TOWER INSURANCE LIMITED v KILDUFF AND VERITAS (2012) LIMITED AS TRUSTEES OF THE EMOSH FAMILY TRUST [2019] NZCA 82

TOWER INSURANCE LIMITED v KILDUFF AND VERITAS (2012) LIMITED AS TRUSTEES OF THEEMOSH FAMILY TRUST [2019] NZCA 82 [29 March 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA510/2018[2019] NZCA 82BETWEEN TOWER INSURANCE LIMITEDAppellantAND ELIZABETH MARY KILDUFF ANDVERITAS (2012) LIMITED AS TRUSTEESOF THE EMOSH FAMILY TRUSTRespondentsHearing: 24 October 2018Court: Brown, Courtney and Katz JJCounsel: M C Smith for AppellantC R Johnstone for RespondentsJudgment: 29 March 2019 at 4.00 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondents costs for a standard appeal on aband A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Katz J)[1] The appellant (Tower) insured the respondents' property, which wassubstantially damaged in the 2010 and 2011 Christchurch earthquakes.[2] In 2016 the respondents issued proceedings against Tower pursuant to theirinsurance policy. The key issues at trial were the scope of the required repair, theappropriate costing of the repair, and a claim by the respondents for general damages.[3] In his substantive decision of 17 April 2018 (as subsequently amended on30 May 2018 pursuant to the slip rule)1 Gendall J determined that the maximumamount payable by Tower for repair of the respondents' house was $628,516.01.2This was calculated on the basis that the cost of repairs was $871,042.14, from which$242,526.13 was deducted (being the amount that the respondents had alreadyreceived from the Earthquake Commission (EQC)).[4] In his subsequent costs decision, Gendall J ordered Tower to pay therespondents costs totalling $81,249, together with disbursements totalling$122,515.20.3[5] Tower now appeals the costs decision. The key issues raised by its appeal are:(a) Did the Judge err in concluding that the respondents were the successfulparty?(b) Did the Judge err in his assessment of Tower's Calderbank offers?(c) Did the Judge err in his quantification of the costs award?Background[6] The factual background is set out in the substantive decision.4 We brieflysummarise key aspects below.1 High Court Rules 2016, r 11.10.2 Kilduff v Tower Insurance Ltd [2018] NZHC 704 [substantive judgment] and Kilduff v TowerInsurance Ltd [2018] NZHC 1243 [subsequent judgment].3 Kilduff v Tower Insurance Ltd [2018] NZHC 2021 [costs judgment].4 Substantive judgment, above n 2, at [6]–[21].[7] The respondents, as trustees of a family trust, own a residential property inSumner, Christchurch. The property was damaged during the Christchurchearthquakes of 2010 and 2011.[8] The respondents lodged their claim with their insurer, Tower, in September2011. The cost to repair the house was initially assessed by Tower as being around$188,000. Tower then sent the respondents a proposed scope of works for discussionin October 2012. In June 2014 Tower made a cash settlement offer of $85,074.34,plus any additional costs reasonably incurred in conducting the repairs within twoyears. That offer was based on a total estimated repair cost of $317,600.47, less EQCpayments. It was the only settlement offer that was made prior to the issue ofproceedings.[9] Gendall J summarised the next steps as follows:5[19] In the meantime, the plaintiffs instructed Wynn Williams solicitors inChristchurch on the matter. Wynn Williams notified Tower on 24 July 2015that the plaintiffs did not agree with Tower's approach and were appointingtheir own experts. In light of the letter, Tower appointed experts and asked theplaintiffs to co-operate with them. The Tower experts conducted an initial sitevisit in October 2015. Although they required further access, Wynn Williamsinformed Tower that it would not be able to access the property until theplaintiffs' experts' reports were available. The plaintiffs disclosed these toTower on 24 March 2016. Wynn Williams' letter to Tower advised that theplaintiffs had resolved that a repair was not viable. This was the first timeanyone had suggested that. Tower was advised its experts could visit in earlyApril 2016. The plaintiffs sought a meeting to resolve the claim in late April2016, as Ms Kilduff would be overseas in May.[20] Tower's experts visited the site but were unable to finish their reportsfor the meeting given the tight timeframe. The plaintiffs then filed theseproceedings on 12 May 2016. Tower's expert reports were disclosed to theplaintiffs in July 2016. After conferral, the parties' engineers finalised theirjoint report in December 2016. The parties then obtained quantity surveyorcostings. After considering the costings, Tower elected to settle the claim bymaking payment.[10] In their original statement of claim, the respondents alleged that the damage tothe house was "objectively beyond feasible and economic repair". They quantifiedthe rebuild cost at $1,952,891.00. The parties' geotechnical and structural engineerssubsequently conferred, and produced a comprehensive joint report in5 Substantive judgment, above n 2.December 2016, with an addendum in June 2017, in which the repair methodologywas substantially agreed. As a result of this further work, the respondents concededin June 2017 that the house was repairable, and this was reflected in their amendedstatement of claim dated 6 September 2017.[11] Tower made a Calderbank offer to settle the respondents' claim on 15 August2017, in the sum of $650,000. On 27 October 2017, it made a further Calderbank offerof $734,000. The October offer was met with a counter offer of $1,025,000.[12] At the outset of the trial, the respondents sought, by way of relief, an upfrontpayment of $925,765.82. Most of this sum related to their estimated repair cost of$1,106,019.40, less EQC payments the respondents had already received (resulting ina net total of $778,882.24). The respondents also sought reimbursement of variousprofessional fees, and general damages for breach of good faith duties. An additionalsum for temporary accommodation and storage was sought (this appears to have beenagreed).[13] Tower denied that it was liable under the policy to make an upfront cashpayment of the respondents' policy entitlements. It also submitted that the true costof repairs was only $812,127, and opposed the respondents' claims for reimbursementof professional fees and general damages.[14] The final adjusted repair costings presented by the parties' respective quantitysurveyors, as at the conclusion of the trial, were $770,698 or $800,524 (Tower, basedon two different models) and $980,703 (the respondents).[15] Gendall J found that the cost of repairs was $871,042.14 (inclusive of GST).6Once the EQC payments that had already been made were deducted, the net repair costpayable by Tower was $628,516.01. He dismissed the respondents' general damagesclaim. He accepted Tower's submission that the respondents were not entitled underthe policy to an immediate upfront cash payment. Rather, Tower was obliged to meet6 This is the amended sum following Gendall J's subsequent decision of 30 May 2018, in whichvarious errors in calculation in the substantive judgment were corrected under the slip rule:Subsequent judgment, above n 2, at [31(e)].the cost of any repair contract once the respondents had incurred a legal obligation topay for the repairs.7[16] Both parties claimed to be the successful party and sought costs. Gendall Jdetermined that the respondents were the successful party.8 He compared Tower'spre-trial settlement offers of $650,000 (on 15 August 2017) and $734,000(on 27 October 2017 — five working days prior to trial) unfavourably to therespondents' post-trial entitlement. In calculating the respondents' entitlement, theJudge added various sums to the net repair costs. These included an allowance forinterest up to the likely date of payment, and legal costs, calculated as at the conclusionof the trial. On this approach, the respondents' final entitlement, assessed post trial,was $855,169.20. As this sum was greater than either of Tower's Calderbank offers,Gendall J concluded that those offers had no impact on the respondents' entitlementto an award of costs.9Approach to appeal[17] Costs decisions of the High Court, whether in the form of orders or a separatejudgment, are appealable as of right under s 56(1)(a) of the Senior Courts Act 2016.[18] An award of costs involves the exercise of judicial discretion. As such, inorder to succeed, Tower must show that the High Court acted on a wrong principle,failed to take into account a relevant matter or took into account an irrelevant matter,or was plainly wrong.10 However, the costs adjudication does not involve anunfettered discretion, and it must be exercised on a principled basis.11[19] A trial judge has a particular advantage when fixing costs, and so the Judge'sviews can be influential on appeal.12 Appellate courts will be particularly slow tointerfere with a lower court's decision on costs, because that court, in exercising its7 At [129]–[130].8 Costs judgment, above n 3.9 At [29].10 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [15].11 At [16]–[17].12 Jarden v Lumley General Insurance (NZ) Ltd [2018] NZCA 6 at [8], citing Cunningham vButterfield [2014] NZCA 213, (2014) 22 PRNZ 521 at [59].discretion, will be influenced by a myriad of details that are difficult to replicate onappeal.13Did the Judge err in concluding that the respondents were the successful party?[20] The Judge determined that overall the respondents were the successful party,describing them as "substantially successful" and noting that "success on more limitedterms is still success".14 His Honour found that there were no exceptionalcircumstances that justified any departure from the usual principle that costs shouldfollow the event.[21] Tower submitted on appeal that the Judge had erred in finding that therespondents were the substantially successful party. Tower contended that, on arealistic appraisal, it was the successful party.[22] Mr Smith, for Tower, submitted that it was relevant to the Court's assessmentof who the successful party was that until mid-2017 the respondents' position (basedon expert advice) was that a complete rebuild was required. It was only in June 2017that the respondents accepted that the property could be rebuilt. Mr Smith argued thatthe respondents' insistence that a rebuild was required made settlement difficult, if notimpossible, prior to July 2017. This issue was also raised by Mr Smith in the contextof whether the Judge erred in his assessment of Tower's Calderbank offers. In ourview it is primarily relevant in that context, and we therefore address this issue at[37] to [40] below.[23] Tower's next submission was that the Judge's declaration as to the cost ofrepairs cannot fairly be viewed as "success" on the part of the respondents, as therespondents had not in fact sought such a declaration in their statement of claim.Rather, they had sought an immediate lump sum payment equating to the costs ofrepairs. The Judge, however, accepted Tower's submission that the respondents werenot entitled under the policy to an immediate lump sum payment. Rather, havingdetermined various disputed issues regarding the scope of works and cost of repairs,13 Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002)16 PRNZ 662 (CA) at [22].14 Costs judgment, above n 3, at [16], citing Weaver v Auckland Council [2017] NZCA 330 at [26].his Honour made a declaration as to the maximum amount Tower was liable to pay tomeet its obligation under the policy to cover the repair of the respondents' house, oncethose costs had been incurred. This was an orthodox approach to relief in respect ofclaims under such policies.15[24] It is not unusual for plaintiffs to fail to obtain relief in the precise form soughtin their pleading. We reject Tower's submission that the respondents claim should beconsidered, in effect, to have been unsuccessful simply because they failed to securethe payment of an immediate cash lump sum, but instead were granted a declarationthat Tower meet their repair costs up to the specified amount. In practical terms, theonly significant difference is likely to be one of timing, in that Tower will not berequired to pay until the respondents have incurred a legal obligation to pay for therepairs, for example by entering into a binding building contract.[25] Tower's next argument as to why it should be found to be the substantiallysuccessful party was that the cost of repairs as assessed by Gendall J ($871,042) iscloser to the repair estimates Tower advanced at trial than that advanced by therespondents (as set out at [12]–[14] above). Mr Smith contended that this reflected ageneral preference by the Judge for the evidence of Tower's quantity surveyor,Mr Eggleton, over the respondents' quantum witness. Further, Mr Smith noted thatthe respondents' claim for general damages was unsuccessful.[26] Mr Johnstone, on behalf of the respondents, submitted that applying a"realist's lens"16 and a "common sense approach",17 the Judge was correct to concludethat the respondents substantially succeeded at trial. Mr Johnstone submitted that theywere largely successful in relation to the outstanding issues that went to trial, and thatGendall J generally preferred the respondents' recommendations regarding keyaspects of the scope of work.15 See for example Jarden v Lumley General Insurance Ltd [2015] NZHC 1427 at [137].Judgment upheld on appeal: Jarden v Lumley General Insurance (NZ) Ltd [2016] NZCA 193.16 Fog v Frimley Estate Ltd [2016] NZHC 314 at [3].17 Young v Tower Insurance Ltd [2017] NZHC 482 at [12].[27] A common-sense approach must be taken. The respondents' insurance claimhad stalled (or at least was progressing very slowly). His Honour noted, beforedismissing the claim for general damages, that:18 I do have considerable sympathy for the position the plaintiffs andMs Kilduff in particular found themselves in post-earthquakes whilstsurviving for year after year in a damaged and at times leaking home.Ms Kilduff complains that Tower was impervious to her plight as she survivedin a sodden, damaged and, at times, a mouldy house with temporary fixes thatfailed and also that she was required to endure numerous site inspections andmeetings which achieved little.[28] As the Judge noted,19 some of the delays were attributable to the respondents.Nevertheless, to bring matters to a head, they ultimately found it necessary to issueproceedings. The respondents were ultimately vindicated, insofar as they received adeclaration from the Court regarding the cost to repair that exceeded the amount ofTower's pre-trial Calderbank offers and also the amount that Tower advanced at trialas being the cost of the necessary repairs. Although the respondents received adeclaration for less than the amount they sought, that does not negate a costs order.As this Court observed in Weaver v Auckland Council "success on more limited termsis still success".20[29] As for the respondents' failure to obtain an award of general damages, we notethat this formed a relatively small part of the overall claim. Further, Gendall J foundthat the respondents had failed to prove their claim for general damages by a"reasonably fine margin".21 He further observed that the general damages claim hadbeen fairly pursued and did not unreasonably extend the proceeding.22 The failure toobtain an award of general damages, in our view, does not materially impact on theassessment of which party was substantially successful in the proceeding.[30] As the trial Judge, Gendall J was well placed to understand and consider themyriad of factors relevant to an assessment of success. We have carefully consideredthe specific arguments advanced by Tower as to why it, rather than the respondents,18 Substantive judgment, above n 2, at [123].19 At [120]–[121].20 Weaver v Auckland Council, above n 14, at [26].21 Substantive judgment, above n 2, at [123].22 Costs judgment, above n 3, at [14].was the overall successful party. We find those arguments unpersuasive, for thereasons we have outlined above. We do not consider that Gendall J erred in concludingthat the respondents were the substantially successful party.Did the Judge err in his assessment of Tower's Calderbank offers?[31] Tower submitted that Gendall J was wrong to have rejected its alternative claimthat it was entitled to be treated as the successful party because of two pre-trialCalderbank offers it had made.[32] Pursuant to rr 14.10 and 14.11 of the High Court Rules, if a Calderbank offeris made, the party who made the offer is entitled to costs on the steps taken in theproceeding after the offer is made if they offered a sum of money that exceeded theamount of a judgment obtained by the other party, or which would have been morebeneficial to the other party than the judgment obtained by the other party. The offermay also be taken into account if the offer does not constitute either of those things,and is close to the value or benefit of the judgment obtained by the other party. Theserules are subject, however, to r 14.11(1) which specifies that:(1) The effect (if any) that the making of an offer under rule 14.10 has onthe question of costs is at the discretion of the court.[33] The Court's discretion in making an order for costs to the party that did notsucceed at trial, on the basis of a Calderbank offer is broad, and all relevantcircumstances must be considered, including whether rejection of the offer or offerswas reasonable.23[34] As noted at [16] above, in calculating the respondents' entitlement, his Honourincluded legal costs to the conclusion of trial, as well as a sum in respect ofpost-judgment interest. Tower submitted that the Judge was wrong to include in hisanalysis interest and costs that had accrued after Tower's offers were made. In orderto compare "like with like," Tower submitted, interest and costs should have beenassessed up to the date of the offers only.23 Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd HC AucklandCIV-2003-404-2542, 23 September 2005 at [58].[35] We accept that submission. The Judge erred in taking into account all of thecosts and disbursements incurred up to the conclusion of the trial (and post trial, inrespect of interest) in assessing whether the respondents had obtained a judgment thatexceeded either of the Calderbank offers. In order to compare "like with like" themore appropriate course was to only take into account that portion of the costs awardthat related to the costs and disbursements incurred prior to the date of the relevantCalderbank offer. This is consistent with the purpose of the Calderbank regime, whichis to encourage the settlement of disputes, and to impose costs consequences on thosewho fail to accept reasonable settlement offers prior to trial. Assessing thereasonableness of an offer requires the court to consider the position as at the time theoffer was made. Factoring in additional costs, which would not have been incurred ifthe offer had been accepted, and interest beyond the date of the offer distorts theanalysis. In assessing the reasonableness of a Calderbank offer, the usual course istherefore to disregard costs that the winning party had not yet incurred, and which itwill never incur if the offer is accepted.24[36] Tower submitted that, in the particular circumstances of this case, it isnecessary to go even further, and also disregard the costs incurred by the respondentsprior to the making of the first Calderbank offer in August 2017. Mr Smith arguedthat Tower should have been treated as the entirely successful party at that stage, asthe respondents had only just conceded that the property could be repaired, and that acomplete rebuild was not required. Any costs entitlement, he submitted, couldtherefore only start to run from June/July 2017. As at the date of the October offer,Tower submitted, costs for the respondents could not have exceeded the $105,000difference between the October offer and the judgment value. Based on this analysis,Tower submitted that both Calderbank offers exceeded the plaintiff's entitlement,assessed as at the date of the Calderbank offers.[37] Consistent with this approach, Tower did not undertake any analysis of whatportion of the costs award related to costs incurred by the respondents up to the dateof either the first Calderbank offer (15 August 2017) or the second Calderbank offer24 Gauld v Waimakariri District Council [2014] NZHC 956 at [20]; and McDonald v FAI (NZ)General Insurance Co Ltd (2002) 16 PRNZ 298 (HC) at [11], citing Health Waikato Ltd vvan der Sluis (1997) 10 PRNZ 514 (CA).(27 October 2017). Mr Smith appeared to accept at the appeal hearing, however, thatif the costs award was apportioned to reflect only the costs and disbursements incurredup to those dates, and that sum was added to the net repair amount, then therespondents had indeed "beaten" both Calderbank offers at trial.[38] We reject Tower's submission that all costs and disbursements incurred by therespondents prior to June/July 2017 should be disregarded when considering Tower'ssettlement offers. It is now clear, with the benefit of hindsight, that the respondentsinitial claim (based on expert advice) that a rebuild was required was incorrect.The effect of that erroneous view was that the quantum initially claimed by therespondents (approximately $2 million as opposed to its revised claim of $1 million)was too high. It revised the quantum sought downwards following updated expertadvice.[39] It is not unusual, however, for parties to amend or refine their position asproceedings progress. It does not follow that, if a plaintiff materially reduces theclaim, the opposing party must be considered to be the successful party up to thatpoint. Regardless of the amount the respondents were claiming, it was open to Towerat any stage of the proceeding to make what it believed to be a realistic settlementoffer. If Tower had made its final settlement offer of $734,000 significantly earlier inthe proceedings, when minimal costs had been incurred, that offer would likely have"beaten" the sum obtained at trial (assessed in the way we have outlined above).In that event, it is likely that Tower would now have minimal costs liability. A partycannot, however, choose not to make a settlement offer on the basis that the plaintiff'sclaim is unreasonably high, and then seek to secure the costs benefits it would havereceived if it had made such an offer.[40] Accordingly, in order to establish that the Judge erred in his assessment ofTower's Calderbank offers, Tower must satisfy us that it offered the respondents a sumof money that exceeded the sum of $628,516.01 (the Judge's assessment of the repaircosts, including interest, less the EQC payments) plus that portion of the Court's costsaward that related to the costs and disbursements incurred prior to the date of eachCalderbank offer. Tower has not undertaken this exercise, and did not advance itsappeal on this basis. As noted above, Mr Smith appeared to accept at the hearing thaton this approach Tower's Calderbank offers fell short. This aspect of the appealaccordingly fails.Did the Judge err in his quantification of the award?[41] Tower's final ground of appeal (in the event that its other grounds of appealfailed) was that the High Court erred:(a) in categorising certain costs items as band C rather than band B; and(b) by declining to reduce the costs otherwise payable to reflect Tower'smeasure of success in the proceeding and its settlementcorrespondence.[42] Gendall J awarded the respondents scale costs, primarily on a 2B basis.Band C scale costs were permitted for witness statements, hearing preparation, andpreparation of written submissions.25 This was on the basis that those steps involveda comparatively large amount of time. His Honour dismissed Tower's submissionthat, if costs were awarded against it, they ought to be reduced pursuant to r 14.7 ofthe High Court Rules.26 The total costs awarded were $81,249.00, together withdisbursements of $122,515.20.[43] Tower submitted that band C costs were inappropriate for the relevant steps forthe following reason:This was a standard five-day Earthquake List trial for which the usual band Ballowance should have applied. Trial preparation was in fact considerablysimplified by the comprehensive joint reports that had been completed by theengineers and quantity surveyors. This was not a case like the authority reliedon – Young – which involved an unusually technically complex 11 day trial.(Citations omitted.)[44] As we have noted above, an award of costs involves the exercise of judicialdiscretion. Tower must show that the Judge acted on a wrong principle, failed to takeinto account a relevant matter or took into account an irrelevant matter, or was plainly25 At [32].26 At [37].wrong. Tower did not explain with any particularity why it believed that band C wasinappropriate for the relevant items.[45] Gendall J is an experienced Earthquake List Judge, who presided over not onlythis trial but also Young,27 which Tower seeks to distinguish. In our view, his Honourwas well placed to assess the appropriate band for particular items. There is nothingto suggest that he was plainly wrong, took into account irrelevant matters or failed totake into account relevant matters. We see no basis for interfering with the exerciseof his Honour's discretion as to the appropriate band allocations.[46] Finally, we accept that it would have been open to the Judge to reduce the costsotherwise payable, to reflect Tower's (fairly modest) measure of success in theproceeding — for example in successfully opposing the claim to general damages. Itssettlement offers were also relevant to the overall costs assessment. Although bothoffers fell short, they were genuine and realistic offers to settle, which were onlyexceeded at trial by a relatively modest margin.[47] We are mindful, however, that this is an appeal against the exercise ofa discretion. The Judge exercised his discretion on a principled basis, takinginto account relevant matters and disregarding irrelevant matters. It was not"plainly wrong" for him not to reduce the costs otherwise payable by Tower, and wesee no basis to interfere with the exercise of his discretion in this respect.Result[48] The appeal is dismissed.[49] Tower must pay the respondents costs for a standard appeal on a band A basisand usual disbursements.Solicitors:Gilbert Walker, Auckland for AppellantWynn Williams, Christchurch for Respondents27 Young v Tower Insurance Ltd, above n 17.