LWR Durham Properties Limited (in receivership) v Vero Insurance New Zealand [2014] NZHC 1688 (18 July 2014)

Last Updated: 12 August 2014

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-1781 [2014] NZHC 1688

BETWEEN	LWR DURHAM PROPERTIES LIMITED (IN RECEIVERSHIP) Plaintiff
AND	VERO INSURANCE NEW ZEALAND LIMITED First Defendant IAG NEW ZEALAND LIMITED Second Defendant

Hearing:	27 June 2014 (by telephone)
Counsel:	J E Bayley for Plaintiff C M Brick with J C Dymock for Defendants
Judgment:	18 July 2014

JUDGMENT OF THE HON JUSTICE KÓS (Security for costs; particulars of pleading)

[1] This is a proceeding in which a company in receivership sues its insurers for about $40 million for earthquake loss to buildings the insurers say had a pre-loss market value of just $1.93 million.¹ The defendant insurers have paid the plaintiff that amount (less the excess). The plaintiff says the buildings were insured for a replacement value of $11.89 million, or indemnity value of $8.40 million. But it says its entitlement is to the depreciated cost of replacement, not limited by the sums insured.

[2] This judgment deals with two contested applications by the defendant. The first, for security of costs. The second, for further and better particulars of pleadings.

1. It may be that the notional value is $4.5 million: see [4] below. Whatever the case, a long way short of $40 million.

LWR DURHAM PROPERTIES LIMITED (IN RECEIVERSHIP) v VERO INSURANCE NEW ZEALAND LIMITED [2014] NZHC 1688 [18 July 2014]

Security for costs

Argument

[3] The grounds given for the security for costs application are that the plaintiff company is in receivership, there is reason to believe that if the plaintiff is unsuccessful it will be unable to pay the defendants’ costs, and that in these circumstances it is just that security be ordered.

[4] The defendants have filed affidavit evidence from one of their solicitors, a

Mr Andrew McNaughton. He annexes the receivers’ latest report dated 15 April

2014. It shows that the primary assets of the plaintiff are the insured buildings (or it may just be one building now, the remainder having been sold). The plaintiff has funds in hand of just $78,282. The plaintiff owes the Bank of New Zealand $30.52 million as secured creditor, and the IRD $7,145 as preferential creditor. Mr McNaughton also exhibits a market valuation of the buildings (without earthquake damage) of $4.50 million, as assessed by Colliers. It is not clear to me how one reconciles that valuation with the $1.93 million figure previously used by the insurers. But for present purposes it is immaterial.

[5] On any view there is a real question as to the ability of the plaintiff to pay costs in the event that it loses at trial.

[6] The plaintiff accepts that. It accepts that security should be ordered. It accepts that the receivers’ report gives reason to believe that it would be unable to pay costs in the event it loses at trial. So the issue in this case is simply what level of security should be ordered.

[7] Security for costs usually involves a three-stage analysis:

(a) whether the threshold statutory test in r 5.45 of the High Court Rules is met;

(b) whether as a matter of discretion security should be ordered;² and

(c) quantification of security.

[8] Here, the plaintiff concedes the first two stages. I should note that the defendants’ case for security on the second stage was also very strong. Other interests (the Bank of New Zealand, and possibly a firm of loss adjusters) stand behind the plaintiff to receive the primary benefit of the proceedings. The insurance payments made by the defendants so far have already been distributed in full – primarily to the Bank of New Zealand. There is an apparent basis for belief that sale of the building was intended, and that the plaintiff does not intend reinstatement (in which case a lesser insurance payment may be owing). That is a point going to an

“impression” that the plaintiff’s claim has at least a real risk of failure.³ I say no

more than that. That is not to be taken as a strong view one way or the other.

[9] Turning now to the third stage, quantum, the plaintiff says that a total security award of $50,000 would be appropriate, based on category 2 band B costs for a 10 day trial, without any allowance for expert witnesses.

[10] The defendants say that the amount secured, on the other hand, should be more in the order of $387,000.

[11] There are four fundamental differences between the parties. First, the defendants’ approach assumes a 15, not 10, day trial. Secondly, the defendants say some items should be scaled at band C, not band B (but still at category 2). Thirdly, there are some additional scale items identified that the plaintiff had not allowed for. Together, these changes produce a sum of $125,768 scale costs.

[12] The fourth and most fundamental difference between the parties is that the defendants say that an additional sum should be allowed for expert witnesses. They

_{intend, on the basis of the present proceedings, to call one or more structural}

² As to which see Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at

_[19]–[24].

³ An “impression” only as to the merits should be formed: AS McLachlan Ltd v MEL Network Ltd

[2002] NZCA 215; (2002) 16 PRNZ 747 (CA) at [21].

engineers, a damage modelling expert, a construction expert, a quantity surveyor, a geotechnical engineer, and a valuer. Ms Brick points to her clients’ recent trial experience of a 13 day hearing in which expert witness costs amounted to between

$150,000 and $200,000. She calculates expert costs in this case might be as much as

$260,000, because it is more complex, and therefore longer, than the example case relied on.

Analysis

[13] Two short points can be made.

[14] The first is this is a claim for a very high sum indeed, in a case that quite conceivably may fail altogether. The defendants, faced with a $40 million claim, cannot be expected not to act vigorously to defend a risk of that magnitude. Scale costs of $100,000 to $125,000, and expert costs of $150,000 to $250,000 – up to

$375,000 in all – are less than 1 per cent of what is claimed by the plaintiff.⁴

[15] The second is that by no means is it apparent that to order substantial security in this case will stifle the plaintiff’s rights of access to justice. This is a case about money. If the plaintiff wins it will get the security sum back, plus interest. It should not preclude the plaintiff ’s access to justice that it stump up security of less than 1 per cent of the sum it is claiming. Certainly there is no cogent evidence that it will.

[16] On scale costs I will allow the defendants’ calculation, but excluding items

14, 16, 18 and the second item 21. That is a security sum of $118,206. I will also order security be given for the reasonable costs of briefing expert witnesses. In that respect I allow, in the round, a sum of $200,000. There is no science in this. The Court has a very broad discretion, and I consider that that allowance does justice by both parties. In all that is security of $318,206.

[17] The defendants accept that security should be staged, as is convention. The most appropriate balance is for me to make the following orders:

⁴ I notice that in Houghton v Saunders [2014] NZHC 21, Dobson J ordered security for costs of

$1.8 million (albeit in a case to last 10 weeks, and involving six defendant groupings).

(a) Security is ordered (payable within 21 days) for the steps up to item

24 plus approximately one third of the expert cost allowance. That is

$38,606 plus $70,000 equals $108,606.

(b) The balance security sum of $79,600 plus $130,000 equals $209,600 shall be payable upon the case being set down for trial.

(c) Leave is reserved to any party to apply to vary these orders.

Particulars

[18] Paragraph 11 of the statement of claim pleads presently:

(b) The Building was damaged by earthquakes that occurred on

4 September 2010, 19 October 2010, 26 December 2010, 22 February 2011,

16 April 2011, 13 June 2011 and 21 June 2011.

...

(d) As a result of the earthquake damage, the plaintiff is entitled to indemnification for each loss measured as at least replacement cost less depreciation.

...

(f) The defendants are obliged to pay the plaintiff for the loss caused to the Building for each earthquake, and the amount of insurance cancelled by such claim was automatically reinstated as from the date of each loss.

[19] On 14 March 2014 I directed that particulars be given of the nature and extent of the damage alleged to have been caused by each of the separate earthquake events and the losses caused by each of those events. I required that to be done by

27 March 2014.

[20] On 20 March 2014 the plaintiffs served further particulars, running to 19 pages, purporting to identify the proportion of the total damage to the buildings which the plaintiff ’s expert considers was caused by each of the seven earthquake events. Applying that percentage to the alleged total depreciated replacement cost of

$40,485,652 the plaintiff produces a dollar sum for each event. They range between

$649,884 for the least event, to $19,484,028 for the 22 February 2011 earthquake event. These amounts are driven by the model, rather than by any certain ex post

facto calculations. The particulars provide a mixture of calculation, reportage and assessment in relation to the state of the building at various points of time.

Argument

[21] The defendants say that the particulars fail to identify the nature and extent of the damage caused by the earthquake in respect of each event. Or, at least, in relation to five of the seven events. It appears that it is accepted that adequate particulars have been given in respect of the 22 February 2011 and 21 June 2011 events. The defendants say that an insured making a claim under an insurance policy has the burden of proving a loss caused by a peril insured against. Thus, the defendants say, an insured who claims for damage to insured property occurring on separate events, giving rise to separate entitlements under the policy for each event, has the burden of proving the damage which occurred on each of those events.

[22] In response, the plaintiff says that it has provided particulars running to 19 pages. It accepts there is a lack of detailed evidence of damage after each event. It says it has provided what it can, and comprehensively. It has also provided a detailed modelling analysis by an engineer and provided particulars of the damage per event via that model. And it has cross-checked that against actual reported damage from qualitative evidence. But, the plaintiff concedes, in some instances qualitative evidence is simply not available or constitutes “elementary observations by lay people”. Due to the lack of further qualitative evidence, the plaintiff simply says it cannot provide any further particulars. The plaintiff says that the defendants have fair notice of the facts, on which the claim is based, namely that the identified earthquakes contributed to the total damage according to the model percentages. They are, therefore, “fairly informed of the case to be met” in terms of r 5.26 of the High Court Rules.

Analysis

[23] The purpose of particulars was described by the Court of Appeal in Price

Waterhouse v Fortex Group Ltd in these terms:⁵

Pleadings which are properly drawn and particularised are, in a case of any complexity, if not in all cases, an essential road map for the Court and the parties. They are the documents against which the briefs of evidence are or should be prepared. They are the documents which establish parameters of the case, not the briefs of evidence.

...

What we are saying is that both the Court and opposite parties are entitled to be advised of the essential basis of a claim or defence, and all necessary ingredients of it, so that subsequent processes and the trial itself can be conducted against recognisable boundaries. Neither the Court nor opposite parties should be placed in the position of having to deal with a proposition of whose substance adequate notice has not been given in the pleadings.

...

The object of a Statement of Claim is to “state” the “claim”, so that the Court knows what it is to rule upon, and the Defendant knows the case which it must meet. As a matter of practicalities, this initial “statement” is not at the level of a full disclosure of all evidence and documentation. It is of course an abbreviated summary “statement” of the basic facts said to give rise to the claim, and of the relief which is sought.

...

In the result, and particularly in complex cases, a rather more detailed factual narrative has come to be required than was the case in earlier and simpler times. That does not require the full detail which later will be contained in a brief of evidence. Nor does the modern requirement for pre-trial exchange of briefs dilute the earlier and differently based requirement for sufficiently particular pleading. What is required is an assessment based on the principle that a pleading must, in the individual circumstances of the case, state the issue and inform the opposite party of the case to be met. As so often is the case in procedural matters, in the end a common-sense and balanced judgment based on experience as to how cases are prepared and trials work is required. It is not an area for mechanical approaches or pedantry.

[24] Miller J however cautioned against “over-pleading” in BNZ Investments Ltd v

Commissioner of Inland Revenue:⁶

The temptation to insist upon excessively refined pleadings is to be resisted as unnecessary and wasteful of costs and Court time. That is particularly so in complex cases, where over-pleading can obscure rather than clarify the issues. Case management should ensure that each side is fairly informed of the case that must be met. It can extend to requiring leading counsel to agree a list of issues. Evidence can be exchanged in good time before the trial. Notices of proposed adjustment have already been issued, although I accept that they do not preclude the Commissioner from identifying other grounds and are said to be internally inconsistent.

[25] I put the matter this way in Platt v Porirua City Council & Ors:⁷

It follows that the extent of particularisation of pleading has changed somewhat over the last 25 years. But its fundamental function is unaltered. Particulars of pleading are important to:

(a) inform defendants as to the case they have to meet;

(b) limit the scope of matters the plaintiff may put in issue at trial (or in pre-trial settlement discussion);

(c) enable the defendants to know what witnesses it will need to retain and enable them to start preparing evidence ahead of the formal exchange of evidence; and

(d) provide an opportunity for a defendant to seek summary determination on the basis that the claim as pleaded is untenable.

[26] In these circumstances I do not think more needs to be done to fairly inform the defendant of the case it has to meet, or to limit the matters that may be put in issue. Nor to assist it prepare for trial. Further information is now more of an evidential, rather than pleadings, nature. The reality here is there is no scope whatever for surprise as to what the plaintiff contends for. The plaintiff’s cupboard is bare.

[27] If the consequence of that poverty of information is that the defendant is emboldened to apply for strike out or summary judgment (as Ms Brick suggests), so be it. It will not be a case where that initiative can be averted by better pleading.

Result

[28] Application for security for costs granted, on terms prescribed in [16]. [29] Application for further and better particulars of pleadings dismissed.

_{[30] No order for costs would seem necessary.}

Solicitors: Rhodes & Co, Christchurch for Plaintiff

Jones Fee, Auckland for Defendants

Stephen Kós J

⁷ Platt v Porirua City Council & Ors [2012] NZHC 2445 at [19].