Best Food Fresh Tofu Ltd v China Taiping Insurance (NZ) Co Ltd

[2014] NZHC 1279

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3094 [2014] NZHC 1279

BETWEEN

BEST FOOD FRESH TOFU LIMITED

Plaintiff

AND

CHINA TAIPING INSURANCE (NZ) CO LIMITED

Defendant

Hearing:	5 June 2014
Appearances:	J M Skinner for Plaintiff C R Langstone for Defendant
Judgment:	6 June 2014

JUDGMENT OF BROWN J

This judgment was delivered by me on 6 June 2014 at 4.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      Andrew Hooker, Auckland

Jones Fee, Auckland

BEST FOOD FRESH TOFU LTD v CHINA TAIPING INSURANCE (NZ) CO LTD [2014] NZHC 1279 [6 June

2014]

Introduction

[1]      The defendant applies to review two aspects of the judgment of Associate Judge  Bell  dated  28  February 2014  concerning  further  particulars  of  pleadings. Because the judgment  was made at a defended hearing and is the subject of a detailed judgment the review proceeds as a rehearing: r 2.3(4).   Consequently the application  is  to  be  determined  in  accordance  with  the  principles  governing

rehearings as stated in Austin, Nichols & Co Inc v Stichting Lodestar.1

Factual background

[2]      From 14 August 2010 to 14 August 2011 the defendant insured the plaintiff’s factory at 22 Elliott Street, Papakura, Auckland (“the premises”) for material damage and  business  interruption  losses  subject  to  the terms,  conditions  and  exclusions contained in the policy.

[3]      On 12 May 2011 there was a fire at the premises and the plaintiff submitted a claim to the defendant.  The defendant elected to undertake repairs at the premises. To that end it appointed an assessor who in turn facilitated the various third party contractors to undertake the repairs of the premises.

[4]      The  second  amended  statement  of  claim  pleaded  certain  implied  terms (detailed below) in relation to the adequacy of and the timely completion of the repairs.   It was in respect of those allegations that the defendant sought further particulars.

Judgment of Associate Judge Bell

[5]      The defendant sought further particulars in respect of paragraphs 2.1, 2.2, 2.3,

3.1, 3.2, 3.3 and 3.4 of the second amended statement of claim. Associate Judge Bell directed that further particulars be provided in respect of paragraphs 3.3 and 3.4 and he signalled that in respect of paragraph 2.3 proper costings would be required

before the close of pleadings date could be set.

1      Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].

[6]      The request for particulars in respect of paragraphs 2.1, 2.2, 3.1 and 3.2 was declined. With reference to paragraph 3.1, which pleaded both an implied term and a common law duty, Associate Judge Bell observed that there might be advantages for the plaintiff if it were to confine its cause of action to a single appropriate cause of action.  As his decision on costs reflected, he viewed the result of the hearing as a draw.

[7]      The essence of the Associate Judge’s conclusion on paragraph 2.1 is recorded

at [11] of the judgment:

I do not order the particulars sought by the defendant.   The plaintiff has adequately pleaded the basis for its case even though the pleading is somewhat bald.  That is, the plaintiff has pleaded in paragraph 1.5 that the defendant did elect to arrange and pay for the repairs and did instruct an assessor to manage the claim.  On that basis it is arguable for the plaintiff that if the insurer did undertake to manage the repairs through the appointment of an assessor and by engaging contractors, there can be contractual liability on the part of the insurer if the repair work has not been carried out to a reasonable workmanlike standard.   I see the question of implying a term to that effect as being little different from implying such a term in a building contract.

[8]      With  reference  to  paragraph  3.1  the Associate  Judge  considered  that  the argument was similar to that advanced in respect of the implied term in paragraph

2.1 and he rejected the request for particulars for the same reasons.

The application for review

[9]      The  defendant  challenges  the Associate  Judge’s  conclusion  in  respect  of paragraphs 2.1 and 3.1 of the second amended statement of claim.   However, subsequent to the delivery of the judgment, a third amended statement of claim, dated 14 March 2014, has been filed which rewords paragraph 2.1 and divides paragraph 3.1 into distinct causes of action.   The paragraphs as considered by Associate Judge Bell and the revised paragraphs in the most recent pleading are compared in the table below:

Second Amended Statement of

Claim

Third Amended Statement of Claim

2.1   It was an implied term of the MD policy that the defendant would carry out all repairs and reinstatement  to  a  reasonable and workmanlike standard

2.2  It was an implied term of the MD  policy  that  the  repairs  to the damaged property arranged for and paid by the defendant be carried out to a reasonable and workmanlike standard.

Particulars

A.   The term is applied by law into contracts of insurance

3.1   It was an implied term of the MD contract and/or a duty at common law that the defendant would settle the claims and complete reinstatement within a reasonable time.

3.2  It was an implied term of the MD contract that the defendant would settle the claims and complete  repairs  to  the damaged property within a reasonable time.

3.7 The   defendant   owed   the plaintiff  a  duty  that  the defendant would settle the claims and repair the damaged property within a reasonable time.

[10]     The defendant’s position is that the amended pleading still fails to address its concerns about the lack of particularity of the alleged implied terms and the duty of care.

[11]     The grounds stated in the application for review are as follows:

Paragraph 2.1

(a)       His Honour failed to properly consider the circumstances at law in which a term is to be implied into a contract; and/or

(b)       His Honour failed to properly consider that the defendant did not itself carry out repairs; and/or

(c)       His  Honour  assumed  how  the  plaintiff  was  presenting  its  case (paragraph 6 of the judgment), despite this not in fact being how the plaintiff’s case is currently pleaded; and/or

(d)      His Honour erred in taking into account “a chain of contracts” (paragraph 6) when the “chain of contracts” referred to has not been pleaded and more importantly, is irrelevant when consider the particulars sought; and/or

(e)       His Honour erred (paragraph 11) by holding that as a result of the insurer undertaking to manage the repairs, contractual liability on the part of the insurer arose for any defective repair work, when no such claim is pleaded.

[12]     In relation to paragraph 3.1 the defendant repeated those grounds.   It also raised the issue that Associate Judge Bell had not directed that the two causes of action be separately pleaded, a matter that has since been rectified in the Third Amended Statement of Claim.

Clause 2.1

[13]     Mr Langstone submitted that the defendant’s obligations in relation to the repair and reinstatement of damaged property are stated in the written policy in the following terms:

6.1      Method of Indemnity

We will indemnify you by whichever of the following options we choose:

6.1.1We  will  pay  the  cost  of  repairs  to  restore  the  property  to  the condition it was in immediately prior to the loss, or

6.1.2We  will  replace  the  insured  property  with  property  of  similar condition, or

6.1.3We will pay an amount equal to the market value of the insured property.

[14]     He explained that subclauses 6.1.2 and 6.1.3 are directed to total loss claims while subclause 6.1.1 is concerned with claims for less than a total loss such that the insured property is capable of repair.  In the case of repair scenarios, Mr Langstone acknowledged the following scenarios:

(a)       An insured arranging for repairs to be undertaken and then seeking reimbursement from the insurer; and

(b)The insurer arranging for repairs to be undertaken and paying the repairer directly.

To those two he would add a third (middle road) scenario; namely:

(c)       The insurer arranging for repairs in conjunction with the insured, for example in order for the insured to obtain more favourable terms.

As will be noted shortly, Mr Langstone contended that the present case fell within that third middle road.

[15]     However  his  first,  and  I  infer  primary,  submission  was  that  the  only contractual obligation on the insurer in subclause 6.1.1 was to “pay the cost of repairs”, whether that be to the insured by way of reimbursement (in scenario (a)) or by payment of the repairer’s invoices (in scenario (b)).   The insurer had no other obligation under subclause 6.1.1.  Indeed he went so far as to say that the subclause had been drafted in that way to avoid the very problem of the insurer having to elect whether to reinstate and, if it did elect, then having to sort out the problems if the repair work was defective.

[16]     I do not consider that expressing the insurer’s obligation in such an anodyne manner (i.e. simply to “pay”) changes the reality that the insurer has an election either to allow the insured to organise the repairs (and to then reimburse the insured for the cost) or to itself assume responsibility for organising the repairs.   The distinction was stated by Ostler J in Robson v New Zealand Insurance Co Ltd in this way:2

Under the contract contained in the policy the insurance company had two alternative modes of performance of its obligations if and when they arose: it could either allow the insured to have his car repaired himself and pay him the cost, or it could itself effect the repairs and hand the car back to him duly repaired. The effect of the exercise of this option on the part of the insurance company has been stated in Bank of New South Wales v. Royal Insurance Co., Ltd.  It was there held, following the case of Brown v Royal Insurance Co., Ltd., that where a policy of fire insurance gives the insurer the option of electing either to pay the amount of the policy or to reinstate, and after the loss the insurer elects to reinstate, this does not constitute a fresh contract

2      Robson v New Zealand Insurance Co Ltd [1931] NZLR 35, 37 (SC).

between the insured and the insurer, but the policy relates back and will be read as if it had originally been one simply for reinstatement.  Following that principle, the contract between the parties in this appeal must be read as though ab initio it was a contract to reinstate.

In the second alternative, the insurer will be liable to the insured for the cost of rectifying defective repairs.

[17]     I consider that that statement of the law is well established.   It is stated in Insurance Law in New Zealand3  and in MacGillivray on Insurance Law,4  both of which cite Robson as one of the supporting authorities.

[18]     Mr Langstone’s response is that the policy wording in the present case did not so provide.  However, while not expressly stated, the insurer’s entitlement to arrange for the repairs itself sits behind the obligation in subclause 6.1.1 to “pay the cost of repairs”.5    Indeed the result of that election determines to whom the insured is to “pay the cost of repairs”.

[19]     Mr Langstone’s next point is that in the present case the election to be made was between three courses of action (namely (a), (b) and (c) above) and that in the present case there was an arrangement made between the insurer and the insured of type (c).  His contention was that, unlike in scenario (b), the insurer is not liable for the cost of defective repairs in scenario (c).

[20]     Whether the three-scenario analysis is sound or not, in my view it is not open now for the defendant to contend that the course pursued was scenario (c) rather than scenario (b).  The reason for that is the defendant’s admission to a key paragraph in the third amended statement of claim, namely paragraph 1.5 which states:

1.5The plaintiff notified the defendant of the damaged property and the defendant:

A.       Elected to arrange and pay for the repairs to the damaged property; and

3      Insurance Law in New Zealand (2nd ed) AA Tarr and J R Kennedy at 233.

4      MacGillivray on Insurance Law (12th ed) Birds, Lynch and Milnes at 22-007.

5      The  policy  wording  also  prohibits  the  insured  starting  any  repairs  without  the  insurer’s

permission unless it is necessary to do so to prevent the claim increasing: clause 2.1(b).

B.       Instructed an assessor to manage the claims under the MD Policy and BI Policy on its behalf (“the claims”).

It is that paragraph that is referred to by Associate Judge Bell at [11].

[21]     The defendant’s stance in relation to its admission of this allegation is to say that it did not “elect to reinstate” but merely “elected to arrange and pay for the repairs”, citing what it refers to as “option 6.1.1”.   In my view the allegation in paragraph 1.5 is plain enough: the insurer elected to arrange (and pay for) the repairs and instructed an assessor to manage the claims on its (the insurer’s) behalf.  That is conduct amounting to the second mode of performance described in Robson.   It amounts to an election to reinstate and gives rise to an obligation to meet the cost of remedying defective repairs.

[22]     It  follows  in  my  view  that  there  was  ample  support  in  the  (admitted) paragraph 1.5 for the implied term pleaded in paragraph 2.2 in each of the second and third amended statements of claim.

Clauses 3.2 and 3.7

[23]     These paragraphs pleaded obligations, one contractual, the other tortious, in relation to the timeliness of the repairs arranged by the insurer.   While there will often be debate as to the felicity of the wording of pleadings, in the present case the thrust of the allegation is perfectly clear. The authority on the point is clear as well:6

The insurer must carry out the reinstatement to the reasonable satisfaction of the insured, and the reinstatement must be completed within a reasonable period of time.

[24]     Similarly Colinvaux’s Law of Insurance states:7

If the insurers, having determined to reinstate, fail to do so, the assured may not claim specific performance but is entitled to damages.  Similarly, if the insurers delay in reinstating the subject matter having elected to do so, they will face liability in damages for any loss of profit or other consequential loss caused to the assured by any delay  in failing to reinstate within a reasonable  time  and  the  insurers  will  also  face  liability  to  remedy  any defects in workmanship in the reinstated subject matter.

6      Insurance Law in New Zealand, n 3 above at pg 233.

7      Colinvaux’s Law of Insurance (9th ed) R Merkin at 10-044.

(emphasis added)

[25]     In addition to the cases cited in those texts, support is also to be found for that proposition in Tropicus Orchids Flowers and Foliage Pty Ltd v Territory Insurance Office.8

[26]     Given that both the second and third causes of action are stated to include the preceding paragraphs (which include paragraph 1.5) I consider that there is sufficient support for the allegations in paragraphs 3.2 and 3.7.

Conclusion

[27]     It follows from the above that I consider that Associate Judge Bell correctly concluded that the plaintiff’s allegations are pleaded with a sufficient degree of particularity.  Accordingly the application for review is dismissed.  The plaintiff is

entitled to costs on a 2B basis.

Brown J

8      Tropicus Orchids Flowers and Foliage Pty Ltd v Territory Insurance Office (1998) 10 ANZ Insurance Cases 61-412 (SCNT).