QBE Insurance (International) Limited v Steward Motorsports European Limited [2013] NZHC 3457 (18 December 2013)

Last Updated: 26 February 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-003382 [2013] NZHC 3457

UNDER Section 72 of the District Courts Act 1947

IN THE MATTER of an appeal against the judgment of the

District Court

BETWEEN QBE INSURANCE (INTERNATIONAL) LIMITED

Appellant

AND STEWARD MOTORSPORTS EUROPEAN LIMITED Respondent

Hearing: 25 October 2013

Counsel: M Dennett for Appellant

R Dellow for Respondent

Judgment: 18 December 2013

_{JUDGMENT OF ASHER J}

This judgment was delivered by me on Wednesday, 18 December 2013 at 1.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel: Kennedys, Auckland.

Anderson Creagh Lai, Auckland. R Dellow, Auckland.

QBE INSURANCE (INTERNATIONAL) LTD v STEWARD MOTORSPORTS EUROPEAN LTD [2013] NZHC 3457 [18 December 2013]

Introduction

[1] On the afternoon of Friday 12 December 2008 a partially restored red 1972

Ferrari Daytona slowly turned into the intersection of Kaimahi Road and Target Road and into a vehicle parked on the side of Target Road, causing it to shunt forward and hit another parked vehicle. There was extensive damage. Steward Motorsports European Ltd (Steward) is the motor engineering company that was restoring the car, and QBE Insurance (International) Ltd (QBE) is its insurer. QBE has declined the claim for cover for the damage caused. The owner of the Ferrari, Mr R N Smith, is not a party.

[2] Mr Smith had placed the vehicle in the hands of Steward almost three years prior to the accident. The car had come from California and was in poor condition, and the work had developed into a full restoration project. By December 2008 the restoration project was close to finished. The driver of the vehicle, when the accident took place was a mechanic employed by Steward, Mr Barnes. He and others in Steward had been working on various mechanical issues including the brakes, although the exact details of that work and when it was done were a matter of contention and the subject of extensive submissions in this appeal.

[3] Mr Barnes said he drove the car on the afternoon in question to test the brakes. Having gone out of the workshop, which was on Kaimahi Road, and having travelled approximately 100 metres down to the intersection with Target Road, he went to put the brakes on. They failed to work and the brake pedal went to the floor. There were stationary cars at the intersection so he had the choice, he said, of colliding with the rear of the stationary cars waiting to turn into Target Road, or going to the left of them and turning into Target Road. He chose the latter option. Unfortunately, as he turned he saw there were cars parked ahead on the side of Target Road, and he was unable to swerve out into the lane to avoid them because it was clogged with traffic coming down the road towards him. So rather than turn into those vehicles he collided with the stationary car ahead.

[4] The sole shareholder and managing director of Steward is Mr J W Steward. He deposed that he had issued a no test drive policy direction to employees. He gave

evidence in the course of that afternoon that he heard the Ferrari start. He went out, but the Ferrari had already gone. His worst fears were realised when Mr Barnes returned on foot and informed him of the accident. Ultimately, when the Ferrari was returned to the workshop it was found to be extensively damaged. Mr Barnes, who was disqualified from driving at the time of the accident, was subsequently dismissed.

[5] Steward had a public liability policy with QBE. A claim form was completed and, after Mr Steward had obtained advice, submitted to QBE. The accident was explained by Mr Steward in the following terms:

Employee mechanic of Steward Motorsports European Ltd proceeded to test drive the vehicle after completing mechanical repairs and experienced brake failure resulting in a collision with two parked cars.

[6] QBE was suspicious. It did not accept that the claim fell within the policy. Clause 10 of the policy provided that QBE would indemnify Steward in respect of property damage “... in New Zealand arising from the service or repair by the insured of any vehicle ...”. A QBE investigator, Mr McKay, did not think the damage to the Ferrari arose from the service or repair by Steward, but rather by Mr Barnes driving the Ferrari on a jaunt of his own without the permission or authority of Steward.

[7] Ultimately after investigating matters QBE formed the view that Mr Barnes had not been in fact working on the brakes prior to the accident, at least in the way he described, and that in any event the accident was not caused by brake failure, but rather by driver error. It also developed the view ultimately pleaded in its statement of defence that there had been a failure on Steward’s part to meet cl 8 of the policy relating to due diligence. Particularly, Steward was said to have breached its obligation to take all reasonable steps to ensure that:

8.3 There are proper safety systems, equipment, practices and procedures in place, and that all employees use and comply with them at all times.

Finally, QBE formed the view that Steward’s claim was fraudulent and in breach of

cl 9 of the policy which provided:

Fraud

If any answers or statements in support of any claim, or any information provided to obtain, amend or renew this insurance, are false in any way, QBE shall not provide any indemnity to the insured under this policy.

[8] The position of QBE was that the claims of Steward were all false. It was said that the claims that the Ferrari’s entire brake system had been worked on and bled prior to the accident, that Mr Barnes had been testing the brakes when he drove it, and that the accident was caused by the failure of the brakes were all untrue. There were other allegations of falsity which were not pursued on this appeal.

The decision

[9] There was a five day hearing in the District Court on 12–16 December 2011, a further hearing on 5 September 2012 and judgment was delivered on 8 April 2013.

[10] The Judge recorded that the burden of proving fraud lay on QBE. He observed that the Court would have regard to the seriousness of the allegations in a given case in applying the civil standard and that the fraud allegation was serious. He found that there was considerable evidence to support the plaintiff’s proposition that the brakes had been worked on by Mr Barnes on the day of the accident on

12 December 2008. He reviewed the evidence concerning the work done over some

29 paragraphs of the judgment.¹ He concluded that the brakes had been worked on on that day and had failed, causing the accident.

[11] The Judge considered the evidence of the QBE investigator, Mr McKay, and compared it to the evidence of Mr Barton, an investigator called by the plaintiff. In the end he accepted Mr Barton’s opinion on contentious issues in preference to that of Mr McKay. He did not accept Mr McKay’s evidence that the brakes would not have failed, and did not fail. He held that the weight of evidence satisfied him that the accident happened in the manner described by Mr Barnes. QBE had failed to

_{establish its allegations. He accepted Mr Steward’s evidence. He concluded:}²

¹ Steward Motorsports European Ltd v QBE Insurance (International) Ltd DC Auckland CIV-

_{2009-4-2705, 8 April 2013 [Steward] at [18]–[47].}

² At [37] and [38].

The evidence satisfied me that the first defendant has, by a wide margin, failed to establish its allegations.

... On the balance of probabilities standard the preponderance of probabilities favours the plaintiff ’s account rather than the first defendant’s theory.

[12] He determined that Mr Steward did in fact instruct his employees that they were not to drive the Ferrari and that Mr Steward was not expecting the car to be driven that afternoon. He considered that Mr Barnes had chosen to disregard the warning. Mr Barnes, who was a disqualified driver, had chosen also to ignore the Court’s order. Mr Steward had not countenanced the driving and was not in breach of the due diligence clause. The accident had arisen out of the service and repair

work being done by Steward on the Ferrari. He stated that:³

Overall I found the plaintiff ’s witnesses gave a credible and believable account of the events of 12 December 2008.

Mr Barnes was regarded as “frank” in his evidence and it was noted that there was nothing for him to gain in giving false evidence.

[13] The Judge refused to grant exemplary damages. He held that Steward was entitled to an award of damages against the first defendant in the sum of $41,874.51, being the proven cost of repair to the Ferrari and the other vehicles that were damaged, less the excess paid. This was less than half the amount claimed. He held that Steward was entitled to interest at the maximum rate permitted by the District Courts Act 1947 at the time.

[14] There was a subsequent costs judgment on 25 June 2013 which is also the subject of this appeal. The Judge did not accept the submission that costs should be

_{limited by certain Calderbank offers made by QBE, and awarded costs to Steward.}

³ At [45].

Approach

[15] The approach to be taken in this appeal to reviewing matters of fact and credibility is that outlined by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar:⁴

[16] Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court's opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court's assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[16] The Supreme Court reiterated the customary position that an appeal court should be cautious in interfering with a trial judge’s credibility findings where those findings are premised on in-court exposure to witnesses.⁵ However, such findings are not immune on appeal and the appeal court must undertake a “real review”, involving weighing of conflicting evidence and independently drawing inferences and conclusions from the evidence in assessing credibility.⁶

[17] Mr Dennett for QBE stated in submissions that in relation to liability the appeal was essentially based on the trial Judge’s findings that the rear brakes had been bled as claimed by Steward, and that the lack of surface corrosion on the brake discs was insignificant. Further to those central submissions, the appellant has filed approximately 24 pages of detailed submissions on the facts relating to the repair and the accident, which range over a wider number of issues. These involve quite technical submissions on how the brake system functioned and what, as a matter of mechanics, must have happened to cause the accident. I will not in the course of this

_{judgment deal with every point made or argument raised.}⁷

⁴ _{Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.}

⁵ _{At [14].}

⁶ _{Tang Ming Hardware Co Ltd v Yu [2010] NZHC 365; (2010) 19 PRNZ 683 (HC) at [9].}

⁷ R v Nakhla (No 2) [1974] 1 NZLR 453 (CA) at 456.

The brake system and how it may have failed

[18] Mr Barnes’ evidence was that prior to taking the Ferrari out, he topped up the brake fluid reservoir and his colleague Mr Perera pumped the brake pedal to force new fluid through the brake lines. This was to check what he refers to as “pedal feel” to assess the state of the brakes. Mr Barnes stated that while Mr Perera was doing that, he operated the brake calliper bleeder valves. Mr Barnes says that this was a long process but eventually the brake pedal felt as it should. He carried out a static brake check with the engine running. It was after this that he decided to take the car for a test drive.

[19] The essential position of QBE was that Mr Steward and Mr Barnes were lying when they said that there had been bleeding of the brake system immediately prior to the accident, and a top up. In the opinion of the QBE expert Mr McKay, based on tests of the brake fluid sample by boiling, some of the brake fluid that was in the vehicle’s system had been there for a minimum of four years. QBE asserted that the symptoms of oil in the reservoir, indicating a mix of old and new oil, was the result of a later deliberate tampering with the brake fluid reservoir on the part of Steward to hide the true position.

[20] There are two completely separate and independent brake systems on the Ferrari, each servicing all four wheels on the vehicle, but both serviced by a common brake fluid reservoir. There was evidence that there were different brake fluid levels present in the front and rear partitions of the brake fluid reservoir, and this was shown to the Judge in a video of Mr Barton’s investigation. The way the brake fluid reservoir operates, should one circuit lose all its fluid, is that there will be adequate fluid from the other circuit to bring the vehicle to a stop. This is a sophisticated braking system designed for high performance driving.

[21] The Judge was satisfied in the end that Mr Barnes had indeed bled the rear brakes prior to the accident. He considered that as a result, it was possible that as the front partition of the brake fluid reservoir was replenished with fresh brake fluid, the fresh fluid that had been put in to top up the reservoir mixed with remaining old fluid at the bottom of the partition, but the fresh fluid only flowed into the rear partition.

[22] Mr Dennett contended that the conclusion that some old fluid may have been retained was clearly wrong, as the brake fluid level would be almost the same in both partitions of the brake fluid reservoir. The Judge, he said, had wrongly held that the differences in brake line length could lead to different levels of fluid being drawn from the front and rear partitions of the reservoir. He was in error in concluding that Mr McKay’s testing of the brake fluid was unsatisfactory. He was also in error in holding that QBE was at fault in failing to disclose an original report of Mr McKay, which did not entirely support his later opinion.

[23] The factual assessment involved issues of technical complexity. It turned to an extent on the accuracy of opinion of the two experts, Mr McKay versus Mr Barton, and the truthfulness of the defendant’s witnesses, particularly Mr Perera, Mr Barnes and Mr Steward. The Judge rejected a claim that Mr Steward must have tampered with the brake fluid reservoir to try to hide what had happened.

[24] In my view, there was a sound basis for the Judge accepting Mr Barnes’ evidence that he bled the rear brakes as he described, thinking he was dealing with a conventional system and overlooking the fact that there were two systems. The Judge accepted that there was an amount of fluid in the reservoir dividing the two partitions, so that if fluid had drained completely from one with old fluid remaining in the other, the fresh fluid introduced would first fill the empty chamber and then spill over into the other chamber still containing its old fluid.

[25] The Judge did not accept that there had been tampering with the fluid reservoir by Steward to cover up the lack of testing, as contended by Mr McKay. I consider that the Judge was right to reject that proposition. The mechanical evidence did not in my view prove to the requisite standard any post-accident tampering. There was nothing in the technical evidence presented by QBE showing a top up that was so clear or overwhelming that the Judge was obliged to accept it.

[26] The Judge heard the evidence of the two experts, Mr Barton and Mr McKay, and accepted Mr Barton’s explanation. The Judge placed weight against accepting Mr McKay’s evidence, relying on the fact that he had refused to disclose his initial report despite requests that he do so. That was unfair, as the original reports were

privileged, and that privilege is not waived by the disclosure of a final report. Such a ruling strikes at the heart of privilege. It would mean that a failure to disclose all counsel’s correspondence with an expert prior to the final report could be demanded, and an adverse inference drawn from a refusal. Longmore LJ has stated the position in England as being:⁸

There can be no doubt that, if an expert makes a report for the purpose of a party's legal advisers being able to give legal advice to their client, or for discussion in a conference of a party's legal advisers, such a report is the subject matter of litigation privilege at the time it is made. It has come into existence for the purposes of litigation. It is common for drafts of expert reports to be circulated among a party's advisers before a final report is prepared for exchange with the other side. Such initial reports are privileged.

[27] I respectfully consider this to be the position as to litigation privilege in New Zealand, governed as it is by s 56 of the Evidence Act 2006. When in terms of s 56(2)(d) information is prepared at the request of a party who on reasonable grounds contemplates becoming a party to a proceeding, that party should be able to rely on privilege and not run the risk of an adverse inference. This consideration prohibits a Judge from drawing an adverse inference from what is in effect a refusal to waive privilege. Otherwise the protection of litigation privilege, which exists to

permit a process of trial preparation unrestricted by fears of disclosure, is damaged.⁹

To use the words of Jackson J of the United States Supreme Court, “discovery was hardly intended to enable a learned profession to perform its functions either without wits or on wits borrowed from the adversary”.¹⁰

[28] Accordingly, I consider this to have been an error in the Judge’s reasoning process. However, for the other reasons I will refer to, the Judge was well able to prefer the evidence of Mr Barton to Mr McKay, and I think he was right to do so.

[29] Mr McKay is a road accident investigator and consultant. He has an engineering background in the aviation industry. He is not a specialist engineer. Mr Barton is a specialist engineer and has the greater specialist expertise.

_{Mr McKay’s witness statement goes beyond the role of an expert and presents his}

⁸ _{Jackson v Marley Davenport Ltd [2004] EWCA Civ 1225, [2004] 1 WLR 2926 at [13].}

9. Three Rivers District Council v Governor and Company of the Bank of England (No 6) [2004] UKHL 48, [2005] 1 AC 610 at [52].

¹⁰ Hickman v Taylor [1947] USSC 5; (1946) 329 US 495 at 516.

own critique of Mr Barton’s evidence including adjectival criticisms and assertions of contradictions, all of which are more in the nature of submission than orthodox expert evidence. These features further diminish the weight that can be given to his evidence. While it was perfectly proper for Mr McKay to comment on Mr Barton’s evidence, he goes too far when he characterises aspects of his evidence as “bizarre” or as “overstated” and “misleading”.

[30] Mr McKay accepted that the brake pedal, in a post-accident test conducted by Mr Barton on 17 April 2009, went straight to the floor. This was supportive of Mr Barnes’ evidence. Mr McKay believed the reason for the pedal behaving in that way was likely to have been later induced air being present in the brake circuit. However, he could not explain in a satisfactory way how this might have occurred apart from claiming there was tampering, and as the Judge observed, conducted no

test himself to explore the possibility.¹¹ I note that Mr McKay’s review of the brake

fluid evidence cannot be described as comprehensive. He took a single sample of brake fluid, whereas Mr Barton took a sample from both cylinders.

[31] In the end in relation to the brakes, I accept the Judge’s conclusion that there had been brake bleeding as deposed to by Mr Barnes, and that it was unlikely to have been done correctly in terms of the Ferrari procedures. Mr Perera had noted that the brake pedal was spongy before it was taken for the test drive.

[32] Mr Barnes did not heed the warning that Mr Perera had given. I agree with the conclusion of the trial Judge:¹²

The weight of the evidence satisfies me that the accident happened in the way described by Mr Barnes and for the reasons given by Mr Barton. The first defendant has failed to establish its allegations of fraud both in Mr Steward’s account of the accident to it and its investigator or its allegation that Mr Steward tampered with the brake fluid in the chamber after the inspection by Mr McKay. On the balance of probabilities standard the preponderance of probabilities favours the plaintiff’s account rather than the first defendant’s theory.

¹¹ _{Steward, above n 1, at [34].}

¹² At [38].

[33] I accept therefore that it is likely that given the work that had been done on the brakes, they would have appeared to have been working at the outset of Mr Barnes’ trip, but then failed as he approached the intersection.

Corrosion of the discs and other theories

[34] Mr McKay gave evidence that there was still some corrosion present on the brake discs at the time of his inspection, but that some of the surface corrosion appeared to have been partially scrubbed off. Mr McKay did not believe that the discs had been scrubbed off and thought that any removal of the corrosion was a consequence of actual braking. Mr McKay’s conclusion was that the braking system was sufficiently serviceable to slow the vehicle, and that this supported his theory that the brakes did in fact work on the day in question, had not been serviced in the way claimed, and that the accident was the result of driver error. However, Judge Gibson considered that a light touch on the brakes by Mr Barnes, as he was coming out of the driveway and onto Kaimahi Road, could have been sufficient to remove some corrosion from the disc.

[35] It must be the case that there would have been some braking by Mr Barnes as the car came out of the garage. It is also perfectly reasonable for that to be a light touch, whereas there would have been much more heavy braking as the Ferrari approached the intersection. This could have led to the imperfections in the brake system for the first time causing the brakes to go to the floor without operating. It was clear that little work had been done on the front brakes.

[36] The Judge also observed that it was not clear how much corrosion was present before the test, and therefore the amount and pattern of corrosion was not determinative of the condition of the brakes and what happened to them.

[37] Mr McKay had also suggested in his evidence that Mr Barnes could not have applied the brakes because of an absence of evidence on the brake bulb filaments of sudden braking. There was an obvious difficulty in this assertion. Mr McKay did not test whether the brake lights were working. If they were not working it could not be expected that there would be any relevant sign of use or disuse of the brake lights.

[38] It was part of Mr McKay’s theory of the case that the Ferrari had age- hardened tyres and that this may have caused the tyres not to grip when there was braking and turning. This, he suggested, could have contributed to the accident. However, he did not record the date and age of the tyres, and had not tested the Ferrari’s tyres to support that conclusion.

Credibility

[39] Importantly, given the complex and conflicting detailed mechanical evidence, the Judge’s credibility assessment was highly relevant. QBE was relying on its technical evidence to prove Mr Barnes a liar. The Judge, on a credibility assessment, did not find him to be a liar. Nor did he find Mr Steward or Mr Perera to be liars. He found them all to be truthful witnesses. There is nothing in the evidence I have been referred to, or the arguments that have been presented, that would lead me to a different conclusion. There was after all nothing inherently unlikely in the story. Another witness, Mr Carter, had given evidence that he had seen the brakes worked on in the relevant timeframe. Mr Carter’s evidence was that he observed Mr Barnes bleeding both the front and rear brakes. This was arguably contrary to an earlier brief of evidence he had signed three days before, but that can be explained by his recollection changing as he thought more about the case. The Judge thought that there was nothing untoward about his evidence.

[40] There was evidence of Mr Smith that he initially told Mr McKay, when Mr McKay was carrying out his investigation, that Mr Steward had told him that the brakes had not been worked on. This was emphasised by Mr Dennett in submissions and it was said to cast doubt on Steward’s case. However, in his evidence Mr Smith said he may well have misunderstood Mr Steward, who could have said that the brakes had been worked on. The Judge chose to accept that evidence as credible, and that therefore Mr Smith’s testimony did not damage that of Mr Steward.

[41] Mr Barnes had been dismissed from his employment following the accident. It was suggested that he had a motive to lie because he might be sued should Steward lose its claim. However, that was not the view taken by the Judge. It could be expected that a disaffected employee who had been a disqualified driver, and who

was relatively young, would not be overly concerned at the prospect of a money judgment against him. He would be keenly aware of the fact that his employer had dismissed him. The Judge noted this in his finding that Mr Barnes was a credible witness who had a reason not to support his employer.

[42] I must say that I would go further than the Judge went in his decision, and conclude that Mr McKay’s joy ride theory as to what happened has an obvious flaw. He believes that the brakes were not serviced and bled, but were nevertheless in working order, and that the cause of the accident was driver error exacerbated by reduced friction of the road by a tyre interface due to age-hardened tyres. It is impossible to reconcile that view with the clear evidence of the eye witness, who saw the car proceeding “not fast” and go past the traffic at the intersection and into the back of the cars in front. Neither bad driving nor bald tyres are consistent with that description of the accident. There was no suggestion of fast driving, of tyres squealing or skidding, and if there had been a reckless turn around the corner it could have been expected that there would also have been a sudden application of brakes to stop the accident. Instead what Mr Harris saw is entirely consistent with what Mr Barnes said happened. As he approached the intersection he experienced brake failure and slowly went around the corner, and because he had nowhere else to go, collided with a car in front.

[43] I also consider the Judge’s finding that Mr Steward had instructed his employees not to drive the Ferrari was fully justified on the facts and on his credibility findings. Mr Steward was not expecting the car to be driven that afternoon. Mr Barnes, when he drove the car, chose to ignore Mr Steward’s directive and also to ignore the Court order disqualifying him from driving. However, he was acting in the course of his work and there were proper safety systems, practices and procedures in place.

[44] Thus, there was ample evidence before Judge Gibson for him to conclude that the plaintiff had made out its case, and on my own review of the evidence I have reached the same view. The damage did arise from the service or repair by Steward. This was because Mr Barnes had been working on the brakes, had taken the Ferrari for a test drive contrary to the directive of Steward, the brakes did not work as he

approached the intersection, and the accident occurred. Mr Barnes was not going on a joy ride. Steward had taken all reasonable steps to avoid the happening of this event, including employing trained employees whom Mr Steward had instructed not to take cars for test drives.

[45] The allegation that Steward made false statements to QBE’s accident investigators in support of its claim was not made out. In my view Judge Gibson was correct when he held that Steward had proved its claim. So the appeal on liability will be dismissed.

Costs and interest

[46] It is somewhat difficult to discern the actual figures in the Judge’s calculations of costs and interest. He entered judgment for damages of $41,874.51. He allowed costs on a 2B basis and interest.

[47] The first defendant argued for a judgment sum and costs of a combined amount of $64,018.51. The Judge noted:¹³

The highest offer made in the exchange of Calderbank offers by the first defendant was $70,000, made on 11 December 2011. The first defendants have calculated that with the judgment sum and costs the plaintiff recovered

$64,018.51 and so seeks costs in its favour as from 9 December, 2011 in the sum of $12,096.

[48] The Judge said that calculation did not take into account disbursements and interest. He held that when those two factors were taken into account there was a total judgment sum of over $70,000. He considered the argument that a Calderbank offer of $70,000 made on 11 December 2011 prior to the commencement of the hearing had been refused, and that the defendants were entitled to costs after that date. He rejected that argument holding that the calculation of interest would add

$14,407.10 to the judgment. This took it over the amount of the $70,000 offer that

_{was made.}

¹³ Steward Motorsports European Ltd v QBE Insurance (International) Ltd DC Auckland CIV-

2009-4-2705, 25 June 2013 at [3].

[49] Mr Dennett for QBE submitted that interest could only be awarded where the proceeding was for the recovery of a debt or damages. Mr Smith, the owner of the vehicle, had not been paid any money by Steward. Therefore, Steward was not out of pocket and there was no basis to award interest. He also argued that interest was calculated at the incorrect rate.

[50] It is clear that Mr Steward has not paid money to Mr Smith. The Ferrari has still not been repaired. Any repairs are proceeding on a piecemeal basis because of financial constraints. Mr Dellow for Steward endeavoured to rely on further evidence indicating that Mr Smith had already carried out $46,858 for Ferrari repairs. However, I do not need to turn to that evidence.

[51] However, Steward is liable to pay Mr Smith who has undoubtedly suffered loss, and Mr Smith is able to claim damages and interest from Mr Steward on the amount of those damages. In the meantime QBE has had the use of money it should have paid out to Steward at the outset when the claim was made.

[52] I am satisfied that Mr Smith will look to Steward in due course for at least the judgment sum plus full interest from the date of the accident.

[53] The award of interest is discretionary.¹⁴ There are no rules or mandatory principles to be applied. The general purpose of the power to award interest is to enable the Court to ensure that proper compensation is given to the plaintiff.¹⁵

Interest can be awarded from the date the cause of action arose down to the date of judgment.¹⁶

[54] Given Steward’s ultimate liability to Mr Smith for interest, I am satisfied that

it was appropriate to award interest. If this is not done the plaintiff will not be fairly compensated. Therefore, I agree with Judge Gibson that interest is payable.

¹⁴ _{Day v Mead [1987] 2 NZLR 443 (CA) at 463–464.}

¹⁵ _{At 463.}

¹⁶ At 463.

[55] The next question is the interest rate. The Judge awarded interest from the date of the plaintiff’s cause of action arising, 4 March 2009, until the date of judgment. He considered the appropriate rate of interest to be 11 per cent from

4 March 2009 until 1 July 2011, and five per cent from that date until the date of judgment. The change in interest rates, he held, was required by the coming into force of the District Courts (Prescribed Rate of Interest) Order 2011, which set the prescribed rate of interest at five per cent from 1 July 2011.

[56] I have drawn to the attention of the parties an error in the Judge’s calculation in setting the relevant interest rate payable from 4 March 2009 until 1 July 2011 to be 11 per cent. It would appear that the Judge was not informed of the existence of the District Courts (Prescribed Rate of Interest) Order 2008, which altered the payable interest rate under s 62B of the District Courts Act 1947 to 8.4 per cent. Accordingly, adopting the Judge’s approach, the relevant payable rates were 8.4 per cent from 4 March 2009 until 1 July 2011, and five per cent from 1 July onwards.

[57] I sent a minute to counsel drawing their attention to this error. Counsel for QBE accepts that this was a mistake and that the 11 per cent interest rate does not apply. Counsel for Steward argues that the Judge did have a discretion to order interest at 11 per cent as s 62B(4) sets the prescribed rate at 11 per cent “... or such other rate as may from time to time be prescribed”, and that this means that the Judge has an option of applying 11 per cent or the prescribed rate.

[58] I do not agree. Under s 62D(1) if interest is ordered it must not exceed the prescribed rate. Section 62B(4) prescribes the rate while providing for its variation from time to time by the Governor-General by order in Council. The word “or” refers to that other rate that might be prescribed by the Governor-General. When such a rate is prescribed that is the rate that must be applied. There is no option.

[59] Equally, however, I reject QBE’s original submission that the five per cent per annum that was the prescribed rate at the time of judgment applied retrospectively and should apply to all interest, including interest that accrued at the

time when the prescribed rate was 8.4 per cent. I accept that the language of s 62 is ambiguous and does not make it clear whether the rate applies retrospectively or not. However, I resolve that ambiguity bearing in mind the presumption against retrospectivity and conclude that the interest rate prescribed at any given time applies, and when a new rate is prescribed it prescribes only from the time of the Governor-General’s order in Council.

[60] This is consistent with the highest authority. In Takaro Properties Ltd v Rowling¹⁷ their Lordships in the Privy Council considered a similar argument, and stated:

The rate of 11% per annum was not the prescribed rate for the whole of the period from 21st March 1974 to the date of judgment. It was so only from

1st April 1980 to the date of judgment. Their Lordships are unable to infer

an intention on the part of the legislature that the prescribed rate should be retrospective. The results if it were so would be unfair and even bizarre. Thus a litigant who recovered judgment on 1st April 1980 upon a cause of action arising five years earlier might be awarded interest at 11% for the whole period, while one whose judgment was delivered on 31st March could be awarded only a lower rate for the whole period. If the prescribed rate were to be reduced by Order in Council, the maximum rate of interest which could be awarded would be only the reduced rate for the whole period since the cause of action arose, notwithstanding that for most of that period the prescribed rate was much higher. ... [Their Lordships] are clearly of the opinion that the intention of the enactment was that regard should be had to the rate of interest from time to time prescribed during the period between the arising of the cause of action and judgment, and that the maximum rate of interest for each part of the period should be reckoned accordingly.

[61] It follows from my comments above that I do not agree with the appellant’s contention. To adopt their suggested approach would impose a retrospectively higher interest rate. The rate of interest ran at 8.4 per cent until it changed to five per cent.

Costs

[62] QBE argued that it was entitled to a costs order in its favour because there was a Calderbank offer on 11 December 2011. That offer was for $70,000, which it

_{is argued was less than Steward’s entitlement as at that date. It was submitted that}

¹⁷ Takaro Properties Ltd v Rowling [1987] 2 NZLR 700 (PC) at 719. See also Benton v Miller & Poulgrain AP104/01, 12 September 2002 at [7]; Day v Mead [1987] 2 NZLR 443 (CA) at 453, and 469–470.

even if interest was included, Steward’s entitlement on 11 December 2011 (on the

8.4 per cent and five per cent as I have outlined) would have been a maximum of

$78,510.09, only $8,510.09 more than QBE’s offer. If regard is has to costs and disbursements after the offer was made, Steward’s entitlement would be $97,125.02. Reliance was placed on r 47H(5) which provides that the Court may still take an offer into account when it does not fall within either of the categories in r 47H(4) but “is close to the value or benefit of the judgment obtained by party B”. This means that a successful plaintiff must beat a settlement offer by a reasonable margin.

[63] I have hesitated on this point as the margin above the $70,000 offer was

$8,510.09. But that is in fact over 10 per cent more than the offer. In those circumstances the offer is not in my view “close” to the value or benefit of the judgment obtained by Party B. There is indeed a significant if not large margin.

[64] Moreover, there is force also in Mr Dellow’s argument that Steward was justified in proceeding to trial, given the modest offer, to rebut the fraud allegations that had been made against him, fearing as he may have legitimately done for his reputation and ability to obtain further insurance without vindication. There was evidence that QBE’s fraud allegation and declinature of the claim had made it more difficult for Mr Steward to obtain domestic insurance.

[65] I also bear in mind the lateness of the offer, which was made on the day before the trial commenced. Steward was by then fully prepared and focussed on the imminent trial. Such a party that is faced with a last minute offer has to be given more leeway to reject an offer even if it goes some distance to constituting a full settlement, than a litigant who is free from the distraction and pressure of an imminent trial.

[66] I conclude that the Judge’s approach to interest and costs was correct, save for the use of the 11 per cent figure rather than 8.4 per cent.

Conclusion

[67] The appellant has therefore failed in substance on both the liability appeal and the interest and costs appeal. It is necessary, however, to allow the appeal to correct the 11 per cent interest calculation.

Result

[68] The appeal is allowed in respect of the interest calculation of 11 per cent, which should have been at 8.4 per cent.

[69] Thus, I allow the appeal and set the judgment sum, including interest and costs, at $97,125.02, calculated as damages of $41,874.51; interest at 8.4% from

5 March 2009 to 30 June 2011 of $8,172.07; interest at 5% from 1 July 2011 to

9 April 2013 of $3,719.52; and approved costs and disbursements of $43,358.92. [70] In all other respects the appeal is dismissed.

Costs

[71] Although the appeal has been allowed, this is only in a very small respect. The appellant has been in essence unsuccessful and the respondent is to have costs on a 2B basis, plus reasonable disbursement.

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Asher J