IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-1308 [2013] NZHC 2119

BETWEEN	HEPBURN & ORS Plaintiffs	

AND	
CUNNINGHAM CONTRACTS LIMITED & ANOR
Defendants	

Hearing:	On the papers	

Counsel:	
P H Bremer for Plaintiffs
F B Collins for Defendants	

Judgment:	
21 August 2013	

JUDGMENT OF WILLIAMS J (COSTS)

[1]       In my judgment of 15 February 2013 I awarded the plaintiffs damages of

$364,469.53 plus interest at 7.5 per cent per annum less 50 per cent in contributory negligence against the fourth defendant.1

[2]       This amount is reduced because, prior to the hearing on 24 February 2012 following a judicial settlement conference the plaintiffs settled with the first and second defendants for $110,000.  It is further reduced because, on 25 March 2013, the plaintiffs finalised a Financial Assistance Package (FAP) of $86,193.46 from the Crown under the Weathertight Homes Resolution Services Act 2006.  As a result of these payments, the amount that Mr Cunningham is liable to pay turns on the calculation of interest on the damages awarded.

[3]       In my judgment I invited the parties to file memoranda on:

1	Hepburn v Cunningham Contracts Ltd [2013] NZHC 210.

HEPBURN & ORS v CUNNINGHAM CONTRACTS LIMITED & ANOR [2013] NZHC 2119 [21 August
2013]

(a)	apportionment of liability between the defendants; (b)	interest on the award; and
(c)	costs.

[4]       I received memoranda from both parties in relation to those matters.   The parties  agreed  that  Mr  Cunningham  is  liable  for  the  sum  remaining  after  the
$110,000 settlement payment and the FAP are deducted from the award of damages. In relation to interest on the award, the parties disagreed on the commencement date of  interest,  the  rate  of  interest,  and  the  portion  of  the  award  of  damages  that Mr Cunningham should be required to pay interest on.

[5]       In relation to costs, the parties agreed that costs are to be calculated on a 2B Category basis, plus disbursements for experts.  Both parties sought costs in relation to the proceedings.

Interest

[6]       There are three issues here:

(a)	commencement date of interest; (b)	rate of interest per annum; and
(c)	the portion of the award that Mr Cunningham should pay interest for.

[7]       The principles in relation to interest are well settled.  The discretion to award interest is to be exercised as the justice of the case requires.2    The ability to award interest enables the Court to properly compensate a plaintiff for his or her loss.  An
award of interest is not intended to punish a defendant.3

2	Wilson & Horton Ltd v Attorney-General [1997] 2 NZLR 513 at 530; Day and Mead [1987]
2 NZLR 443 at 463.
3	Chen v Zhong HC Auckland CIV-2010-404-1995, 8 December 2011.

[8]       In this case, the award of damages was made to compensate the plaintiffs for the cost of repair.  The purpose of interest is to compensate the plaintiffs for the loss of the use of the money spent on repairs.

[9]       The first issue is when interest on the award should commence.  The court can order interest for the whole or any part of the period between the date when the cause of action arose and the date of the judgment.4    There is no fixed rule for the
commencement date of an interest award.5

[10]     Mr Bremer, for the plaintiffs, submitted that the commencement date should be the date that the cause of action arose.  Mr Collins, on behalf of Mr Cunningham, submitted that this Court should adopt the approach outlined in T & T Drainage Limited v Rennell:6

There is no invariable rule as to when interest should run from.  Where, as in this case, interest represents the loss of use on the money paid over a period of time it is acceptable to find a date that strikes a fair mid-point in the timeline.  The alternative is that the parties embark on a minute calculation of interest on a month-by-month basis.

[11]     On that basis, Mr Collins submitted that one of the following three options should be adopted:

(a)       the plaintiffs should provide a detailed interest calculation that sets out expenditure.  Interest should then run from each payment;

(b)       interest should run from the date the repair work commenced;

(c)       interest should run from the mid-point of repair work.  Expenditure on repairs did not occur until 5 September 2011 and was substantially completed  in  July  2012.    Mr  Collins  suggested  a  mid-point  of
15 February 2012.

4	Judicature Act 1908, s 87.
5	Wilson & Horton Ltd v Attorney-General, above n 2, at 530.
6	T & T Drainage Limited v Rennell HC Auckland CIV-2009-404-1506, 14 May 2009 at [96].

[12]     I do not accept Mr Bremer’s submission that interest should commence from the date that the cause of action arose.  As noted above, the purpose of interest is to compensate for the loss of the use of money spent on repairs.  It would be unfair to award the plaintiff interest on unspent money.

[13]     Accordingly on 2 July 2013, I issued a minute asking the plaintiffs to choose between option (a) and option (c).  The plaintiffs chose option (a) and submitted two schedules that calculated interest from the date of each progress payment on an accumulating basis at the rates of 5 per cent and 7.5 per cent respectively.  The first of these payments was made on 22 June 2011.  There are 12 payments in total.

[14]     I will return to the final calculation of interest after I determine the rate of interest.

[15]     The next issue is the rate of interest per annum.  In my original judgment I imposed an interest rate of 7.5 per cent.  It has since been brought to my attention that  the  prescribed  rate  from  1  July 2011  was  5  per  cent.    Under  s 87  of  the Judicature Act 1908 the interest rate on an award of damages cannot exceed that prescribed rate.  As noted above, the first payment was made on 22 June 2011.  Any interest on payments made after 1 July 2011 is set at 5 per cent.7

[16]     The end result is that before the parties’ arguments about what portion of the award Mr Cunningham should pay interest for are considered, the fourth defendant is liable for interest of $27,496.43.8    The calculation of the gross award, plus interest,
less the deduction for contributory negligence is as follows:

Gross award of damages	$364,649.53	
Interest at prescribed rates	$  27,496.43	
Subtotal	$392,145.96	
Less 50 per cent for contributory negligence	$196,068.87	
Total	$196,068.87	

7	HCR 11.10 allows this correction.
8	The plaintiffs’ initial calculation of $27,488.21 has been increased by $8.22 to reflect the higher
interest rate on the first payment until the prescribed rate was changed on 1 July 2011.

[17]     After the deductions are taken into account, Mr Cunningham is not liable to pay any amount.  The calculation is as follows:

Judgment sum:	$196,068.87

Less:	Settlement payment	$110,000.00
FAP	$  86,193.46

Total:	-$	120.48

[18]     The parties also disputed what portion of the award Mr Cunningham should pay interest for.  Given the above calculation, this dispute will not affect the amount payable by Mr Cunningham, except perhaps to reduce that amount further below zero.   However, for completeness, I will address the parties’ submissions on this issue.

[19]     Mr Collins submitted that Mr Cunningham should not have to pay interest on the $110,000 settlement amount after 24 February 2012.  That is sensible given that the plaintiffs had use of that money from that point on.

[20]     Mr Collins also submitted that it would be unfair for Mr Cunningham to pay interest on the amount of the FAP before it was paid because he had no control over when that would occur.  The plaintiffs responded that Mr Cunningham is fortunate that the plaintiffs bore the cost in time and money of obtaining a contribution under the FAP and therefore he should have to pay interest on that amount until it was paid.   I agree with the plaintiffs.   The FAP was a separate remedy sought by the plaintiffs.     If  the  plaintiffs  had  not  sought  this  assistance  from  the  Crown, Mr Cunningham would have been liable for a greater part of the award of damages.

Costs

[21]     Costs orders are at the general discretion of the court9 but the exercise of the discretion is guided by the principles outlined under r 14.2.  The primary principle is that the unsuccessful party should pay costs to the successful party.   Rule 14.2(g) provides that so far as possible the determination of costs should be predictable and
expeditious.   In line with that approach, the court should adhere to the guidance

9	High Court Rules, r. 14.1.

provided  by  r 14.2(a)  unless  there  are  good  reasons  why,  in  the  particular circumstances of the case, it is the unsuccessful party who should receive costs.

[22]     Mr Collins submitted that the plaintiffs were unsuccessful and are therefore liable for costs.  This submission pre-dated the determination of the commencement date of interest and the rate of interest.  As it has transpired the plaintiffs are not entitled to any amount from Mr Cunningham.  Obviously this result does not alter Mr Collins’s position.

[23]     Mr Collins submitted the plaintiffs should have known that any further action against Mr Cunningham following the judicial settlement conference was unlikely to put  them  in  a  significantly better  position.    This  is  the  case,  says  Mr  Collins, because:

(a)	they had received $110,000 from the first and second defendants;

(b)	it was likely that they would receive a FAP covering 25 per cent of their total repair costs; and

(c)	any award given by the court was likely to be reduced significantly because of contributory negligence.

[24]     Because   of   this,   Mr   Cunningham   claims   costs   of   $18,905.00   and disbursements of $16,647.75, being the costs incurred following the judicial settlement  conference.    In  the  event  that  costs  are  awarded  to  the  plaintiffs, Mr Collins  submitted  that  costs  claimed  by  the  plaintiffs  prior  to  the  judicial settlement conference should be based on a notional apportionment of liability between the first and second defendants and Mr Cunningham, with the appropriate percentage for the first and second defendant’s liability deducted.   I will return to this below.

[25]     In response, the plaintiffs outlined out their reasons for proceeding with their claim against Mr Cunningham after the judicial settlement conference:

(a)       it  is  possible  that  the  first  and  second  defendants  will  go  into liquidation or bankruptcy and their settlement payments be challenged or claimed back as voidable transactions.  A successful claim against the fourth defendant insures the plaintiffs against this risk;

(b)	they had not completed their repairs so they did not know the final cost;

(c)       they did not know the amount of the FAP.  Even at the date of trial, the plaintiffs were disputing the Weathertight Homes Resolution Service’s assessment of $103,500 for the cost of repairs.   It was possible that they would recover just $25,875 under the FAP;

(d)	while accepting the court’s finding on contributory negligence, it was not reasonably foreseeable that the court would deduct 50 per cent for contributory negligence, given the advice they received from their building expert and findings on contributory negligence in similar cases.

[26]     The plaintiffs claim costs of $40,313 and disbursements of $21,182.35.

[27]     In my view, it does not necessarily follow that the plaintiffs are not entitled to costs because Mr Cunningham is not required to pay any damages.   The Court of Appeal in Waihi Mines Ltd v AUAG Resources Ltd accepted that vindication of a legal right without damages may carry an award of costs.10   Whether this approach is taken is ultimately a matter for the discretion of the Judge, upon an assessment of all relevant circumstances.

[28]    In this case it is important to remember that I found the fourth defendant responsible.  The result was more than just a vindication of a legal right.  If things had not gone the plaintiffs’ way in other respects outside the proceedings (for example,  if  they  received  a  smaller  FAP)  the  fourth  defendant  may  have  been
required to pay a substantial sum in damages.

10	Waihi Mines Ltd v AUAG Resources Ltd (1999) 13 PRNZ 372 (CA) at [6].

[29]     Moreover, I accept the plaintiffs’ reasons for proceeding with the claim after the judicial settlement conference are sound.  They did not know the final cost of the repairs, had not resolved the amount of the FAP and it was not completely certain that they would retain the settlement payment.  I also accept that reasonable minds could differ on the percentage deducted from the award for contributory negligence.

[30]     I  also  accept  Mr  Bremer’s  submission  that  if  costs  were  awarded  to Mr Cunningham it would act as a disincentive to seeking a FAP or settling with another defendant by judicial settlement conference while continuing against a co- defendant.  That is not a desirable outcome.  For those reasons I am satisfied that an order for costs against the fourth defendant is appropriate in all the relevant circumstances.

[31]    I now return to the issue of costs claimed before the judicial settlement conference.  The plaintiffs claim $15,040 for the steps taken before the judicial settlement conference.  A fair result would be to halve those costs.

[32]     The plaintiffs also seek increased costs on the basis that:

	(a)	they	made	a	Calderbank	offer	on	27	February	2012	and	

(b)	Mr Cunningham did not reply; and

Mr Cunningham should not have sought costs against the plaintiffs.	

[33]	
I wil	
l address the Calderbank offer first.  The court has a discretion as to the	
weight to be attached to such an offer.11   A Calderbank offer can operate as a device to provide plaintiffs with protection where defendants decline reasonable settlement offers.

[34]     Here,   the   plaintiffs   offered   $180,000   in   full   and   final   settlement. Mr Bremer’s submission is essentially that it was unreasonable for Mr Cunningham to reject this offer because it was for substantially less than the final award made
against  Mr  Cunningham.     I  take  a  different  view.     It  was  reasonable  for

11	High Court Rules, rr 14.10 and 14.11.

Mr Cunningham to reject this offer given the possibility of the plaintiffs obtaining a FAP, their settlement with the first and second defendants (although the amount was not known) and the possibility that any award made would be reduced because of the plaintiffs’ contributory negligence.

[35]     I turn now to the plaintiffs’ second ground for increased costs.  Mr Bremer submitted  that  the  plaintiffs  had  to  spend  a  significant  time  responding  to Mr Cunningham’s claim for costs.  While Mr Bremer has a point, the final result in this case did leave reason for argument either way as to who should pay.  While, in the end, I disagreed with Mr Collins, it cannot be said that argument was not worth making.

[36]     The plaintiffs will be entitled to scale costs of $32,793 plus disbursements of

$21,182.35.

Williams J