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Falloon v Earthquake Commission [2020] NZHC 874 (1 May 2020)

Last Updated: 18 June 2020

JUDGMENT OF CULL J

Contents

Application to review [1]

Background [5]

Leave to apply out of time [23]

Approach on review [30]

Issues [32]

Whether joint and several liability applies to CRS as a non-party [33]

Rule 14.14 [35]

The parties’ positions [38]

The decision under review [42]

Analysis [47]

BLIGH v THE EARTHQUAKE COMMISSION [2020] NZHC 874 [1 May 2020].

(a) Mr Bligh was contractually bound to accept advice [49]

(b) Wasted costs orders [56]

(c) Apportionment of liability [62]

Conclusion [66]

Was there a causal connection between the incurred costs and

CRS’s involvement? [69]

Should all of the claimed experts’ expenses have been recovered

against CRS? [82]

What is a fair apportionment of liability for costs as between the

plaintiff and CRS? [89]

Conclusion [95]

Application to review

• [1] This is an application to review an Associate Judge’s award of joint and several costs against a non-party litigation funder, arising out of a claimant’s unsuccessful civil claim for earthquake damage.¹

• [2] Claims Resolution Service Ltd (CRS), the litigation funder and non-party to the proceeding, applies to the Court for review of the judgment of Associate Judge Lester, in which he ordered CRS to pay the Earthquake Commission (EQC) and IAG New Zealand Ltd (IAG) non-party costs, on a joint and several basis with the plaintiff in the sums of $123,900 to EQC and $81,479 to IAG.² This was ordered together with 2B costs on EQC and IAG’s successful applications for non-party costs.³

• [3] In an earlier ruling from Associate Judge Osborne, CRS was ordered to pay wasted costs to both EQC and IAG as a result of an aborted trial on 31 October 2016.⁴ In relation to EQC’s wasted costs, Associate Judge Lester quantified the wasted costs in the sum of $30,709 plus $2,207 in disbursements, and ordered that liability should be on a joint and several basis with the plaintiff.⁵ Joint and several liability costs were also awarded against CRS and the plaintiff for EQC’s costs for the wasted costs

¹ Bligh v Earthquake Commission [2019] NZHC 2236 (Decision Under Review).

2. The review is brought under High Court Rules 2016, r 2.3. See also Decision Under Review, above n 1, at [139] and [151].

³ At [160].

4. Bligh v Earthquake Commission [2017] NZHC 3179 (Wasted Costs Decision) at [151(a)] and [151(c)].
5. Decision Under Review, above n 1, at [22]-[23]. While IAG was also awarded wasted costs in the Wasted Costs Decision, its application before Associate Judge Lester sought overall costs on a 2B basis, rather than seeking to quantify its wasted costs. This is the basis on which Associate Judge Lester approached his decision: Decision Under Review, above n 1, at [17(a)].

hearing itself, in the sum of $10,981.36.⁶ Further costs against CRS were awarded in favour of the plaintiff on the plaintiff’s application to set aside a judgment by default and on the wasted costs hearing.⁷ As a result of these decisions, CRS has a total liability for a sum in excess of $286,000 (inclusive of costs for the non-party applications).

• [4] This decision concerns the non-party costs order in favour of EQC and IAG, for which CRS and the plaintiff are jointly and severally liable, from the commencement of the substantive proceeding to the termination of the plaintiff’s contract with CRS. CRS seeks that the non-party costs order in favour of EQC and IAG be quashed with either no costs against CRS, or that the costs against CRS be varied and awarded on a several basis.

Background

• [5] On 28 November 2012, the plaintiff, Mr Bligh, entered into a contract with CRS for CRS to fund the litigation over his claim against EQC and IAG after the Canterbury earthquakes in 2011.

• [6] The general facts and background to the proceedings are set out comprehensively in the judgment of Nation J, who heard and determined Mr Bligh’s substantive claim.⁸ Of relevance to this review is the sequence of events which occurred from the date of commencement of the proceedings in 2013 to the aborted trial, which was to commence on Monday 31 October 2016. The trial before Nation J took place 16 months later, and Mr Bligh’s claim was ultimately unsuccessful.

• [7] A more detailed sequence of Mr Bligh’s proceeding during October 2016 up until the first trial date is then set out in the decision of Associate Judge Osborne.⁹ A summary of the relevant facts drawn from both Associate Judge Osborne’s decision and the decision under review is as follows.

⁶ At [26].

⁷ At [47] and [28].

⁸ Bligh v Earthquake Commission and IAG [2018] NZHC 2102.

⁹ Wasted Costs Decision, above n 4, at [76]-[120].

• [8] Mr Bligh entered into his contract with CRS on 28 November 2012, as noted. CRS assessed Mr Bligh’s house and produced an initial damage assessment report, which was done through Earthquake Services Ltd. Mr Staples was the sole director of Earthquake Services Ltd. The report recommended a full rebuild of Mr Bligh’s home.

• [9] Mr Staples is also the founder and director of CRS. He attended on Mr Bligh and advised him that his best option was to file proceedings. CRS instructed Mr Shand’s legal office to act for Mr Bligh and proceedings were issued in July 2013. CRS appointed two experts for Mr Bligh. Mr Staples, through CRS, has deposed that he was not kept appraised of the progress of proceedings. This claim was rejected by Associate Judge Lester, who detailed the CRS service agreement terms which describes CRS’s role and Mr Staples’ involvement in the events leading up to the aborted trial.¹⁰

• [10] Following an unsuccessful settlement conference on 12 September 2016, Mr Shand’s firm telephoned Mr Bligh on 7 October 2016, advising Mr Bligh to settle his claim and expressing doubts as to its merits. From 7 October to 20 October, email communications between CRS (Mr Dwyer) and Mr Shand’s office (Mr Ferguson) recorded the discussions with EQC’s loss adjuster and the options for approaches to settlement. On 18 October 2016, Mr Shand’s office warned CRS that a prospect of resolution at $150,000 might soon disappear. On 20 October 2016, a joint offer was received from EQC and IAG with a figure well below the $150,000 mark.

• [11] On 21 October 2016, Mr Shand’s office advised CRS that Mr Bligh should accept the EQC offer. On 22 October 2016, a detailed email was sent by Mr Shand’s office to Mr Staples and Mr Dwyer of CRS, which set out the difficulties in Mr Bligh’s case and referred to Mr Bligh’s costs exposure on unsuccessful claims, estimated at

$240,000. Mr Ferguson from Mr Shand’s office sought confirmation from Mr Staples that CRS will pay EQC and IAG’s costs if the claim is unsuccessful. This understanding was based on the commitment of CRS in the funding contract to a “no win no pay” outcome. Mr Bligh was not copied in on either of these emails.

¹⁰ Decision Under Review, above n 1, at [110]-[112].

• [12] On 22 October Mr Staples replied, suggesting that Mr Shand’s office have not looked any deeper from their first view formed on the claim, but did not comment on CRS’s costs obligations. On further inquiry, Mr Staples told Mr Shand’s office that it has let Mr Bligh and himself down and Mr Shand can pay any costs. On Sunday 23 October, Mr Staples sent a further email to Mr Shand’s office in which he criticised the quality of its legal work to date, recording that Mr Bligh was Mr Shand’s client and that Mr Bligh was the one who would have to pay if the case was lost. Mr Staples told Mr Ferguson to “get out there and talk to your client”.

• [13] Mr Dwyer of CRS responded to Mr Staples on Tuesday 25 October, stating that it was too late for Mr Staple to stay out of matters (as Mr Staples had suggested he would do) and that Mr Staples had taken a position at odds with the lawyers and the experts. Because of that, Mr Bligh had picked up on his approach and was wanting to proceed to a court battle. Mr Dwyer recorded that:

As I see things this will be a cost to CRS on the “no win, no cost” basis. We would have to terminate our contract with Ricky [Mr Bligh] to avoided to this. However, we can only do this on basis that Ricky will not follow CRS’s recommendation to settle. CRS through you is not giving that advise.

• [14] On Wednesday 26 October, Mr Staples’ position changed and said he would “see [Mr Bligh] next week and talk him down from the tree if that is what is needed”. Following a site visit on Thursday 27 October, Mr Shand’s office and one of Mr Bligh’s experts discussed with Mr Bligh the problems in proving his claims and the consequential costs outcomes if his claim was unsuccessful. That afternoon Mr Bligh was sent an email from Mr Shand’s office, advising him of his potential costs liability to EQC and IAG in the event that this claim was unsuccessful and forwarding him fresh offers of settlement received from IAG and EQC. Mr Bligh rejected any suggestion that he had offered to accept $150,000 in settlement and stated that his solicitor was to get EQC over the cap for much more than $150,000. Mr Bligh copied his email to Mr Staples.

• [15] When Mr Staples received Mr Bligh’s email, he forwarded it to Mr Dwyer of CRS, stating that this was an opportunity for them to “bow out” with Mr Bligh and if Mr Ferguson from Mr Shand’s office could get the $150,000 settlement, Mr Bligh should accept. On Friday 28 October 2016, Mr Dwyer sent an email to Mr Bligh

setting out the legal advice and recording that CRS believed Mr Ferguson was giving good advice and advising that the settlement offer was a good one. Mr Dwyer asked Mr Bligh to advise whether he would accept the settlement offer by close of business that day, stating that if CRS if did not hear from him, CRS would assume that Mr Bligh is proceeding to trial and CRS will then terminate its agreement with him. From Friday 28 October 2016 to Sunday 30 October, Mr Shand’s office had a number of exchanges with Counsel for EQC and IAG over possible settlement proposals. On Saturday 29 October 2016, Mr Bligh made efforts to contact lawyers who might assist him if his lawyers stopped acting. This was unsuccessful.

• [16] The trial was scheduled to commence on Monday 31 October 2016. During the site visit of the trial judge in the company of Counsel that morning, Mr Bligh had a telephone discussion with Mr Staples who tried to persuade him to settle, just as Mr Dwyer had done in his 28 October 2016 email. Mr Bligh refused and wished to proceed. Mr Bligh deposed before Associate Judge Osborne that Mr Staples told him that if he did not negotiate CRS would withdraw funding. Mr Staples then told Mr Bligh he could do no more to assist him and the funding contract was cancelled.

• [17] The Court hearing commenced shortly before 11.30 am before Clark J, who set out in her judgment what occurred that morning.¹¹ Mr Ferguson from Mr Shand’s office advised the Judge that CRS had terminated its agreement with Mr Bligh on the basis of Mr Bligh’s “non-cooperation” and, in the absence of any agreement about payment, Mr Ferguson sought leave to withdraw.¹² Mr Ferguson’s application for leave to withdraw was granted and the Court entered judgment by default against Mr Bligh.¹³

• [18] Mr Bligh, through newly instructed Counsel, successfully set aside the default judgment,¹⁴ and proceeded to trial 16 months later.¹⁵ As noted, Mr Bligh’s claim was unsuccessful.

¹¹ Bligh v Earthquake Commission [2016] NZHC 2619.

¹² At [3].

¹³ At [20].

¹⁴ Bligh v Earthquake Commission [2017] NZHC 995.

¹⁵ Bligh v Earthquake Commission and IAG, above n 8.

• [19] After Mr Bligh’s claim was revived, he, EQC and IAG all sought wasted costs against CRS and Mr Shand’s office for wasted costs in preparation for the aborted hearing. EQC and IAG sought wasted costs against Mr Bligh, EQC sought wasted costs against CRS as a non-party, IAG sought wasted costs against both CRS and Mr Shand’s office as non-parties, and Mr Bligh applied for an order that CRS and Mr Shand’s office indemnify him for any wasted costs orders (made against him in favour of EQC and IAG) and for the costs awarded on his setting aside application.¹⁶ Associate Judge Osborne granted EQC and IAG their costs applications, apportioning liability for EQC’s wasted costs as 33.3 per cent to Mr Bligh and 66.7 per cent to CRS, and apportioning liability for IAG’s wasted costs as follows: 40 per cent to CRS, 40 per cent to Mr Shand’s office, and 20 per cent to Mr Bligh.¹⁷ On review, Nation J reviewed the costs orders made against Mr Shand’s office and quashed them.¹⁸

• [20] EQC and IAG then applied for general costs against Mr Bligh and for non- party costs against CRS. Associate Judge Lester heard the application and awarded costs against Mr Bligh and CRS of $123,900 to EQC and $81,479 to IAG.¹⁹ These costs were awarded on a joint and several basis. In addition, both parties were awarded scale 2B costs on their successful applications for non-party costs. Further costs against CRS were also awarded to EQC for the wasted costs (quantification) and the wasted costs hearing itself (both on a joint and several basis with Mr Bligh), and also to Mr Bligh for his application to set aside the default judgment and on the wasted costs hearing.

• [21] This review concerns the non-party costs decision from the commencement of the proceeding to the termination of Mr Bligh’s contract with CRS. CRS does not challenge the wasted costs orders or those related to the wasted costs hearing itself made by Associate Judge Osborne or Associate Judge Lester.

¹⁶ Wasted Costs Decision, above n 4, at [6]. EQC and IAG also sought wasted costs against Mr Bligh.

¹⁷ At [151(a)-(d)]. There are two reasons why the apportionments are different as between EQC and IAG. First, IAG sought and was awarded wasted costs against Mr Shand’s office as well as CRS, whereas EQC only sought and was awarded wasted costs against CRS. Second, IAG sought wasted costs in two tranches, from August 2016 to October 2016, and from November 2016 to May 2017, whereas EQC only sought and was awarded wasted costs for the four days leading up to the aborted trial. IAG was awarded 25 per cent of its wasted costs for the period from August to October 2016, along with its wasted costs for the four days leading up to the trial.

¹⁸ Bligh v Earthquake Commission [2018] NZHC 2392.

¹⁹ Decision Under Review, above n 1, at [139] and [151].

• [22] Prior to hearing this matter, I drew Counsels’ attention to the fact that I was scheduled to hear a similar argument for non-party costs against CRS in the Goodier v EQC and IAG proceedings and whether Counsel saw a conflict in my hearing both matters.²⁰ Although different Counsel were acting for the same parties they advised that there was no conflict. I adjourned these proceedings to 19 February 2020 to enable Counsel in these proceedings to file further memoranda or submissions following the Goodier proceedings in the event there were other matters arising that they wished to address in this review. Counsel advised by memorandum that there were no further issues arising.

Leave to apply out of time

• [23] CRS’s application for review was filed out of time, being filed four days after the expiry date for filing and serving the application for review.²¹ The failure to file the application within the five working day period arose due to a misunderstanding as to whether the judgment was subject to appeal or review. CRS sought leave to extend the time limit for review.²²

• [24] IAG opposed leave being granted in respect of CRS’s late filing. It submitted that ignorance of the law is no excuse for failing to pursue its application within time and further delay caused by CRS’s application for review is unacceptable given the delay already caused by CRS in the proceedings.²³

• [25] At the hearing I granted leave. I now give my reasons.

• [26] The approach to be taken by the Court in extending the time line for review is the same as an extension of time for appeal.²⁴ The Court should consider the lapse of time, the explanation for delay, and the substance or merit of the proposed review

²⁰ Bligh v Earthquake Commission HC Wellington CIV-2013-409-1333, 18 December 2019. See also Goodier v The Earthquake Commission [2019] NZHC 2176 and Goodier v The Earthquake Commission [2020] NZHC 64.

²¹ High Court Rules 2016, r 2.3(2); and Senior Courts Act 2016, sch 5, cl 11.

²² Rule 1.19.

²³ Williams v Attorney-General [2015] NZHC 139 at [23]-[24].

²⁴ Sutton v New Zealand Guardian Trust Co Ltd [1989] NZHC 1398; (1989) 2 PRNZ 111 (HC) at 113.

application.²⁵ The Court must consider where the interests of justice lie and weigh the prejudice which will be caused to the parties by either declining or granting leave.²⁶

• [27] This application was filed only four days out of time and the delay was caused by a misapprehension as to whether this should proceed by way of appeal or by way of review. Given the amendments to the High Court Rules 2016 that have occurred because of the enactment of the Senior Courts Act 2016, the respective pathways of review and appeal depend upon the dates at which proceedings were commenced.²⁷ The mistake in this case was occasioned by the legal advisors.

• [28] Although IAG claims that it is disadvantaged or prejudiced by the grant of leave, I consider that IAG’s real complaint is that CRS has applied for review at all. Prejudice by delay, whilst a relevant factor to be considered in a leave assessment, must be weighed against the merits of the issues raised in the proposed application for review. IAG, together with EQC and CRS, are involved in other proceedings on the same issues that arise in the present review application, namely the basis of an award of non-party costs and whether joint and several liability is appropriate. Such issues are therefore of general importance and ought to be resolved.

• [29] Although finality in long running litigation is desired, the issues of liability for costs raises issues of public interest and importance and, particularly given the minimal extension required, I consider it is in the interests of justice to grant leave to extend the time limit for CRS to make its application for review. Leave is granted accordingly.²⁸

Approach on review

• [30] Rule 2.3 of the High Court Rules 2016 provides for the review of an order or decision made by an Associate Judge.²⁹ If the decision under review was made following a defended hearing and is supported by documented reasons, the review

²⁵ At 113.

²⁶ Body Corporate 325261 v Steven Mitchell Engineers Ltd and Ors [2014] NZHC 761 at [15]- [18].

²⁷ Senior Courts Act 2016, sch 5, cl 11.

²⁸ Under High Court Rules 2016, r 1.19.

²⁹ Although rule 2.3 was revoked in March 2017 by the Senior Courts Act 2016, sch 5, cl 11 of that Act provides that rule 2.3 applies to proceedings that are pending on 1 March 2017. As this proceeding began in 2013, rule 2.3 still applies.

proceeds as an appellate rehearing.³⁰ In all other cases, the review proceeds as a full,

de novo, rehearing.³¹

• [31] Because Associate Judge Lester’s decision was made on the papers, that is, without a defended hearing, the review proceeds as a rehearing de novo.³² As the parties approached the hearing on the basis of a review by way of a general appeal, I add that, regardless of whether the matter proceeds by way of a general appeal or a full rehearing, I am satisfied the conclusions I have reached in this judgment would not be any different under either approach. As this Court has held, the differences between the two approaches have narrowed in practice by the qualifications accepted for de novo hearings, most notably that fully reasoned decisions of experienced Associate Judges will be given due weight.³³

Issues

• [32] CRS submits the Judge made several errors in his judgment which form the grounds of this review. The parties were agreed on the four issues for determination:

(a) whether joint and several liability under r 14.14 of the High Court Rules should apply to CRS as a non-party;

(b) whether there is a causal connection between the incurred costs and CRS’s involvement;

(c) whether all of the claimed experts’ expenses should have been recovered against CRS; and

(d) if costs are to be awarded against CRS and are not to be made on a joint basis, what is a fair apportionment of liability for costs as between the plaintiff and CRS?

³⁰ Rule 2.3(4).

³¹ Rule 2.3(5).

³² High Court Rules 2016, r 2.3(4); Miller Design Ltd v P R Hotel Ltd (2003) 17 PRNZ 873 (HC) at [16]-[23]; and Team Maddison Ltd v Franchise Association of South Africa HC Auckland CIV- 2004-404-4378, 17 August 2005 at [2].

³³ Team Maddison Ltd v Franchise Association of South Africa, above n 32, at [3], citing Wilson v Neva Holdings [1994] 1 NZLR 481 at 487.

Whether joint and several liability applies to CRS as a non-party

• [33] The issue of joint and several liability was the principal issue in contention in this review. Before addressing the extent of r 14.14, the principles applying to awards of costs against a non-party are relevant. All parties referred to the leading authority of Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), where the Privy Council identified principles relevant to exercising the Court’s discretionary power to award costs against a non-party.³⁴ In summary they are:

(a) cost orders against non-parties are exceptional in the sense that they are outside the ordinary class of cases where parties pursue claims for their own benefit and at their own expense;

(b) the ultimate question in any exceptional case is whether in all the circumstances it is just to make the order, thereby requiring a fact- specific inquiry;

(c) as a general rule, third party litigation funders are only liable for costs where they are not only fund proceedings but substantially control it or “at any rate to benefit from them” – that is because the funder is gaining access to justice for its own purposes and is in effect the real party to litigation; and

(d) the most difficult cases are those where non-parties fund receivers or liquidators in litigation which is designed to advance the funders’ own financial interests – in that case, again as a general rule, the funder pursuing its own interests should not be able to escape without risk to liability for costs if the proceeding fails.

• [34] Two other matters are addressed in Dymocks. First, proof of causation is a necessary pre-condition to the making of an order against a non-party.³⁵ A ‘but for’

³⁴ S H Lock (NZ) Ltd v New Zealand Bloodstock Leasing Ltd [2011] NZCA 675 at [14], citing Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145 at [25].

³⁵ Dymocks, above n 34, at [18].

approach to causation is appropriate. The question in Dymocks was whether, but for the funder’s involvement, the plaintiff would have pursued its appeal.³⁶ Second, it is wrong to allow someone to fund litigation in the hope of gaining a benefit, without a corresponding risk that that person will share in the costs of the proceedings, if they ultimately fail.³⁷

Rule 14.14

• [35] Rule 14.14 of the High Court Rules provides that “[t]he liability of each of 2 or more parties ordered to pay costs is joint and several, unless the court otherwise directs.” After determining that CRS were liable to pay non-party costs, a decision which I have upheld, Associate Judge Lester held that the starting position for costs is joint and several liability and did not see any reason to depart from that rule.³⁸ CRS was then held jointly and severally liable with Mr Bligh in relation to EQC’s and IAG’s costs.³⁹

• [36] “Party” is defined in the High Court Rules as “any person who is a plaintiff or a defendant or a person added to a proceeding”.⁴⁰ “Defendant” is defined as a person served or intended to be served with a proceeding (other than a third or subsequent party served with a proceeding under r 4.12).⁴¹ Third or subsequent parties are not within r 14.14 because they are not parties and are excluded from the definition of defendant.⁴² By definition, CRS, as a non-party, is neither a defendant nor a party added to this proceeding, and prima facie r 14.14 does not apply.

• [37] It is also relevant that “proceeding” is defined as “any application to the court for the exercise of the civil jurisdiction of the court other than an interlocutory application”.⁴³ CRS was not added to the proceeding and by application of the

³⁶ At [20]; S H Lock, above n 34, at [15].

³⁷ At [26], citing Arklow Investments Ltd v MacLean HC Auckland CP49-97, 19 May 2000.

³⁸ Decision Under Review, above n 1, at [147].

³⁹ At [151].

⁴⁰ Rule 1.3.

⁴¹ Rule 1.3.

42. Andrew Beck and others McGechan on Procedure (loose-leaf ef, Thomson Reuters) at [HCR14.14.01].

⁴³ Rule 1.3.

High Court Rules definitions, CRS does not become a party to a proceeding on an interlocutory application.

The parties’ positions

• [38] CRS contends the Judge incorrectly applied r 14.14 of the High Court Rules in finding that the starting point for costs is joint and several liability between Mr Bligh and CRS. CRS submits r 14.14 applies to plaintiffs and defendants, but not to non- parties. Therefore, it says, the Judge erred in failing to exercise his discretion at all having considered that there was no reason to depart from r 14.14, or, alternatively, exercised the discretion on an incorrect principle, namely that r 14.14 did apply. CRS submits that if the Court finds costs should be awarded against CRS, any such order should not have been on a joint basis.

• [39] EQC and IAG submit that, in substance, CRS was and is a party for the limited purpose of hearing, determining and enforcing the costs awarded made against it. They submit that reference to “parties” in r 14.14 is properly read as referring to any person who has been ordered to pay costs. EQC says that elsewhere in Part 14 of the High Court Rules, the use of the word “party” captures a non-party ordered to pay, or be awarded, costs.⁴⁴

• [40] In any event, EQC submits that the starting point is joint and several liability, whether the two or more persons ordered to pay costs are parties or non-parties. For this proposition, EQC relies on Dymocks and contends that although the Privy Council in that case does not expressly say that the unsuccessful plaintiffs’ and the litigation funders’ costs liability was joint and several, it must have been.⁴⁵ It argues that both the plaintiffs and the funder were ordered to pay Dymocks’ costs, not just some part of those costs, and if liability had been several only Dymocks would have been entitled to recover its whole costs twice. Similarly, in Sadat v Tower Insurance Ltd, costs against a party and its associated non-party were awarded on a joint and several basis, without apparent consideration of doing so on any other basis.⁴⁶

⁴⁴ See, for example, r 14.6(1)(b) and (4)(d).

⁴⁵ Dymocks, above n 34.

46. Sadat v Tower Insurance Ltd [2018] NZHC 2375 at [69]. The non-party in that case was also CRS.

• [41] In the event that the defendants’ interpretation of r 14.14 is incorrect and the starting point is in fact r 14.1 of the High Court Rules as CRS submit, which provides that all costs matters are at the discretion of the Court, EQC and IAG submit that joint and several liability was appropriate in these circumstances. EQC submits that joint and several orders maximise the prospects of recovery for the judgment creditor, because the judgment creditor can recover the entire judgment sum from a single judgment debtor, and that joint and several orders are also just as between judgment debtors, as they allow one who pays to seek contribution from the other. IAG adds that it is contrary to public policy for litigation funders to establish themselves as a special category of party for the purposes of costs awards.

The decision under review

• [42] The award of costs in this case followed the previous wasted costs order by Associate Judge Osborne. He apportioned EQC’s wasted costs as between Mr Bligh and CRS at 33.3 per cent and 66.7 per cent respectively and IAG’s wasted costs as among Mr Bligh, CRS and Mr Shand at 20 per cent, 40 per cent and 40 per cent respectively.⁴⁷ He then ordered CRS and Mr Shand to indemnify Mr Bligh for 40 per cent of the costs payable by Mr Bligh to EQC and IAG that had been determined in a previous costs judgment.⁴⁸

• [43] In making the non-party costs order under review, Associate Judge Lester stated that joint and several liability applied to the wasted costs award made by Associate Judge Osborne in favour of EQC, and considered that the starting position for liability for the non-party costs is joint and several liability, unless the Court directs otherwise.⁴⁹ He could not see any reason to depart from that rule.⁵⁰

• [44] However, Associate Judge Osborne did not make an award of joint and several liability. As noted, he apportioned several liability among CRS, Mr Shand and Mr Bligh for the wasted costs to EQC and IAG and ordered indemnity costs of 40 per

47. Wasted Costs Decision, above n 4, at [151(a)-(d)]. Although Associate Judge Osborne referred in passing to “jointly”, it is clear that his award was apportioned on a several basis.
48. At [151(e)]; and Bligh v EQC [2017] NZHC 2964. These were the costs of the setting aside application as between EQC, IAG and Mr Bligh.

⁴⁹ Decision Under Review, above n 1, at [147].

⁵⁰ At [147].

cent for Mr Bligh’s previous costs award. The reference by Associate Judge Lester to Associate Judge Osborne’s joint and several award on the wasted costs was therefore mistaken.

• [45] There was also no reason given for imposing joint and several liability. In making the non-party costs award under review, Associate Judge Lester cited Mr Staples’ failure to address the reports obtained during the course of litigation,⁵¹ CRS’s contractual right to a significant control of proceedings,⁵² and the rejection of CRS’s defence that it abdicated its control to the lawyers.⁵³ I consider these matters were critical to the issue of non-party costs, but not to the assessment of joint and several liability.

• [46] The basis of the costs award was the Associate Judge’s view that the starting position for liability for costs under r 14.14 is joint and several liability and he did not see “any reason to depart from that Rule.” The problem with that approach, which I find is in error, is that r 14.14 does not apply to non-parties, unless the Court directs otherwise. The Rule is clear in its terms: “[t]he liability of each of 2 or more parties ordered to pay costs is joint and several, unless the court otherwise directs.” “Party” is also defined and, as already noted, CRS has not been joined as a party. ⁵⁴ Costs have been awarded against it as a non-party, and in my view, it does not follow that joint and several liability should apply to an award of costs against a non-party, without express reasons for doing so.

Analysis

• [47] The appropriate starting point for liability for non-party costs is r 14.1 of the High Court Rules. Costs are at the discretion of the Court.

• [48] The critical question, in the circumstances of this case, is whether the Court should use its discretion to award non-party costs on a joint and several basis. There

⁵¹ At [148].

⁵² At [149].

⁵³ At [150].

⁵⁴ See this judgment at [35]-[37].

are three reasons why I consider joint and several liability should not be the basis of the non-party costs here.

(a) Mr Bligh was contractually bound to accept advice

• [49] It is plain that CRS undertook the litigation funding for Mr Bligh on a “no win, no pay” basis. Further, in contrast to a similar argument in the Goodier v EQC and IAG proceeding, the terms of the service contract with Mr Bligh did not include an indemnity that CRS would pay for any adverse costs order against Mr Bligh.⁵⁵

• [50] As noted, the service agreement with Mr Bligh provides that CRS will:

(a) act in the claimant’s best interests;

(b) give ongoing advice about the merits of the claim and future claim resolution strategy; and

(c) give advice about claim settlement.

• [51] The agreement is to last until “the damage and/or loss claims are settled or until the agreement is terminated” and importantly provides:

(7) If the Claimant is successful in any respect that is related to the service agreement the Claimant agrees to pay Claims Resolution Services Ltd on the basis:

• Claims Resolution Services Ltd takes on the prosecution of the claim on a No Win No Pay basis for 10%of the Final Settlement plus all Costs including, legal, quantity surveyor, independent reports and assessment costs. Costs are limited to a maximum of $10,000. Any costs above this amount are borne by Claims Resolution Services Ltd. If any offer has already been made by the insurer, costs and fees shall not exceed the difference gained.

• [52] CRS may terminate the agreement if the claimant does not “keep to its responsibilities” or the claimant rejects CRS’s advice.

⁵⁵ Goodier v EQC and IAG [2020] NZHC 64.

• [53] Mr Bligh was contractually bound to accept advice from CRS. Mr Bligh refused to accept his legal advice to settle his claim and CRS (albeit belatedly) urged Mr Bligh to follow that advice and accept the settlement offer. He refused and, as a result, the service contract was terminated.

• [54] Mr Bligh has been described as “bullish” in pressing his claim and equally Mr Staples was similarly described in his approach to the litigation. In an assessment of liability for non-party costs, then, the Court cannot overlook that Mr Bligh was determined to proceed to trial, having rejected the advice of his lawyers and CRS, both of whom had warned Mr Bligh of the likelihood of substantial adverse costs orders. Notwithstanding the caution and the rejection of his advisors, Mr Bligh instructed further solicitors, who proceeded to prosecute Mr Bligh’s claim to trial 16 months later. I acknowledge the concerns of both Associate Judges who have issued decisions in respect of costs in this proceeding that the last-minute advice to Mr Bligh may well have exacerbated his steadfast position to continue to trial.

• [55] Under his contract with CRS, Mr Bligh was promised a “no win, no pay” basis for his litigation. However, in the event of termination of the agreement, when CRS’s advice is not followed, Mr Bligh’s contractual protection against costs were at an end. In those circumstances, I consider the Court must have regard to the contractual position of the parties. CRS was contractually entitled to terminate the agreement and did so on 27 October, albeit three days before trial. Where CRS’s advice is given and refused, the contract places responsibility on Mr Bligh for costs. I consider this factor mitigates against a finding of joint and several liability for EQC and IAG’s costs.

(b) Wasted costs orders

• [56] The second factor is the effect of the imposition of the wasted costs orders against CRS. The wasted costs order was effectively a penalty imposed for wasted trial preparation because of the belated intervention of CRS on settlement discussions and advice to Mr Bligh just prior to, and on the morning of, the scheduled trial. That critical sequence of events in October 2016 has already been the subject of scrutiny and adverse findings in the wasted costs decisions.
• [57] The focus of the non-party costs currently under review is for the commencement and carriage of the litigation from the filing of Mr Bligh’s claim in 2013 to the termination of the agreement with Mr Bligh on 27 October 2016. This requires the Court to focus on the basis for the claim, the conduct of the litigation as a whole, and the degree of control by CRS as the non-party up to the time of the contract termination. As noted above, those matters address the question of whether costs should be awarded against the non-party, not joint and several liability.

• [58] On an objective view of the facts, the advice from CRS and Mr Bligh’s lawyers was correct. Mr Bligh should have accepted a settlement but Mr Bligh ultimately had to agree to that settlement. No costs would have been payable if Mr Bligh had accepted the settlement offer.

• [59] CRS has had a wasted costs orders made against it and does not appeal those findings. If joint and several liability is to be imposed, which is a further adverse liability finding, the Court needs to weigh in the balance the already imposed wasted costs order and explain why joint liability is now being imposed.

• [60] There is no articulated basis for the imposition of joint liability and I do not consider there is one. The claim was plainly not hopeless, as another firm of solicitors prosecuted the claim in a subsequent trial. It should not be overlooked that the claim and the litigation surrounding it produced offers of settlement from the first and second defendants. Further, as the Privy Council identified, the Court’s usual approach to “pure funders” is to give priority to the public interest in the funded party getting access to justice.⁵⁶ Although CRS is not a pure funder but had an interest in the outcome, the 10 per cent interest in the outcome was modest, and CRS enabled Mr Bligh to pursue his claim. The extent of CRS’s control in the litigation gives rise to a consideration of non-party costs in my view, but does not provide a justification for joint liability.

• [61] I consider that the already-imposed wasted costs order should have been taken into account before joint liability was awarded. Joint liability amounts to a further adverse finding and is punitive on the litigation funder. In that case, clear reasons

⁵⁶ Dymocks, above n 34, at [25].

should have been given for that approach. I do not find that such an approach is warranted here.

(c) Apportionment of liability

• [62] The third reason is that liability for costs was apportioned as between the plaintiff and CRS, both in Associate Judge Osborne’s decision and in the decision under review.

• [63] I accept CRS’s submission that the Court should have considered several liability as opposed to joint liability in circumstances where there has been an apportionment of liability.⁵⁷ The fact that the Court was able to assess proportionality as to liability in the context of both wasted costs orders and these non-party costs raises the question as to why this award of costs should necessarily sound in joint and several liability. Again, no reasons were addressed and the apportionment of liability as between CRS and Mr Bligh suggests that liability should be several, not joint.

• [64] For completeness, I do not accept EQC’s contention that without reference to joint and several liability for costs in Dymocks, the Privy Council was in effect making such an award. Their Lordships state:⁵⁸

[17] Their Lordships are of a clear view that where, as here, the order being sought is one against a non-party (and, indeed, the first such order to be sought in the proceedings), it is in the strictest sense supplemental to the judgment already pronounced and sealed and in no way varies it. The Todds remain liable pursuant to the initial order. Any order made against Associated would be separately enforceable although obviously Dymocks would only be entitled to recover in all up to the total of their (yet to be taxed) costs.

• [65] Clearly, Dymocks would not have been entitled to recover its whole costs twice if the award was not joint and several, as EQC submitted, and the litigation funder’s costs liability was not joint and several in that case.

57. Morton v Douglas Homes Ltd (No 2) (1984) 2 NZLR 620 (HC); and Body Corporate 189855 v North Shore City Council et Ors HC Auckland CIV-2005-404-5561, 2 October 2008.

⁵⁸ Dymocks, above n 34.

Conclusion

• [66] I find that r 14.14 and the definitions of “party”, “defendant” and “proceeding” make it clear that joint and several liability is not the starting point for a non-party costs order, unless the Court otherwise directs. The starting point is r 14.1, and costs are at the discretion of the Court.

• [67] For the reasons above-outlined, I do not consider joint and several liability costs are appropriate in the circumstances of this case.

• [68] I do not uphold the joint and several liability finding against CRS to EQC and IAG for the non-party costs awards and costs made against Mr Bligh.

Was there a causal connection between the incurred costs and CRS’s involvement?

• [69] The issue is whether non-party costs should have been ordered against CRS. CRS accepts that it is more than a pure funder but disputes that it had control of the final decision to settle or offer to settle. CRS submits that non-party costs should not have been ordered because Mr Bligh’s refusal to settle “broke the chain of causation” and the proceeding would have been commenced by the plaintiff, without CRS, in any event.

• [70] Because Mr Bligh refused to settle his claim in circumstances where Mr Bligh had the sole power and control of that decision, and his refusal was against the advice of CRS, CRS submits that the Judge incorrectly gave no weight to the fact that CRS had no control or power of the proceeding. CRS says, therefore, it was not causative of the loss. Essentially, ‘but for’ Mr Bligh’s decision to refuse to settle, there would have been no costs order at all. In those circumstances, CRS submits it is appropriate that no costs order is made against CRS.

• [71] As noted, proof of causation is a necessary pre-condition to the making of an order against a non-party.⁵⁹ A ‘but for’ approach to causation is appropriate: a non-

⁵⁹ Dymocks, above n 34, at [18].

party will not ordinarily be made liable for costs if those costs would in any event have been incurred without such non-party’s involvement in the proceedings.⁶⁰

• [72] Looking first at CRS’s control over the proceedings, CRS in its service agreement with Mr Bligh not only undertook the funding of the litigation but also contractually imposed its control by agreeing to:

(a) act in the claimant’s best interest;

(b) give ongoing advice about the merits of the claim and future claim resolution strategies; and

(c) give advice about claim settlement.

• [73] To that end, Mr Bligh contracted to give CRS and its advisors instructions that allow CRS to properly and fully act in Mr Bligh’s best interests, and termination of the agreement, as noted above, occurs where the claimant rejects CRS’s advice.

• [74] On the basis of the service agreement, CRS had considerable control over the proceedings and I find it difficult to accept CRS’s submission that Mr Bligh would have commenced this proceeding regardless of whether CRS provided funding. Associate Judge Osborne described Mr Staples’ approach as “bullish” and the advice to Mr Bligh in the Earthquake Services Report was that a full rebuild of Mr Bligh’s home was the most logical action.

• [75] CRS’s submissions on the ‘but for’ test principally focus on Mr Bligh’s refusal to settle: but for Mr Bligh’s refusal to settle, costs would not have been at issue. I am unable to uphold this submission. Costs were incurred from the commencement of the proceedings to 27 October 2016 when CRS withdrew its funding. Mr Bligh’s refusal to settle was not causative of those costs being incurred. Although CRS did not have control of the final decision to accept or refuse settlement, Mr Bligh’s decision came on the eve of the trial, after the costs had already been incurred.

⁶⁰ At [20]; S H Lock, above n 34, at [15].

• [76] In any event, the causation requirement focusses on the actions of the non- party, not the claimant. The correct focus is whether, but for CRS’s involvement, the costs would have been incurred. I have accepted that Mr Bligh’s refusal to settle was a mitigating factor in relation to the imposition of joint and several liability. However, on a consideration of a non-party costs order, CRS’s control of the proceedings and in particular Mr Staples’ initial reaction to the settlement offer and the advice from Mr Shand’s office bolstered Mr Bligh and his view that he had a claim of merit. The last-minute change of mind by Mr Staples and his belated urging of Mr Bligh to accept settlement is illustrative of the control Mr Staples had of the proceeding.

• [77] I am in agreement with Associate Judge Lester when he rejected CRS’s claim that it did not have effective control of the proceeding. CRS appointed Mr Bligh’s lawyers, appointed two experts (one of whom did not support the remedial action preferred by Mr Bligh) and undertook an assessment from a company in which Mr Staples held the controlling interest.

• [78] Further, the test is not merely control. It is that, where the non-party not merely funds the proceedings but substantially also controls them or at any rate is to benefit from them, justice will ordinarily require that the non-party will pay the successful party’s costs.⁶¹ That was the position here: CRS stood to take 10 percent of any judgment or settlement if the claim was successful.

• [79] As noted above, the ultimate question in any exceptional case is whether in all the circumstances it is just to make the order. The principles by which the discretion to order costs against a non-party were canvassed in Dymocks by the Privy Council as set out at [33]. Relevantly, a funder should not get the benefit of litigation if it succeeds without incurring the risk of adverse costs if the litigation fails.

• [80] In all the circumstances, particularly where CRS had given such strong and incorrect advice to Mr Bligh that his home was a “rebuild” when in fact no earthquake damage has been proved and CRS belatedly agreed “winning is doubtful”, a non-party costs award against CRS was appropriate, even acknowledging that costs orders against non-parties are to be regarded as “exceptional”. In all the circumstances here

⁶¹ Dymocks, above n 34, at [25(3)].

for the reasons set out above, CRS’s role in both funding and controlling the proceedings, including its contractual obligation to give advice to the claimant, militates in favour of an order.

• [81] I find, therefore, that Associate Judge Lester’s decision to award non-party costs against CRS was appropriate and just in the circumstances.

Should all of the claimed experts’ expenses have been recovered against CRS?

• [82] If a costs order is to be made against CRS, CRS raises two further matters.

• [83] The first is the costs of experts’ reports that were used in the subsequent trial but which were incurred in the period leading up to the aborted trial in October 2016. For EQC, these are in the sum of $78,000. For IAG, they are in the sum of $43,000. CRS seeks an order that the costs of Spencer Holmes, Tonkin & Taylor and Rawlinsons be excluded from the disbursements because these reports were used in the final hearing and the costs thereof would have had to have been incurred for that hearing.

• [84] EQC submits that after the default judgment was entered following the aborted first trial, CRS would have been liable for non-party costs to EQC and IAG in having funded an unsuccessful proceeding. It says therefore it cannot be right that CRS can reduce or avoid that liability simply because Mr Bligh managed to have the initial judgment set aside, and EQC and IAG had to incur further costs in defending the proceeding at a second trial. EQC and IAG say the costs and disbursements it now seeks in its non-party costs application against CRS had already been incurred, before CRS had terminated its funding agreement.

• [85] As noted, r 14 of the High Court Rules, which deals with the Court’s jurisdiction towards costs, confers a wide discretion on the Court. As part of the exercise of the Court’s discretion in relation to non-parties, the Privy Council has emphasised that the ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order. This will inevitably be a fact-specific jurisdiction with a number of different considerations in play.⁶²

⁶² Dymocks, above n 34, at [25(1)].

• [86] Although CRS was not a “pure funder” as described in Dymocks , the public interest factor in the funded party getting access to justice over that of the successful unfunded party recovering costs, is in my opinion, a matter to be factored in here.⁶³ Mr Bligh as the funded party, wished to pursue his claim and through CRS’s funding was able to do so in the first instance.

• [87] On the termination of his agreement with CRS, Mr Bligh sought and obtained further legal assistance to bring the matter on for a second trial. The same expert reports, prepared for the first trial, were used in the second trial. Although the costs and expenses were incurred in the initial preparations of those reports, I do not think it follows as a matter of course that all of those expenses should be sought from CRS. I consider that is inappropriate in these circumstances.

• [88] There is a wide discretion invested in the Court in making costs awards and the overriding question, particularly in non-party costs, is whether the order is just. Accordingly, I exercise my discretion and vary Associate Judge Lester’s costs award, by ordering CRS to pay 50 per cent of each of EQC and IAG’s experts’ expenses.

What is a fair apportionment of liability for costs as between the plaintiff and CRS?

• [89] The second matter raised by CRS is that Associate Judge Lester applied the apportionment assessed by Associate Judge Osborne when he was dealing with EQC’s wasted costs and apportioned the liability as between CRS and Mr Bligh to be 33 per cent to Mr Bligh, and 67 per cent to CRS. However, in assessing IAG’s wasted costs Associate Judge Osborne had apportioned overall responsibility as 40 per cent to CRS, 40 per cent to Mr Bligh’s lawyer, and 20 per cent to Mr Bligh.

• [90] CRS submits that Associate Judge Lester should have applied the percentages apportioned by Associate Judge Osborne in his assessment of IAG’s wasted costs, which covered responsibility for the presentation of the overall claim as opposed to just the four days before the aborted trial. These, CRS says, are more relevant to the

⁶³ Dymocks, above n 34, at [25(2)].

issue of non-party costs between the commencement of the claim and the cancellation of the contract.

• [91] I do not uphold CRS’s submission in relation to the apportionment of liability for costs because Associate Judge Osborne’s assessment included the liability of Mr Bligh’s solicitors, Mr Shand, and the award against Mr Shand’s office was reviewed and quashed by Nation J.

• [92] After considering the costs decisions of Nation J, Associate Judge Osborne and Associate Judge Lester’s decision under review, I have reached the conclusion that the apportionment of liability as between Mr Bligh and CRS in a one third: two thirds ratio is fair and appropriate in this case. I have already addressed the provisions in the service agreement between CRS and Mr Bligh. CRS contracted to maintain control and give advice to Mr Bligh throughout the term of the contract. Although Mr Shand’s office was the legal advisor to Mr Bligh, Mr Staples had the final say over whether the legal advice should be followed and the circumstances surrounding his change of mind has already been set out, both in the judgments referred to and in the factual summary of this judgment.

• [93] I consider that CRS’s liability of 66.7 per cent given its control of the proceedings, its ultimate share of any proceeds (albeit that it was only 10 per cent) and the role Mr Staples played in supporting and ultimately advising Mr Bligh in his litigation justifies this award.

• [94] I uphold the finding of Associate Judge Lester in his apportionment of liability as between CRS and Mr Bligh of 66.7 per cent to CRS and 33.3 per cent to Mr Bligh.

Conclusion

• [95] CRS has succeeded in part on its review of the Associate Judge’s non-party costs awards in favour of EQC and IAG. I find that:

(a) The finding that non-party costs are to be awarded against CRS is upheld.

(b) The finding that CRS is jointly and severally liable with Mr Bligh to EQC and IAG is quashed.

(c) The non-party costs awards to EQC and IAG are varied as follows:

(i) CRS and Mr Bligh are severally liable to EQC and IAG for the costs made against Mr Bligh for the proceeding from commencement to 28 October 2016.

(ii) CRS is liable for 66.7 per cent of the costs of the proceeding.

(iii) Mr Bligh is liable for 33.3 per cent of the costs of the proceeding.

(iv) The quantum of costs and disbursements to EQC and IAG are varied in that CRS is liable for 50 per cent only of EQC’s and IAG’s experts’ expenses.

(d) The finding that CRS is to pay costs on the non-party costs application is upheld.

• [96] Leave is reserved to the parties for clarification on the calculation or quantum of this costs judgment. The clarification or correction can be sought by memoranda.

Cull J

Solicitors:

Chapman Tripp, Wellington for EQC Duncan Cotterill, Auckland for IAG Grant Smith, Christchurch for CRS