Birchfield v Birchfield [2026] NZCA 477

CA696/2025, 1 October 2026. Court of Appeal: Thomas, Andrew and Johnstone JJ (reasons given by Andrew J)

Outcome

The appeal was allowed. The Court set aside the wasted costs orders made by Associate Judge Lester in Birchfield v Birchfield [2025] NZHC 1928 at [29]–[30], which totalled $22,848.67. The respondents must refund the costs that Allan Birchfield had already paid. The Court sent the respondents' original High Court costs applications back to the High Court to be decided in light of the judgment, and indicated that Allan should probably have costs on those applications. The Court made no order as to costs on the appeal.

Background

Three brothers co-own a property in Greymouth. Evan and Gary applied for an order for sale under s 339 of the Property Law Act 2007, and Allan counterclaimed for subdivision. The parties agreed to a judicial settlement conference (JSC) under r 7.79 of the High Court Rules 2016. Allan filed a memorandum, a will-say statement and supporting evidence beforehand, and he travelled to Christchurch to attend. The JSC ended without settlement after about two hours, at Allan's request. The Judge raised costs at the end of the conference, of his own motion. He later awarded the first respondents one third of counsel's preparation costs, all of counsel's time on the day, and travel and filing disbursements. He awarded costs to the second respondent company on essentially the same basis.

The Judge held that confidentiality does not give a party immunity from costs where its conduct or lack of engagement justifies an award. In his view, a party who attends a JSC must be prepared to move from its pre-JSC position, and there is "no reasonable basis" for refusing to make a counter-offer. He found that Allan had refused to make a counter-offer and had shown no interest in an alternative solution. He described Allan as having taken a "stubborn, unreasonable and unrealistic approach" and as having "threw his toys out of the cot".

First issue: jurisdiction

The Court held that a Judge has no jurisdiction to make a binding costs determination based on an assessment of a party's participation and performance in a JSC (at [24]). The reasons were as follows.

Statements made in a JSC are privileged under r 7.79 and s 57 of the Evidence Act 2006, and r 7.79(6) expressly prohibits the Judge from disclosing them. Unless the privilege is waived, it prevents a Judge from assessing how the parties negotiated and awarding costs on that basis. The Court adopted the reasoning in Body Corporate 198900 Ltd v Bhana Investments Ltd [2015] NZHC 2787 about mediation privilege. None of the s 57(3) exceptions applied (at [25]–[27]).

Under r 7.79(1), the Judge's role at a JSC is only to assist the parties' negotiation. A JSC is a form of ADR and is not adjudicative. There is no sworn evidence and no testing of evidence (at [28]).

Unlike the District Court Rules 2014, the High Court Rules make no provision for JSC costs. The Court agreed with Watts & Hughes Construction Ltd v Biala [2021] NZHC 290 that the District Court regime should not be applied by analogy (at [29]).

The JSC Guidelines and the standard directions refer to costs risk only where non-compliance causes a JSC to be cancelled. Parties could reasonably expect a warning there if inadequate engagement could lead to costs. Its absence raises a natural justice concern (at [30]).

The authorities draw a bright line between conduct "in the room" and conduct outside it, and the Court endorsed that line. Costs have properly been awarded for failing to attend, giving late notice of non-attendance, or failing to comply with directions, as in Leonardo v Auckland City Council, Scalzo Trading and Zhao v Yang. Those matters are not privileged. Scandle v Far North District Council was the only contrary case, and the Court treated it as resting on a mistaken view that the High Court Rules then contained a JSC costs item (at [31]–[36]).

Applying these principles, the Court held that the Judge's findings were drawn from privileged communications. Those findings were the refusal to make a counter-offer, Allan's lack of interest in an alternative solution, his apparent unfamiliarity with the JSC process, and his statement that he wanted to leave. The findings were therefore barred (at [37]–[39]). They also breached natural justice, because Allan could not lead privileged evidence to answer them or correct any factual errors (at [40]). Policy considerations pointed the same way. If parties knew their conduct in a JSC could be assessed and penalised in costs, they might be reluctant to agree to one, and Allan gave evidence that he would have been (at [41]–[43]).

The Court left open whether truly exceptional conduct, such as fraud, abuse of process or contempt, might justify some costs award. It noted that fraud is generally an exception to privilege, but held that Allan's conduct fell well short of that threshold (at [44]).

Second issue: wrong in principle

The Court also held that the decision rested on a misunderstanding of the purpose of a JSC (at [48]). Rule 7.79 and the JSC Guidelines (cls 2.2, 3.3, 5.2 and 5.6) describe a process in which the parties evaluate the issues themselves and test each other's positions. In Leonardo, the Court had recognised a JSC's value as a "reality check" even where it does not produce settlement. The Judge was therefore wrong to reject the submission that a JSC gives the parties an opportunity to learn the other side's position. He was also wrong to hold that there is no reasonable basis for refusing to make a counter-offer. In the Court's view, he treated the JSC as though it were a mediation (at [53]–[54]). Parties should be encouraged to explore alternatives, but there is no requirement to make a counter-offer, and a failure to make one cannot lead to a wasted costs award (at [55]). Treating Allan as though he were required to make one was a further failure of natural justice (at [54]).

The Court did not need to decide the remaining grounds of appeal or the application to adduce further evidence (at [57]).

Costs on appeal

The Court was sympathetic to Allan. The respondents had sought and accepted payment of the High Court costs, and Allan then had to bear the cost of the appeal. However, the respondents had abided the decision expressly on the basis that by taking no steps they would not be liable for costs. Applying Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, the Court made no order (at [58]–[60]).

Significance

This is an appellate statement that, absent waiver or truly exceptional circumstances, High Court costs for a JSC are confined to conduct outside the conference room, such as non-attendance, late cancellation or non-compliance with directions. A party's negotiating stance in a JSC, including a refusal to make a counter-offer or a decision to end the conference early, cannot found a costs award.

Editorial comment

With respect, the Court of Appeal did not take into account the nature of the underlying proceeding. It was an application for relief under s 339 of the Property Law Act 2007. That provision gives the court a remedial jurisdiction to make the orders it considers appropriate in the circumstances, having regard to the matters in s 342. The jurisdiction is not concerned with fault.

This matters because, in that setting, a failure to make a counter-offer has real significance. A defendant facing a claim without merit may refuse to make any offer, and in many cases that refusal would be entirely reasonable. Where a s 339 application has been made, however, the parties can usually expect that if there is evidence of dysfunction between co-owners, orders will ultimately be made. The real question is on what terms they will be made. It is seldom that an application for relief under s 339 is untenable. It follows that, in most such cases, a refusal to make a counter-offer is inherently unreasonable.

The Court's reliance on privilege does not entirely answer that concern. The Court accepted that there is jurisdiction to award costs where a party fails to attend a judicial settlement conference, because whether a party attended is not a privileged matter (at [36]). Some conduct that amounts in substance to a refusal to participate can be proved in the same way, without any inquiry into what was said in the room. A party who arrives and immediately brings the conference to an end is an example. The fact of attendance, how long it lasted and which party ended it are matters of record, not privileged communications. The Court of Appeal itself recorded in its judgment that the conference ended at Allan's request after about two hours (at [10]).

The argument has particular force where, as here, the party consented to the Court directing the conference (at [7] and [37]⁠(c)). A party who agrees to a court-directed conference in a s 339 proceeding, knowing that orders are likely and that only their terms are in issue, and who then ends the conference before any real negotiation can take place, is not far removed from a party who fails to attend. In each case, the other parties' preparation and attendance costs are wasted. In each case, the conduct can be established without disclosing anything said in the conference. On that footing, the step from a refusal to attend to a refusal, in effect, to participate is not a large one.