argument pursued wastherefore plainly incorrect and the opposite of both High Court andCourt of Appeal authority.13 Building Act 2004, s 124.14 Kraal v Earthquake Commission [2015] ZNCA 13, [2015] 2 NZLR 589.[28] EQC and IAG make two further submissions on this point. First, it is submittedthe Goodiers failed to comply with the direction of Associate Judge Johnston who heldthat "any reply evidence put in by the plaintiffs must be strictly limited to new mattersraised in the defendants' evidence and not addressed in the plaintiff's initialevidence".15 It is submitted the Goodiers served significant evidence in reply that wasnot limited to matters in reply. It is submitted that the failure to brief this evidenceearlier meant that EQC's experts and counsel had to spend substantial time afterbriefing had been completed considering the implication of the evidence.[29] Second, it is submitted the Goodiers failed to comply with the order fordiscovery made in the proceeding and that this failure deprived EQC of the opportunityto contradict the Goodiers' other evidence and extended the hearing length through theneed to cross-examine on the issue.[30] In addition, IAG submits that the Goodiers' oral application to amend theirstatement of claim during their reply submissions, after both defendants had closed,contributed unnecessarily to the time and expense of the proceeding.[31] Overall then, EQC and IAG submit that throughout the proceeding, the conductof the Goodiers contributed unnecessarily to the time and expense of this proceedingand justifies an award of increased costs.[32] I deal with the last two submissions made by EQC and IAG first. I accept thatthe Goodiers served significant evidence in reply, including detailed briefs from theGoodier family, more fulsome briefs from the Goodiers' experts, and the 31 briefs ofevidence from friends and family. However, such evidence was brought in largely asa response to EQC's much more extensive briefs of evidence were filed. The initialexpert reports obtained on discovery did not contain such detail. Essentially the detailfrom both parties came towards the end of the preparation for the hearing and duringthe hearing itself. I do not consider this factor, nor the failure to provide furtherdiscovery, merits increased costs in these circumstances.15 Goodier v The Earthquake Commission and IAG New Zealand Ltd, above n 9, at [8].[33] Turning to the Goodiers' failure to call a geotechnical expert, that was theplaintiffs' decision in running the case. I do not consider it is for this Court to penalisethe plaintiffs' decision in that regard. The Goodiers called a number of lay witnesseswho gave their own evidence. While I found that ultimately the issue came down toone of causation, and the geotechnical evidence was crucial in that regard, it was opento the Goodiers to run the case on the factual basis they did, as well as to rely on EQC'sgeotechnical engineer in part. I do not consider this factor warrants a consideration ofincreased costs in the circumstances, particularly as EQC's geotechnical expert'sevidence was uncontradicted.[34] The final points are the land claim under s 19 of the Earthquake CommissionAct and the claim following the s 124 Notice. I agree with EQC and IAG that bothclaims were largely untenable in light of the Act, the evidence and previous authorities.However, the plaintiffs abandoned the land claim at the outset of the hearing. As theGoodiers submit, there was little evidence served on the land claim point, no hearingtime was taken up, and minimal opening submissions were filed on the issue. I acceptthat it would have caused minimal costs in terms of preparation for the hearing or theproceeding overall.[35] In relation to the s 124 Notice claim, the Court of Appeal in Kraal v EarthquakeCommission had held that the meaning of natural disaster damage was limited tophysical damage that arises from a natural disaster. On that basis the claim under thes 124 Notice could never have been successful. I find that on these points alone, theGoodiers unnecessarily contributed to the time and expense of the proceeding bypursuing an argument that lacked merit.[36] On that basis, I consider increased costs in the vicinity of five percent to beadequate to reflect the amount of hearing and preparation time that in respect of thetwo issues.Disbursements[37] EQC and IAG also seek reasonable disbursements. EQC claims disbursementsof $124,343.41, as outlined in Schedule 2 of its memorandum dated 20 September2019, and IAG seeks disbursements of $30,910.96, as outlined in Schedule 2 of itsmemorandum dated 25 September 2019.[38] In relation to EQC's claim, the Goodiers submit that EQC is not entitled toclaim for Peter Smith's expenses (invoiced through Spencer Holmes) incurred prior to1 October 2018 because Mr Smith's evidence was largely rewritten during the hearingand his initial conclusions were incorrect. They also submit EQC is not entitled torecover expenses relevant to Alan Donnan or Adrian Williamson because they wereboth EQC employees.[39] On the first point, the relevant question is always whether the witnesses'expenses and fees were necessarily incurred and are reasonable.16 The amendmentsto Mr Smith's evidence responded to the new evidence introduced by Mr Hunt. Hisinitial witness statement was still necessary at the time of preparation regardless of thefact that it was later amended. I accept that the related fees incurred are recoverableas necessary and reasonable disbursements.[40] On the second, the general rule is that a party's internal costs are notrecoverable,17 though this is not absolute.18 Mr Williamson was contracted by EQCfor a period prior to the trial commencing. At the time of trial, he was engaged as anindependent expert witness in the proceeding. Mr Donnan was, at the time of the trial,an employee of EQC. However, he too was called as an expert witness and not as anemployee of EQC. Both witnesses were extensively examined and cross-examined,and both provided valuable evidence. For both experts, I do not think the cost of theirpresence can properly be regarded as an internal cost to the company. I consider thecosts claimed for both Mr Williamson and Mr Donnan are reasonable and necessaryin the circumstances.[41] In relation to IAG's claim, the Goodiers submit IAG should not be able toclaim for Peter Smith's expenses for the same reasons outlined above, nor should it beable to recover costs for its structural engineers who were not ultimately called by16 High Court Rules 2016, r 14.12(2).17 Air New Zealand Ltd v Commerce Commission (2005) 17 PRNZ 786 (HC) at [86].18 Houghton v Saunders [2015] NZHC 548 at [146]; and Pangani Properties Ltd v Lloyd [2019]NZHC 863 at [66].IAG, and nor should it be able to recover counsel accommodation expenses forWellington when it had local lawyers. I reject the first submission for the same reasonsoutlined at [36]. I also consider the costs related to the Wellington accommodation forthe Christchurch counsel are recoverable as reasonable disbursements in thecircumstances. It provided continuity for the same lawyers who had begun the trial inWhanganui to come to Wellington to complete the oral proceedings. The hearing hadexceeded the allocated fixture of time, due to the additional evidence addressed by theGoodiers.[42] Turning to whether IAG can reasonably recover its costs for expert witnessesnot ultimately called, there is precedent for allowing, as disbursements, fees incurredfor experts who are subsequently not called as witnesses.19 Each claim is to beassessed within the context of preparation for, and presentation of, cases at trial. IAGsubmits that once it became apparent that the evidence of its expert witnesses wasconsistent with the evidence of EQC's experts, it decided not to call its own as thiswould needlessly prolong the proceeding. Efficiency in hearing time and needlessduplication of experts saves unnecessary expense and resources for all and is to beencouraged.[43] I accept some costs are reasonably recoverable as disbursements in relation toIAG's expert witnesses. However, I consider a figure in the amount of 25 per cent ofits invoices for the engineer is appropriate. The facts remain that IAG's expert did notserve any witness statements or give evidence because the evidence was consistentwith that of EQC's. For that reason, I consider 25 per cent of IAG's experts' costs arerecoverable as reasonable disbursements in the circumstances.Result[44] I allow costs on a 2B basis to be awarded in favour of EQC and IAG, as set outin Schedule 1 of both EQC's and IAG's submissions dated 20 September 2019 and25 September 2019 respectively, with the following exceptions:19 Houghton v Saunders, above n 18, at [109]; and Murray & Anor v BC Group (2003) Ltd & Ors[2009] NZLR 257 (HC) at [11].(a) 2A costs for the joint memoranda dated 6 September 2017.(b) Solicitor-and-client costs for the memoranda dated 25 May, 5 June and22 June 2018 and teleconferences on 6 June and 28 June 2018.(c) I do not accept that band C costs is appropriate for EQC's preparationof briefs or the hearing. The appropriate band is band B, that is, twoand a half days for the briefs and three days for the hearing. This needsto be updated on EQC's schedule.(d) I do not accept that EQC is entitled to a second allowance for re-briefing its experts. That step needs to be removed from EQC'sschedule.(e) I accept that EQC and IAG are entitled to an allowance for furtherclosing submissions. I consider that two day's preparation for EQC andone day's preparation for IAG is appropriate. This needs to be updatedon IAG's schedule.[45] Once the overall costs figure has been finalised, I consider that a five per centincrease for both EQC and IAG is appropriate for the reasons outlined earlier.[46] In terms of disbursements, I direct IAG to update its Schedule 2 to reflect thatonly 25 per cent can be recovered from Kevin O'Connor & Associates.[47] I direct the parties to update their Schedules in accordance with the decisionsmade above and provide Registry with the final numbers.Cull JSolicitors:Grant Shand, Auckland for PlaintiffsRussel McVeagh, Wellington for the First DefendantDLA Piper New Zealand, Wellington for the Second Defendant