SYDENHAM RECYCLING LIMITED v IAG NEW ZEALAND LIMITED [2014] NZHC 224

SYDENHAM RECYCLING LIMITED v IAG NEW ZEALAND LIMITED [2014] NZHC 224 [25 February 2014]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV 2013-409-001291[2014] NZHC 224BETWEEN SYDENHAM RECYCLING LIMITEDPlaintiffAND IAG NEW ZEALAND LIMITEDDefendantHearing: (On Papers)Counsel: ACC Hooker for PlaintiffC J Hlavac for DefendantfcJudgment: 25 February 2014COSTS JUDGMENT OF WHATA J[1] The plaintiff's claims were dismissed. Ordinarily costs follow the event. Butas I indicated at paragraph [109] and [112] of my judgment,1 I considered that the approach taken by IAG to the claim made by the plaintiff precipitated the litigation. I invited counsel to consider the implications of this, if any, for costs.[2] Mr Hlavac did not address my concerns and simply lodged a memorandum seeking costs on a 2B basis. The plaintiff, however, identified authority for the proposition that the conduct of the successful party may be such that an order of costs is made against it.2 This triggered a response from Mr Hlavac who submits, in short, that there was no evidence to support any adverse finding about IAG's conductand therefore this should not have impact on the costs order. He also submits that there is no evidence regarding any other claims that might have been made by Sydenham Recycling Limited.1 Sydenham Recycling Limited v IAG New Zealand Limited [2013] NZHC 3518.2 Citing Inglis and Co v Campbell HC Wellington CIV 2008-485-2527, 23 February 2009.[3] Finally, Mr Hlavac also attaches correspondence between Young Hunter andMr Hooker in relation to the claim. It is said that IAG's position was set out to theplaintiff as early as May 2012, but there was no response until April 2013 when Mr Hooker wrote advising that proceedings were to be issued.Assessment[4] As I have said, ordinarily costs follow the event. This reflects a statutory policy that parties ought to be able to proceed to litigation in such a way that they can anticipate the likely outcome on costs should they succeed or fail. More specifically r 14.2 states:14.2 Principles applying to determination of costsThe following general principles apply to the determination of costs:(a) the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:...(g) so far as possible the determination of costs should be predictable and expeditious.[5] Against these general principles, r 14.7 identifies various bases upon which costs may be refused or reduced. For the most part they are concerned with the conduct of the proceeding. Rule 14.7(g) however states:14.7 Refusal of, or reduction in, costsDespite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if-...(g) some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.[6] On its face r 14.7(g) confers a broad discretion to reduce costs provided there is appropriate justification for doing so. Certainly there is longstanding authority for the proposition that conduct precipitating litigation is a reason for refusal orreduction in costs. As the Court of Appeal stated in King and Others v Foxton Racing Club (Incorporated):3... Be that as it may, the discretion which the Court is called upon to exercise in regard to costs entitles the Court to disallow even a successful defendant his costs where, as Atkin, L.J., said in Ritter v Godfrey ([1920] 2 K.B. 47),"there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the "institution or the conduct of the suitcalculated to occasion unnecessary litigation or expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiffcomplains" (ibid., 60). It is expressed more shortly in Donald Campbell and Co., Ltd. V. Pollak ([1927] A.C. 732) (which overruled Ritter v. Godfrey in so far as holding that when a Judge, intending to exercise his discretion, has acted on facts connected with or leading up to the litigation the Court of Appeal is prohibited by statute from entertaining an appeal from hisdecision) in these words: "To justify an order refusing a (successful) defendant his costs, he must be shown to have been guilty of conduct which induced the plaintiff to bring the action, and without which it would probably not have been brought: (ibid., 814, 815). ...[7] Mr Hlavac did not challenge this basic principle. Nevertheless I am obliged to acknowledge the decision of the Court of Appeal in Paper Reclaim Ltd v Aotearoa International Ltd, wherein the Court in setting aside an award indemnity costs stated that it was wrong for the Judge to take into account a party's conduct prior to thecommencement of the proceedings. The Court noted: 4[160] ... If that conduct was wrongful, then the remedy is damages. Aotearoa did not plead any breach of contract relating to that period, save for sales to Carter Holt, which we have found not to have been in breach of the joint venture agreement. So the reasoning of the judge on this topic was doubly unfair to Paper Reclaim: His Honour not only took into account conduct which had never been pleaded as wrongful but also took it into account with respect to costs, to which it could never have been relevant.[8] King is not cited. But I think I can reconcile the two appellate authorities by observing that in King the Court was concerned specifically with conduct inducing the litigation, whereas in Paper Reclaim, the allegedly improper conduct was contextual only. Further, I note for completeness that I do not consider that the case cited by Mr Hooker, Inglis & Co Ltd v Campbell,5 is directly relevant. In that case the conduct during the proceedings, rather than prior to them, attracted costs.3 King and Others v Foxton Racing Club (Incorporated) [1953] NZLR 852.4 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].5 Inglis & Co Ltd v Campbell HC Wellington CIV 2008-485-2527, 23 February 2009.[9] Turning then to my assessment of the defendant's conduct. The evidence atthe hearing was clear, namely that IAG did not formally respond to the plaintiff'sclaim until one day after the expiry of the indemnity period and then a representative of IAG simply observed:During the indemnity period which ceases on 22 Feb, clients have maintained trading at 350 Wilsons Road and can still trade from there in the immediate future - we (Vero and ourselves) have paid out various costs under their ACOW cover to enable them to do this.Clients have now decided that they want to purchase a building for their long term future and are asking that we continue the balance of their sum insured on ACOW towards this purchase.We do not consider that some $450,000 could be considered areasonable additional expense incurred during the Indemnity Period.1. To avoid or diminish the reduction in turnover, or2. To resume or maintain normal business operations.[10] No explanation was given in evidence for the late response or to better justifyIAG's position at the time. To put this rejection in perspective, Mr Clegg, theindependent assessor engaged by IAG stated that:"...the Insured are unable to continue to operate from the site due to repairsor demolition and reconstruction"[11] His detailed report concluded by recommending that the plaintiff's claim be accepted. By comparison, IAG's response is not only pithy, but simply conclusory.[12] Mr Hlavac objects that no issue of bad faith was raised about the timing ofIAG's response until after evidence had closed. But this misconceives the true nature of the concern. The timing and perfunctory nature of IAG's response left theplaintiff in a most invidious position: the plaintiff had no remedy for its legitimateconcerns, no adequate explanation was given for rejecting Mr Clegg's report and theindemnity period had expired, effectively precluding an alternative response. In short the plaintiff was left stranded. All of this is clearly expressed in Mr Stapleton'sevidence to which there was no response from an IAG representative.6 In this context, litigation became inevitable.[13] Mr Hlavac now produces correspondence dated 15 May 2012 "setting outdetailed reasons supporting IAG's decision". The central points made in thecorrespondence are, it appears to me, the following:14. We cannot accept that the cost of purchasing a capital asset is a"reasonable" cost in circumstances where your client was only ever a tenant at the insured premises. The benefits which your client would receive from such a purchase, specifically the acquisition of a capital asset for which they would obtain a benefit lasting long after the expiry of the indemnity period, falls well outside the ambit of a"reasonable" cost contemplated by the policy.15. Further, the policy specifically provides under insured item L that nocover is provided for reinstating "your" property damage. Here, ofcourse, your client has not suffered property damage because it is only a tenant. However it is illogical that, if your client had owned the building, it would not have been covered under the BI policy for the cost of purchasing a temporary replacement building, yet as a tenant your client is somehow entitled to such cover.[14] These observations were ultimately substantiated after careful consideration of the policy and the factual matrix.7 But, as then presented, IAG failed to explain why the report of the independent assessor as to the need for relocation was wrong. It was in short simply a statement of position. I therefore do not resile from myobservation at [109] that IAG's response in effect precipitated the litigation. And, ina context where the victims of earthquake damage might expect alacrity and clearly reasoned denial of cover, the form and timing of the response was poor.[15] I also observe that the significance of pre-litigation conduct should not be underestimated in this context. There is currently before this Court a very large volume of earthquake related litigation, requiring extensive expert, legal and judicial resources. Conduct that unnecessarily exacerbates the potential for litigation is a matter of concern and is to be avoided.[16] I am nevertheless prepared to accept the plaintiff's delay in putting a proposalto IAG contributed to the difficulties subsequently experienced in terms of getting an6 Refer written brief of evidence of Sebastian Graeme Stapleton at 5.15-5.20 and 7.3.7 See also my judgment at [99].appropriate response from IAG. I am also prepared to accept in light of the correspondence attached to the memorandum of Mr Hlavac that verbal communication of the outcome of the claim was made in February 2012 prior to the expiry of the indemnity period and some attempt was subsequently made to expand on the reasons for the refusal.8 Mr Hlavac also makes the valid point that IAG had to work with Vero before reaching a final view, and this combined with the pressure of responding to the large number of earthquake claims made it difficult for IAG to respond in a timely way. This mitigates to some extent (but not entirely) the Court'sconcern about the timing and pithiness of the response to the claim given by IAG.[17] In those circumstances, I reduce the ordinary award of costs in favour of IAG by 20%.Quantum[18] The quantum of the costs is challenged by the plaintiff on the following grounds:(a) Item 32 dealing with the common bundle is challenged on the basisthat the common bundle was prepared by the plaintiff at the plaintiff'sexpense and the plaintiff was never served with an issues list or a list of authorities;(b) The plaintiff challenges the witness expenses claimed, on the basis that Mr Clegg did not give expert evidence and that Mr Burrows should be allowed as his involvement was necessary to correct aprevious error by IAG's assessor.[19] I agree with the plaintiff that, in terms of Item 32, as the bundle was preparedby the plaintiff at the plaintiff's expense, it should not have to pay for further costssaid to have been incurred by the defendant.8 This was in fact pleaded by the defendant but without supporting evidence from a deponent for IAG.[20] As to witness expenses, Mr Clegg was a deponent as to fact. Nevertheless his evidence was necessary and IAG should be reimbursed for his expenses.[21] Mr Burrows provided expert evidence which was of considerable assistance to the Court. His fees should be accounted for in the ordinary way.[22] As to the quantum of their fees, I must be satisfied that the fees were necessary to the conduct of the proceeding and reasonable in amount.9 The onus of proof as to their reasonableness lies with the claimant, in this case IAG. The invoices attached to the memorandum of counsel do not specify with sufficient detail the nature of the attendances and their specific relationship to the hearing. This will need to be provided by way of affidavit, together with a statement by the experts that the rates claimed fall within the norm for such attendances.10[23] Given the foregoing, the defendant is entitled to costs according to scale reduced by 20% and less Item 32. However, the defendant must produce evidence dealing with the matters identified at [22] before it is entitled to the disbursements claimed. Once that is done, and subject to any further submissions on this specific aspect, I will make the final orders accordingly.Solicitors:Andrew Hooker, AucklandYoung Hunter, Christchurch9 Rule 14.12(2)(c) and (d).10 See Progressive Enterprises Ltd v North Shore City Council HC Auckland CIV 2004-404-7139, 22 December 2005 at [32].