Reeves v Lakes Environmental Limited [2014] NZHC 3338 (19 December 2014)

Last Updated: 23 December 2014

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2013-425-000117 [2014] NZHC 3338

BETWEEN	TREVOR AND MARIA REEVES Plaintiffs
AND	LAKES ENVIRONMENTAL LIMITED Defendant

Hearing:	18 December 2014 (On the papers)
Appearances:	B C Nevell for the Plaintiffs M E Parker and A J Nash for the Defendant
Judgment:	19 December 2014

JUDGMENT OF DUNNINGHAM J RE: COSTS DECISION

[1] On 6 November 2014, I delivered the substantive judgment in this proceeding, finding largely in favour of the Reeves.¹

[2] Notwithstanding my view that this was a straightforward case where the plaintiffs were entitled to an award of 2B costs, both parties sought to be heard on the issue of costs.

[3] I have now received submissions from both parties. The plaintiffs’ position is

as follows:

(a) On 5 March 2008 they made “a full and final offer of settlement” in the amount of $50,000. That followed communications where both parties acknowledged that the foundations had been improperly constructed, and the work had not been carried out, nor inspected, in

_{accordance with the approved plans. The offer was a Calderbank}

¹ _{Reeves v Lakes Environmental Ltd [2014] NZHC 2760.}

REEVES v LAKES ENVIRONMENTAL LIMITED [2014] NZHC 3338 [19 December 2014]

offer and, under r 14.6(3)(b)(v), the failure to accept such an offer can lead to an award of increased or indemnity costs. The plaintiffs say it was unreasonable for the defendant to reject the offer and to put the plaintiffs to the unnecessary cost of the five day High Court hearing.

(b) If the Court does not award indemnity costs, then increased costs are sought on the basis that the defendant took or pursued arguments that lacked merit. These include:

(i) that the defendant had not been negligent because the work was not in breach of the building code, even if it was in breach of the building consent;

(ii) the defendant’s negligence was not causative of the plaintiffs’

loss;

(iii) that the defendants were acting as project managers when the builder charged a fee for the same; and

(iv) the defendants should have inspected the builder’s work to ensure it was being built in accordance with the building consent.

(c) The defendant put the plaintiffs to unnecessary cost by:

(i) late amendments to pleadings to include, for example, the claim that the defendant’s actions were in breach of the building consent but not in breach of the building code; and

(ii) by putting the plaintiffs to proof on matters where that was not necessary.

[4] Importantly, the plaintiffs note that their actual costs are not significantly greater than the costs they will receive if they are awarded 2B costs, as their actual costs are $46,273.12 including GST when scale costs come to $45,571 including

GST. The plaintiffs submit that if indemnity or increased costs are allowed, they should be awarded payment of:

(i) the difference between 2B costs and actual costs - $702.12; (ii) the Constructive QS invoice - $1,983.75;²

(iii) unclaimed disbursements - $532.05.³

[5] The defendants, in response, say that there are no grounds to uplift the costs because:

(a) The Calderbank offer was made with no justification for that figure and no documentation was provided in support of the same. In the absence of such information, and of the plaintiffs’ refusal to provide that information, it was not unreasonable to reject the settlement offer.

(b) In respect of the allegation that the defendant pursued unmeritorious arguments, that was rejected for several reasons. These included that the plaintiffs accepted that the builder would be at least 50 per cent liable, but then failed to pursue him, the amendment to pleadings was necessitated by the plaintiffs’ own belated revision of the quantum of damages sought and the fact that a defence is unsuccessful does not necessarily mean it is unmeritorious, nor worthy of sanction via an award of indemnity costs.

[6] The defendant in turn seeks a reduction in the costs award because:

(a) The plaintiffs unsuccessfully applied to admit to further evidence during the trial; and

² Being an invoice I found the Reeves could not include in their damages claim because it was

_{their choice not to use this consultant’s advice and to instruct a second quantity surveyor.}

3. It is not clear why these disbursements were unclaimed, as they appear to relate to a range of identified expenses which fall within the definition of disbursements in r 8.12.

(b) The plaintiffs failed to disclose Mrs Reeves’ diaries at the outset, then provided inappropriately redacted versions of these, causing unnecessary additional costs for the defendant.

[7] In support of that submission, the defendant refers to r 14.7(f) of the High Court Rules which provides for a refusal or reduction in an order for costs otherwise payable if the party claims costs:

(i) [fails] to comply with these rules or a direction of the court; or

(ii) [takes or pursues] an unnecessary step or an argument that lacks merit; or

(iii) [fails], without reasonable justification, to admit the facts, evidence

or documents ...; or

(iv) [fails], without reasonable justification, to comply with an order for

discovery ...

[8] In support of the first ground, the defendant relies on the plaintiffs filing further affidavit evidence from their expert witness, Mr Faris, which went beyond the single issue that the Court had authorised a response to be filed on. They then made an application to admit this further evidence, which was opposed by the defendant and subsequently declined by the Court. The defendant says this application was unnecessary and was unlikely to succeed given the witness would not have been able to have been cross-examined on this evidence. The costs award should reflect this.

[9] More importantly, the defendant points to the failure of Mrs Reeves to provide discovery of the diaries that she kept, which contained records of events that occurred during the construction of the property, and in the personal lives of the family. The latter were relevant to the plaintiffs’ ability to address the problems that had arisen, and to their claim for general damages. When the diaries were produced, they were heavily redacted to exclude potentially relevant entries. As a consequence, they were then required to be provided in a form that only redacted information that was medically or confidential or legally privileged. Even then, other redactions of “personal security information” were made.

[10] The defendant considers that the late and convoluted route by which discovery and inspection of the diaries was provided was unacceptable and in breach of r 14.7(f). It put the defendant to considerable additional cost.

Should there be an increase to award of costs?

[11] I deal first with the plaintiffs’ claim that they should be awarded indemnity

costs.

[12] The difference between legal costs awarded on a 2B basis and the plaintiffs’ actual legal costs is only $700, so an award of 2B costs effectively indemnifies the plaintiffs for costs. The plaintiffs have had the benefit of Mr Nevell’s nominal charging for his services, which has meant that the High Court Rules costs recovery regime which is designed to deliver to the party approximately two-thirds of the daily rate considered reasonable, has, in fact, delivered almost full cost recovery.

[13] In respect of the claim for disbursements totalling approximately $500, I do not understand why the plaintiffs have treated some of their disbursements as not claimable, but then sought them when pursuing indemnity costs. On reviewing the accounts attached to the submissions, the unclaimed disbursements relate to expenses incurred specifically for the litigation, such as photocopying, binding and couriering. Where the disbursements fall within the definition contained at r 14.12, they are claimable, and that includes office expenses that are “necessary and specific

to the litigation”.⁴ There should, therefore, be no shortfall to be met by an award of

indemnity costs. In any event, disbursements are treated separately from legal costs in the High Court costs regime and the principles governing the award of indemnity costs are not relevant to them.

[14] In relation to the request to award reimbursement of the Constructive QS

costs, doing so would negate a finding in my judgment, which was that those were not costs reasonably incurred in the litigation. I am not prepared to do that.

⁴ See for example, Bryant v Satara Co-operative Group Ltd HC Napier CIV-2011-441-715,

30 January 2012 at [25].

[15] That simply leaves the shortfall of approximately $700 between 2B costs and actual legal costs. In this regard the plaintiffs rely on their Calderbank offer in 2008 of $50,000. While the difference between the amount of this proposal, and the final damages awarded, is striking, the reasonableness of rejecting such an offer must be assessed at the time of rejection, not just against the end result.⁵

[16] There is merit in the defendant’s submission that, at the time the offer was made, there was a dearth of information about both the options for, and costs of, rectifying the problem with the foundations, and the plaintiffs repeatedly failed to provide such information when requested to do so. It was also offered at a stage when the builder was alive, and his relative responsibility for the fault had not been determined but, even on the plaintiffs’ reckoning, it was 50 per cent.

[17] These factors make me less inclined to rely on the Calderbank offer to support an uplift of costs than would otherwise be the case. Furthermore, in the end, I can see no justification for an uplift of costs when the 2B costs award, in effect, indemnifies the plaintiffs for costs. They are therefore in a far better position than most successful litigants, and I see no need to award any further uplift, no matter how modest that sum may be.

Should there be a reduction in costs awarded to the plaintiffs?

[18] As already noted, the defendants argue that a 2B costs award should be reduced by 20 per cent to reflect:

(a) the plaintiffs’ failure on their application to obtain leave to adduce further evidence; and

(b) their failure to comply with discovery requirements relating to Mrs

Reeves’ diaries.

[19] Obviously the plaintiffs’ application to adduce further evidence from

_{Mr Faris was unsuccessful. However, I also acknowledge that that does not mean it}

⁵ New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548,

19 August 2010 at [36].

was unmeritorious. I think that it is better treated as a separate interlocutory application, for the purpose of costs, rather than as a factor which should reduce the costs award. I therefore consider time band A as appropriately reflecting the amount of work involved in opposing the application and the defendant is awarded costs, on a 2A basis, for the steps taken in opposing that application.

[20] I also consider that the plaintiffs’ failure to discover Mrs Reeves’ diaries, and then, initially, to provide them in overly redacted form, deserves sanction of some sort. I am satisfied that this did put the defendant to additional and unnecessary cost as Mrs Reeves had to be recalled to be questioned on matters arising out of the diary entries, and supplementary submissions had to be filed on material arising from the diary, which could have been dealt with more efficiently if the diaries had been discovered, in appropriately redacted form, prior to the commencement of the hearing.

[21] In these circumstances, I am satisfied that the legal costs the plaintiffs are entitled to, should be reduced by $1,990, which reflects one day’s additional costs using category 2 daily recovery rates.

Outcome

[22] The plaintiffs are awarded 2B costs, plus disbursements as fixed by the

Registrar, but reduced by the sum of $1,990.

[23] The defendant is entitled to an award of 2A costs in relation to steps taken to oppose the plaintiffs’ application to adduce further evidence from Mr Faris during the hearing. This payment may be effected by deducting this amount for the costs award payable to the plaintiffs.

[24] Leave is reserved to either party to revert to the Court if any further issues arise in relation to calculation or implementation of the costs orders.

Solicitors:

Ben Nevell, Dunedin

Parker Cowan, Queenstown