BETWEEN AUCKLAND COUNCIL Plaintiff AND LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED Defendant

[2024] NZHC 1316

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2020-485-000454

[2024] NZHC 1316

BETWEEN

AUCKLAND COUNCIL

Plaintiff

AND

LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED

Defendant

CIV-2020-485-000455

BETWEEN

AUCKLAND COUNCIL
Plaintiff

AND

LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED

Defendant

CIV-2021-485-000606

BETWEEN

AUCKLAND COUNCIL
Plaintiff

AND

LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED

Defendant

CIV-2022-485-000572

BETWEEN

AUCKLAND COUNCIL
Plaintiff

AND

LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED

Defendant

AUCKLAND COUNCIL v LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LTD [2024] NZHC 1316 [24 May 2024]

CIV-2023-485-000265

BETWEEN

AUCKLAND COUNCIL
Plaintiff

AND

THE UNDERWRITERS OF THE PUBLIC LIABILITY AND PROFESSIONAL

LIABILITY POLICY

Defendant

Hearing:	14 March 2024
Counsel:	D H McLellan KC and G N M Tompkins for Plaintiff/Respondent M G Ring KC and C J Hlavac for Defendant/Applicant
Judgment:	24 May 2024

JUDGMENT OF LA HOOD J

Table of Contents

Introduction and summary of decision  [1]
Background  [6]
Background to Scheme and governing documents  [9]

Governing documents  [13]

Deed of Trust  [14]
Scheme Rules  [26]
Protection Wording  [32]

Strike out principles  [34]

Issues to be determined  [35]

Issue (a): the applicability of s 9 of the Insurance Law Reform Act 1977     [36]
The parties’ positions  [36]
Auckland Council  [36]
Riskpool  [62]

Decision on issue (a): the applicability of s 9 of the Insurance Law Reform Act 1977   [65]

Issue (b): breach of implied terms/fiduciary duty  [69]

Issue (c): estoppel  [77]
Issue (d): Fair Trading Act 1986  [83]
Issue (e): election  [84]

Conclusion  [90]

Introduction and summary of decision

[1]    This is an application to strike out proceedings alleging breach of contract brought by Auckland Council (the Council) against the Local Government Mutual Funds Trustee Ltd (Riskpool).

[2]    Riskpool is a trustee of the New Zealand Mutual Liability RiskPool Scheme (the Scheme). The Scheme provided insurance to members, covering public liability and professional indemnity risks. Local authorities were members of the Scheme, which started in 1997 in response to the authorities’ dissatisfaction with insurance options available in the commercial market. The Council was one such member of the Scheme between 1997 and 2015. The Scheme ended in 2017.

[3]    In 2009, the Scheme introduced an exclusion from claims for weathertightness defects due to the significant increase in such claims across the country. Following this, Riskpool declined claims on the basis that the entirety of a claim was excluded whenever it included any allegation of weathertightness defects. The Supreme Court later held that Riskpool’s approach to these “mixed claims” was in breach of the Scheme.1 However, in the years before that decision, Riskpool told councils that the Scheme did not cover mixed claims, including distributing an opinion from  a  King’s Counsel to this effect.

[4]    The Council brings these proceedings to recover from Riskpool sums it has paid for non-weathertightness defects in respect of mixed claims. Riskpool seeks to strike out the proceedings primarily on the basis that the Council failed to notify the claims in accordance with the Scheme.

1      Local Government Mutual Funds Trustee Ltd v Napier City Council [2023] NZSC 97, [2023] 1 NZLR 184 [NCC Supreme Court decision], upholding the Court of Appeal’s  decision  in  Napier City Council v Local Government Mutual Funds Trustee Ltd [2022] NZCA 422, [2022] 3 NZLR 528 [NCC].

[5]    In summary, I have concluded that the proceedings should not be struck out because:

(a)There is a tenable argument that s 9 of the Insurance Law Reform Act 1977 applies (which means a claim cannot be declined unless Riskpool has been so prejudiced by the failure to notify that it would be inequitable to require it to meet the claim). Whether or not s 9 applies involves complex issues of contractual interpretation, which requires full consideration following evidence at trial.

(b)There is a tenable argument that Riskpool’s failure to meet the claims based on late notification in the absence of material prejudice would be a breach of its obligations to exercise its contractual discretion consistently with the terms and purpose of the Scheme (and not arbitrarily, capriciously, or irrationally).

(c)Whether Riskpool’s incorrect decision to decline mixed claims and its representations to that effect have created an estoppel is an essentially factual issue that needs to be determined at trial.

(d)As the Fair Trading Act 1986 cause of action raises essentially the same factual issues as estoppel by representation, it should also proceed to trial.

(e)Although it is questionable whether the cause of action based on election is a separate cause of action to estoppel, this should be determined at trial.

Background

[6]    The relevant Scheme documents that recorded the agreement between the parties were the Deed of Trust (the Deed), the Scheme Rules (SR) and the  Protection Wording (PW) for the applicable period. The PW was personalised to each member by way of a Schedule that Riskpool issued to each member at the commencement of insurance cover and then at every annual renewal.

[7]    In 1997 Riskpool issued cover to the Council. The Council renewed its cover each year until the expiry of the 2014/2015 fund year, with its membership ceasing on 30 June 2015.

[8]    The Council seeks indemnity under the PW for its non-weathertightness liabilities in five building defect mixed claims brought by third parties against the Council. Riskpool declined the claims on the basis of the weathertightness exclusion in cl 13 of the PW. Of the five proceedings the subject of the present application, three were declined by Riskpool solely in reliance on exclusion 13, with late notification also relied on for the other two. As already mentioned, Riskpool declined claims on the basis that cl 13 excluded the entirety of a claim against a Council wherever it included any allegation of weathertightness defects. The Supreme Court disagreed with Riskpool’s interpretation of cl 13, holding that Riskpool is liable for defects not attributable to weathertightness defects in mixed claims.2

Background to Scheme and governing documents

[9]    What follows is essentially taken from Collins J’s summary of the Scheme documents in Wellington City Council v Local Government Mutual Funds Trustee Ltd (WCC)3 (a case I consider further below) adapted to reflect some differences in the documents in this case.

[10]The Deed of the Scheme records that it was established:4

to benefit residents and ratepayers of New Zealand … by enabling Members to be recompensed from the [Scheme] Fund in respect of liabilities thus reducing the need for insurance cover and reducing Members’ annual expenses.

[11]   The Scheme was intended to provide local authorities with cheaper and more effective ways of managing civil claims and liabilities than commercial insurance. This worked well initially, with 83 out of the 86 local authorities in New Zealand being members in the early 2000s. In the decade following, insurance companies started to

2      NCC Supreme Court decision, above n 1.

3      Wellington City Council v Local Government Mutual Funds Trustee Ltd [2017] NZHC 2901 [WCC].

4      Deed of Trust, Background at cl D.

compete with Riskpool by restructuring their insurance policies to attract local authorities away from the Scheme. The decline in its membership led to Riskpool’s decision to stop providing indemnity under the Scheme for events arising after 30 June 2017. Riskpool continues to provide cover for members regarding claims that arose under the Scheme in fund years prior to 30 June 2017.5

[12]   To participate in the Scheme, members make a prescribed payment, referred to in the governing documents as an “initial contribution”, to the Scheme for each fund year.6 Members in some circumstances can also be called upon to make additional contributions to the Scheme.7

Governing documents

[13]   The governing documents of the Scheme comprise the Deed, the SR and the PW for each member for relevant fund years. At times, the PW is referred to as “Guidelines” or the “Guidelines for the Exercise of Discretion” in the governing documents. In the event of any conflict between the governing documents, the PW and SR state that the terms of the Deed prevail over the SR and the SR prevail over the PW.8

Deed of Trust

[14]   The Deed, dated 1 July 1997, was amended by a Deed of Variation of Trust on 22 June 2007. The Deed refers to Riskpool having been established by New Zealand Local Government Insurance Corp Ltd (LGIC) in consultation with Jardine Risk Consultants Ltd, an insurance broking and risk management consulting services company. Under the Deed, Riskpool holds the assets and property of the Scheme in trust for the benefit of its members.9

5      Clause 1.1 defines “Fund Year” as commencing at 4.00 pm on 30 June each year and expiring at

4.00 pm on 30 June of the following year.

6      Clause 1.1: “Contribution” includes a member’s initial contribution to each annual fund as determined by the Board, pursuant to cl 11 and each additional contribution.

7      Clause 11.3.

8      Clause 14; and Scheme Rules, r 2.2.

9      Deed of Trust, cls 2.2 and 2.4.

[15] The Deed sets out in detail the purposes and objectives of the Scheme. In addition to the general purpose referred to at [10] above, the Deed explains that the Scheme was established “for the benefit of Members”10 and that the objectives of the Scheme include:

(1)the establishment and maintenance of “an Annual Fund for each Fund Year during the term of the Scheme for the benefit of the Members”;11

(2)to pay in accordance with terms of the Deed and other governing documents the civil liabilities of members arising from the risks covered by the Scheme to reduce the need for members to have insurance cover;12

(3)to provide pooled cover for the civil liability risks of members of the Scheme;13 and

(4)to manage and settle or pay claims made against members.14

[16]   The Deed provides for the appointment of the Board which in turn appoints a Scheme Manager and a Scheme Solicitor. The Board also determines the duties of the Fund Manager pursuant to cl 10.2 of the Deed.

[17]   The Board, which comprises a representative of the Fund Manager, a representative of the Scheme Manager and four representatives of members of the Scheme, is required to implement and achieve the purposes and objectives of the Scheme.15 Its duties also require it to consider all claims made against the fund and to determine whether or not it should exercise its discretion to meet a member’s

10     Clause 2.1.

11     Clause 3.1.1.

12     Clause 3.1.1.

13     Clause 3.1.2.

14     Clause 3.1.3.

15     Clause 6.1.1.

claim.16     The Board is required to ensure that the Scheme remains solvent17 and conduct its business in accordance with the Deed and other governing documents.18

[18]   The Deed provides for the establishment of the fund to meet, amongst other matters, claims by members, the premiums payable to an indemnity insurer or insurers and the operating expenses of the Scheme.19

[19]   The term “pooled cover” is defined in the Deed to mean cover provided from the fund to manage, and if the claim is accepted, settle claims against a member in respect of “Risks”,20 which is in turn defined to mean risks of civil liability of each member that falls within the PW for a relevant fund year.

[20]   Clause 4.2 of the Deed states that each “Underlying Claim”21 for risks made by a member during a fund year may be met by Riskpool “at the discretion of the Board”.

[21]   Clauses 4.2.1 to 4.2.3 provide staged sources from which the Board may make payments to a member. Those staged sources are in the following ascending order:

(1)the pooled cover for a fund year derived from annual funds;

(2)indemnity cover for the relevant fund year;

(3)surpluses from previous fund years;

(4)additional contributions from members; and

(5)guarantees provided by the LGIC.

16     Clause 6.1.2.

17     Clause 6.1.3.

18     Clause 6.1.4.

19     Clause 4.1.

20     Clause 1.1.

21 Clause 1.1 defines “Underlying Claim” as “any claim for civil liability (covered for the time being under the [PW]) made against a Member which may give rise to a Liability; but also includes a claim which may give rise to a Liability to a Member under any other category of risk to that Member which the [PW] of the Scheme may properly have been extended to cover pursuant to the terms of this deed.”

[22]   Members’ annual contributions are determined by the Board and “held and accounted for as a separate Annual Fund for that Fund Year.”22

[23]   Any required additional contributions are paid in proportion to the members’ contributions to the annual fund.23

[24]Clause 8.2 of the Deed states:

The Board shall have absolute and unfettered discretion as to whether or not any claim should be met out of the Pooled Cover and shall be influenced by but not bound by the [PW].

[25]   The Deed prescribes the members’ obligations. In particular, members are required to “[i]mmediately advise the Scheme Manager of any Underlying Claim and co-operate with the Scheme Manager and Scheme Solicitor in dealing with Underlying Claims.”24 Members are also required to “provide the Scheme Manager with all information as is necessary to give effect to the Scheme”25 and “[d]isclose all material facts to the Scheme Manager as if the member was an insured and the Scheme Manager was an agent for an insurer”.26

Scheme Rules

[26]   The SR are issued each year by the Board. The purpose of the SR is to “set out the administrative mechanisms by which the Scheme is administered so as to put the purpose and intent of the Deed of Trust into effect.”27

[27]   Rule 5.1 of the SR states the Deed and the SR “constitute a contract between the Scheme and the Member”28 and that a Scheme member agrees to be bound by the Deed and SR and to “perform the obligations of a Member”.29

22     Clause 4.3.

23     Clause 11.3.

24     Clause 16.2.3.

25     Clause 16.2.

26     Clause 16.2.1.

27     Scheme Rules, r 2.1.

28     Rule 5.1(a).

29     Rule 5.1(b).

[28]   Rule 8 provides that subject to the Deed and the SR, the Scheme will, in respect of each fund year, “indemnify each Member for damages or compensation in accordance with the Protection Wording.”

[29]   Rule 11(a) states a  member  must,  “as  soon  as  possible”,  give  the  Scheme Manager written notice of:

any occurrence, circumstance, claim, statement of claim, summons or proceedings … or knowledge of any occurrence or circumstances which may subsequently give rise to a Claim, irrespective of its quantum.

[30]   Under r 13 a member must provide to the Scheme, the Scheme Manager or any loss adjuster, solicitor or other agent appointed by the Scheme Manager, “all information requested” by or on behalf of the Scheme.

[31]   Without limiting the Board’s discretion to accept or decline a claim under the Deed, r 14.2 provides the Scheme will not indemnify a member where the member has:

(a)“Breached or failed to comply with any condition or obligation in the Protection Wording or under the Deed of Trust or these Rules ...”;30 and

(b)“The Scheme is prejudiced by that breach, failure, act or omission.”31

Protection Wording

[32]The notification conditions in the relevant PW state:

2)Claims Procedure

a)The Member shall as a condition precedent to their rights to be indemnified under this Section of the Protection Wording give to the Fund as soon as practicable, and during the subsistence of membership, written notice of each of the following:

(i)Any Claim made against the Member;

30     Rule 14.2(a).

31     Rule 14.2(b).

(ii)Any receipt during the period of membership of an intimation, written or oral, from any person of any intention to make a Claim against the Member.

Such notice having been given to the Fund, any Claim made pursuant to the intimation shall be deemed for the purpose of this Section of the Protection Wording to have been made during the subsistence hereof.

b)If during the subsistence of the membership the Member shall become aware of any occurrence which may, in the opinion of the Fund, subsequently give rise to a Claim against it or them for breach of professional duty arising out of any negligent act, error or omission and shall during the subsistence of the membership give written notice to the Fund of such occurrence, then any such Claim which may subsequently be made against the Member arising out of such occurrence shall for the purposes of this Protection Wording be deemed to have been made during its subsistence.

…

[33]   Condition 5 states that the due observance and fulfilment of the terms and conditions of the PW, insofar as they relate to anything to be done or complied with by the member and the truth of statements in support of a claim, “shall be conditions precedent to any liability of the Fund.”

Strike out principles

[34]   Riskpool’s application must fail unless it can show that the Council has “no realistic prospect” of establishing a right to indemnity from Riskpool. The leading authorities Attorney-General v Prince32 and Couch v Attorney-General33 emphasise the cautionary approach necessary to disposing of proceedings through strike out. McGechan on Procedure summarises the principles of those leading cases as follows:34

(a)Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation;

32     Attorney-General v Prince [1998] 1 NZLR 262 (CA).

33     Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

34     Jessica Gorman and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR15.1.02(1)].

(b)The cause of action must be clearly untenable;

(c)The jurisdiction is to be exercised sparingly, and only in clear cases;

(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument; and

(e)The Court should be particularly slow to strike out a claim in any developing area of the law.

Issues to be determined

[35]   The Council’s draft amended statement of claim dated March 2024 is the pleading against which this application is to be considered, but strike out will be inappropriate if any deficiencies in the draft pleadings are capable of amendment. It is therefore helpful to distil the essential issues for determination raised by the pleadings rather than focusing on the minutiae of their form. I consider the essential issues to be whether there is a tenable prospect of the Council establishing that:

(a)Section 9 of the Insurance Law Reform Act applies.

(b)Riskpool is liable due to it unreasonably exercising its discretion to decline the claim in breach of the implied terms of the contract and/or its fiduciary obligations.

(c)Riskpool is estopped from declining the Council’s claim.

(d)Riskpool is in breach of the Fair Trading Act by engaging in misleading or deceptive conduct in declining the claim.

(e)Riskpool waived its ability to rely on the notification exclusion in     cl 6(c) of the PW by electing to rely on the exclusion in cl 13(a).

Issue (a): the applicability of s 9 of the Insurance Law Reform Act 1977

The parties’ positions

Auckland Council

[36]   Riskpool submits that Collins J’s decision in Wellington City Council v Local Government Mutual Funds Trustee Ltd (WCC) is a fully reasoned, directly applicable decision determining that s 9 did not apply in an indistinguishable context.35 Therefore, the reasoning in that case should be adopted and the cause of action based on s 9 struck out. In WCC, it was held that the Wellington City Council failed to notify Riskpool of a weathertightness claim as soon as practicable, that this failure was a breach of a condition precedent, that s 9 of the Insurance Law Reform Act did not apply because the Scheme is not a contract of insurance, in any event Riskpool was materially prejudiced by the failure to notify, and Riskpool did not act unreasonably in declining to exercise its discretion to allow the claim.

[37]   The Council accepts Collins J’s conclusion in WCC that Riskpool would not be liable at common law because the breach of the notice condition in the PW is a breach of a condition precedent.36 However, the Council takes issue with the conclusion in WCC that s 9 does not apply because the Scheme does not amount to a “contract of insurance”.

[38]Section 9 provides:

9        Time limits on claims under contracts of insurance

(1) A provision of  a contract of  insurance  prescribing any manner in  which or any limit of time within which notice of any claim by the insured under such contract must be given or prescribing any limit of time within which any suit or action by the insured must be brought shall—

…

(b) … bind the insured only if in the opinion of the … court determining the claim the insurer has in the particular circumstances been so prejudiced by the failure of the insured

35     WCC, above n 3.

36     At [132] and following.

to comply with such provision that it would be inequitable if such provision were not to bind the insured.

…

[39]Collins J’s conclusions included:

[147]    Section 9(1) of the Insurance Law Reform Act would only be engaged in the present case if there were a contract of insurance between Riskpool and the Council.

[148]    There is no definition of “contract of insurance” in the Insurance Law Reform Act. There is, however, an instructive definition of that term in the Insurance (Prudential Supervision) Act 2010. This states that a contract of insurance is:

… a contract involving the transference of risk and under which a person (the insurer) agrees, in return for a premium, to pay to or for the account of another person (the policyholder) a sum of money or its equivalent, whether by way of indemnity or otherwise, on the happening of 1 or more uncertain events …

[149]    The Insurance (Prudential Supervision) Act was not in force at the time the Council and Riskpool entered their agreement (or when the governing documents were written) and there was no statutory definition of contract of insurance in any other legislation.

[150]    The definition of “contract of insurance” in the Insurance (Prudential Supervision) Act reflects the approach taken by persuasive authorities which state there is no contract of insurance where the rights of a member of a mutual body are qualified by terms which empower the mutual body to determine whether or not to indemnify the member in a particular case. The mutual body’s decision is, in effect, discretionary.

(Footnotes omitted)

[40]And, after reviewing relevant authorities, Collins J said:

[154] On the basis of these authorities it is clear there was not a contract of insurance between Riskpool and the Council because Riskpool would, upon receipt of a claim, have a discretion as to whether or not it would meet a member’s request for indemnity. In exercising its discretion the Board needed to act lawfully. I discuss that obligation in Part V. For present purposes it is sufficient to note that the governing documents did not create an agreement whereby Riskpool would indemnify a member in relation to a claim for which a member may have cover under the Scheme. Accordingly, there was no contract of insurance between Riskpool and the Council.

(Footnote omitted)

[41]   The Council submits that WCC is not a basis to strike out the claim that s 9 is applicable for the following reasons:

(a)It is a decision of the High Court that will not be binding on the trial judge.

(b)The parties’ positions in that case were shaped by the different factual circumstances and issues. Those positions meant the contract of insurance question, and associated interpretation of the contractual documents did not require in-depth analysis. The point was therefore only dealt with briefly, and on the basis of a near concession by counsel captured in the following paragraph:

[144] The advice of Riskpool’s legal advisors at the time the Board decided not to indemnify the Council was that s 9 of the Insurance Law Reform Act was engaged and Riskpool would be able to establish sufficient prejudice to justify declining the Council’s claim for indemnification. In yet another irony in this case, Riskpool’s lawyers no longer suggest that s 9 applies in this case. Without conceding the point, Mr Goddard also accepted there were challenges in arguing that s 9 of the Insurance Law Reform Act governed the Council’s request for cover. I shall briefly explain why I agree with Riskpool’s revised position that s 9 of the Insurance Law Reform Act did not apply to the Council’s request for indemnity in this case.

(Emphasis added)

[42]   The Council submits it is clear that the Wellington City Council in WCC took the tactical position that its stronger argument was to focus on an alternative path to liability. The alternative path being that Riskpool unreasonably exercised its discretion to decline the Council’s claim despite the claim not coming within the PW (due to the failure to notify) and s 9 being inapplicable. This strategic approach of focusing on the alternative path to liability is evident from the near concession referred to above, together with the following:

[157] An alternative approach, to that in Parts III and IV, is to treat the Council’s failure to notify Riskpool of the Lofts proceeding before Riskpool agreed to commute its reinsurance policies as a factor that the Board could

take into account in assessing the degree, if any, of prejudice it suffered as a result of the Council’s omission. This is the Council’s preferred approach.

(Emphasis added)

[43]   The focus on the alternative path to liability is evident from Collins J’s decision. Following [157], Collins J sets out the four essential aspects of the Council’s case that Riskpool unreasonably exercised its discretion, before dealing with each of those arguments in considerable detail.37

[44]   The Council submits that WCC deals with “the contract of insurance” point only briefly and without in-depth analysis of the authorities, which emphasise a contract of insurance is not capable of precise definition because it is highly fact- specific and contextual.38 Moreover, the Council submits there are other authorities that support its position.39

[45]   The Council submits that in WCC there was also only limited argument on the relevant provisions of the contractual documents and their purpose. For example, the Council submits that Riskpool’s discretion pursuant to the Deed and SR does not relate to whether an indemnity obligation exists under the terms of the PW, but whether or not to make payment or “meet” that indemnity obligation out of trust funds. In other words, the Council’s primary submission is that the discretion in the Deed is for a limited purpose and does not extend to a right to subjectively determine whether a claim falls within the scope of the PW.

[46]   The Council further submits that the discretion relates to whether claims would be “met” out of the assets held by Riskpool at any particular time, but it was never, and could never have been, exercised by Riskpool to deny liability for a claim which is otherwise covered. The reasons for the discretion are currently opaque, the Council submits, and will only become clear upon completion of discovery and evidence at trial. There is no evidence the discretion was included in the Deed and the Scheme

37     At [158]–[229].

38     Medical Defence Union Ltd v Department of Trade [1980] 1 Ch 82 at [95]; and Commissioner of Inland Revenue v Motorcorp Holdings Ltd CA17/04, 7 March 2005 at [45] and [47].

39     Bailey v New South Wales Medical Defence Union Ltd (1995) 8 ANZ Insurance Cases 61-291 at 76,260; and The “Vainqueur Jose” [1979] 1 Lloyd’s Rep 557 (QB) at 580.

for the purpose of depriving insured members of the usual rules of insurance law afforded by other insurance policies.

[47]   The Council submits that the NCC case (referred to above at [3]) demonstrates that Riskpool’s liability under the PW is not subject to a discretion. It says the wrongful denial of a claim within the scope of the PW is a breach of contract actionable against Riskpool in the same way as any other insurance contract. The Court of Appeal in NCC said:40

[10] As Mr Ring QC for RiskPool emphasised, the existence of a discretion to meet claims, and to adhere to the language of a policy when exercising the discretion, distinguishes RiskPool from other insurers. But we were given to understand that the Board of RiskPool has not invoked the discretion to decline this claim. It has acted in reliance on the Protection Wording, which defined the cover and the exclusion. We were told that the language was substantially drawn from a commercial insurance contract. It was not suggested that the mutual context called for a different approach to interpretation.

…

[80] The de minimis principle is normally invoked in connection with questions of loss or departure from a specified standard, as seen in the cases cited by RiskPool. None addresses the effect of the doctrine on the meaning of a contractual obligation. There are we think two clear objections to doing so. The first is that the threshold cannot be defined with sufficient precision. Is it set by value or some other measure, such as the costs of investigating the claim or the gravity of the plaintiff’s allegations? If set by value is it one per cent? Ten per cent? The second is that even if we assume the threshold is set at a generous level the Council’s criticism still holds good; the tail is wagging the dog. We do not discern in the Wording or the context any intention to permit that. It follows that there is no scope for an implied term. Nor is it a sufficient answer that RiskPool might in the exercise of discretion admit such a Claim. That begs the question, since the Trust Deed provides that the Board must be guided by the Protection Wording, and presumably will start with it.

…

[110] It might seem to go without saying that RiskPool is in breach of contract. It declined cover, reasoning that Exclusion 13 applied to exclude liability for the Waterfront plaintiffs’ Claims in their entirety. In its statement of defence it admitted that it had denied liability to indemnify the Council.

(Emphasis added and footnotes omitted)

40     NCC, above n 1.

[48]   In addition, the Council points to the fact Riskpool has never advanced its discretion as a defence in respect of the current litigation, and in respect of the NCC case, it abandoned an initial pleading suggesting the discretion did provide such a defence.

[49]   Alternatively, the Council argues, the existence of a discretion does not alter the binding nature of the promise contained in a PW and, at best for Riskpool, it would be precluded from exercising its discretion arbitrarily or capriciously.

[50]   Moreover, without the promise, the Scheme would not do the work that it was established to do, namely, to operate as a substitute for private market insurance. In this regard, the Council relies on evidence given by Riskpool in the NCC case that for the indemnity aspect of the Riskpool Scheme, it was essentially a substitute for commercial market insurance.

[51]   Therefore, the Council submits, it speaks for itself that the PW would be subject to the same statutory protections (such as s 9) as private market insurance to avoid the obvious injustice of, for example, claims being declined because they were notified one day after the expiry of the policy period.

[52]   The Council further points to specific clauses in the contractual documents that support its position, such as the “Introduction and Priorities” part of the PW, including requirements that align with the fundamental principles of market insurance, such as disclosure of all material facts, requiring conduct in the same manner as if the insured was insured under a policy of insurance, including acting in good faith, and the requirement to immediately advise Riskpool of any claim and cooperate.41

[53]   The Council notes that the PW uses mandatory language and outlines various exclusions, extensions and conditions, none of which provide a discretion. It submits that reference to the Deed and SR is a reference to extrinsic documents that cannot render the mandatory language of the indemnity in the PW discretionary simply because of the chapeau wording “subject to the Deed of Trust … and the Scheme Rules”. Therefore, reference to the Deed and the SR in the PW is insufficient to alter

41     Protection Wording, Introduction and Priorities.

the mandatory indemnity clause in the PW by incorporating unspecified provisions of those other documents. The reasonable observer would read those words as confirmation that the contractual promise of indemnity is to be read alongside the other Scheme documents, which separately govern the financial management of the Scheme, and the broader relationship between Riskpool and its members (rather than the promise of indemnity).

[54]   In relation to the PW’s statement that, in the case of conflict, the Deed prevails over the SR, which in turn prevails over the PW, the Council submits this simply establishes a hierarchy between the documents, but it does not follow that the Deed and the SR introduce a discretion into the otherwise mandatory wording of the indemnity clause.

[55]   Against that background, the Council submits that the purpose of the trust was to establish a governance structure for the financial and administrative management of the Scheme, which required Riskpool to manage its ability to meet its contractual liabilities under the PW. However, that does not mean it has a discretion to decide whether a contractual liability exists. The provisions of the Deed do not expressly grant such a discretion. Furthermore, the definition of Coverage in the SR refers to the PW in mandatory terms: “… the Scheme will indemnify each Member for damages or compensation in accordance with the Protection Wording.”42

[56]   Therefore, the relevant discretion for the Riskpool Board is not to decide whether an indemnity obligation exists, but rather to decide whether it is appropriate for Riskpool to meet (fund) that obligation using the trust assets. It is said that this is apparent from the drafting of the “Guidelines and Claims” section of the Deed (cl 8.2):

The Board shall have absolute and unfettered discretion as to whether or not any Claim should be met out of the Pooled Cover and shall be influenced by but not bound by the Guidelines.

42     Scheme Rules, cl 8.

[57]The result is a structure where in respect of any particular claim:

(a)whether an indemnity obligation exists is a question of contract law determined pursuant to the PW; and

(b)if an indemnity obligation exists, whether Riskpool should meet the contractual liability out of trust funds is a separate question of trustee discretion (and such discretion would have to be exercised according to law, including trust law).

[58]   The Council further submits that, even if Riskpool is right that it had a discretion to refuse to accept liability for a claim which is covered by the PW, that would not preclude the contract being a contract of insurance for s 9 purposes. Given the exercise of the discretion must be subject to legal principles, which include that it cannot be exercised arbitrarily, capriciously, in bad faith or patently unreasonably,43 if a Court held that a claim is covered by the PW but Riskpool exercised its discretion to decline the claim, it would necessarily be in breach of this requirement. Because the discretion is required to be exercised lawfully, the promise remains and it therefore remains in substance a contract of insurance. All contracts of insurance contain qualifications and do not cease to be contracts of insurance because there is no certainty that a claim will be covered.

[59]   In support of the above, the Council also points to the scheme and purpose of the Insurance Law Reform Act. It submits that it is remedial legislation designed to remove various unjust results flowing from immaterial breaches of insurance policy terms; and that it is inconceivable that so many New Zealand territorial authorities would have agreed to join the Riskpool Scheme if they had anticipated that the usual insurance law protections would not apply to the PW. The Law Commission | Te Aka Matua o te Ture described the Insurance Law Reform Bill as (amongst other things) preventing the unfair use by insurers of provisions requiring the notification of claims within certain time limits.44 The Contracts and Commercial Law Reform Committee,

43     WCC, above n 3.

44     Law Commission | Te Aka Matua o te Ture Some Insurance Law Problems (NZLC R46, 1998) at [36].

when reporting on the Bill, emphasised that the purpose of legislative interference was to address perceived unfairness in the insurance market that had been created by insurers.45 The specific rule in s 9(1) was introduced to ameliorate the harsh effect for insured parties of common law principles that enabled insurers to avoid liability for otherwise indemnifiable claims because of breaches of contractual time-bars. The legislation reflects that in many situations late notification causes no prejudice to the insurer.

[60]   The Council relies on the need for contextual evidence and submits that appellate courts have repeatedly held that issues of insurance policy interpretation ought to be determined at trial, with the benefit of relevant evidence as to context and purpose.46 Contextual evidence is even more important in this case as the issue is a mixed question of contractual and statutory interpretation. The evidence at trial will demonstrate that the PW was mutually understood to operate in the manner outlined above when it was created, that its commercial purpose was to replace liability insurance for local authorities, to be akin to commercial insurance, and that it was always applied in that manner during the Scheme’s existence. It is necessary for discovery and evidence at trial in respect of the intention of the settlors in creating a Deed and Riskpool’s decision making throughout the Scheme’s existence. It is also likely the trust holds relevant evidence as to the nature, scope and exercise of the trustee’s discretionary powers throughout the Scheme’s existence.

[61]   Finally, the Council submits the Scheme is financially supported by reinsurance. Reinsurance is typically back-to-back so the reinsurer’s liability would follow in the insurance. There is no suggestion that the reinsurance is anything other than a contract of insurance and it would be incongruous if the reinsurance that Riskpool promoted as part of the financial backing to councils was a contract of insurance, but the PW was something less.

45 Contracts and Commercial Law Reform Committee Aspects of Insurance Law (Wellington, 1 July 1975) at [3].

46 Vero Liability Insurance Ltd v Symphony Group Ltd [2008] NZCA 419; Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608; and Local Government Mutual Funds Trustee Ltd v Napier City Council [2019] NZCA 44 at [38]–[41].

Riskpool

[62]In response, Riskpool submits:

(a)In addition to the hierarchy of documents being clearly stated as the Deed, followed by SR, followed by PW,47 cl 6.2 of the Deed says that the Board shall regard the purposes and objects of this Deed and the Scheme as being of “paramount importance in decisions made and policies adopted by it in relation to the Scheme”. The Deed and SR create the contract between the Scheme and member.48 The Deed refers to the PW as “Guidelines for Exercise of Discretion” or “Guidelines”.49 The Board sets the Guidelines annually,50 and the annual cover for each “Fund Year”,51 means there is only one contract, which includes the terms of the PW.

(b)The Board has an “absolute and unfettered discretion” regarding whether to meet any claim influenced, but not bound by, the PW.52

(c)The Council’s position that there is no discretion in applying the PW but only a discretion to pay the claim from “Pooled Cover”53 contradicts the Scheme documents and makes no sense because the Board has “absolute and unfettered discretion” whether to meet any claim out of Pooled Cover; influenced but not bound by the PW.54 The Council’s submission that there is no discretion in applying the PW, only discretion to pay claim from “Pooled Cover”, contradicts the Scheme documents and makes no sense because:

47     See Protection Wording at Introduction and Priorities; Deed of Trust, cl 14.1; and Scheme Rules, r 2.2.

48     Scheme Rules, r 5.1(a).

49     Deed of Trust, cl 1.1.

50     Clause 8.1.

51     Clauses 1.1 at “Fund Year” and “Risks”, 3.1 and 6.6.2.

52     Clause 8.2.

53     Clause 1.1 at “Pooled Cover”.

54     Clause 8.2.

(i)the Board must first decide whether to “accept” or “reject” a “Claim”,55 and “grant” or “refuse” indemnity,56 and “settle or pay” a claim.57 If it decides to do so, it must then decide on the source of funds to pay the claim.58

(ii)By accepting the claim and granting indemnity in favour of a member, the Board would “meet” the claim.59

(iii)The decision whether to meet a claim at all depends on the PW. The PW set the terms of cover as “Guidelines for Exercise of Discretion” but are silent about where the complying claim would be met from.

(iv)The only source of funds is Scheme assets (the “Fund”).60 Despite the discretion, the Board must apply assets to the claim in the specified priority.61 First, the “Annual Fund” to the extent of “Pooled Cover”, then “Indemnity Cover” (reinsurance) and so on. But, on the Council’s approach, the only discretion would be in respect of “Pooled Cover”. The Deed references simply recognise that, once the discretion to meet the claim is exercised, the first (discretionary) source is Pooled Cover (until it is exhausted).

(d)The SR refer to “contract of insurance”, but only to draw a distinction with the SR.62

55     Clauses 1.1 at “Claim” but compare “Underlying Claim”, 6.10 and 9.2.2(b).

56     Scheme Rules, r 14.1.

57     Deed of Trust, cls 3.1.3 and 9.2.2(b); and NCC, above n 1, at [9]–[10] and [80].

58     Deed of Trust, cls 1.1 at “Annual Fund” and “Pooled Cover”, 4.2, 11.3, 12.6.4 and 13.1.

59 Clauses 1.1 at “Additional Contributions”, “Annual Fund”, “Fund”, “Pooled Cover” and  “Indemnity Cover”, 4.1.1, 4.2, 6.1.2, 8.1, 8.2 and 13.1; and Protection Wording, Section A, exclusion 17 and Section B, exclusion 11.

60     Deed of Trust, cl 1.1 at “Fund”.

61     Clause 4.2.

62     Scheme Rules, r 21.1(c).

(e)The nature of this mutual scheme means the Insurance Law Reform Act does not apply. The Insurance Law Reform Act targeted commercial insurers who abused market power by unfairly and rigidly applying (notice) terms.63 This rationale is inapplicable to local authorities, let alone a local authority mutual society.

[63]   Therefore, Riskpool submits, there is no contractual right to have the Scheme meet a claim. Compliance with the PW simply provides the gateway for the discretion to be considered.

[64]   In relation to the Council’s argument that it would have been absurd for the councils to have agreed to an entirely discretionary Scheme, Riskpool submits that the discretion was fundamental to a mutual Scheme. As held in WCC, there was a discretion to pay non-complying Claims as well, and the discretion must be properly exercised and subject to judicial oversight. Moreover, there is a respectable argument that applying s 9 to provisions in claims made policies requiring claims to be reported during a period of cover was “unfair to insurers”.64

Decision on issue (a): the applicability of s 9 of the Insurance Law Reform Act 1977

[65]   I am not satisfied that strike out is appropriate in respect of this issue. The summary of the proposed arguments set out above illustrates that they involve complex issues of contractual interpretation.

[66]   I accept that there is an arguable case that the WCC decision on the s 9 issue should not be followed in this case, given the way in which that case was argued and determined. I accept that there appears to have been a tactical reason for concentrating on the alternative basis for liability in WCC. A finding that the Scheme was not a contract of insurance to which s 9 applied, but rather provided a discretion to meet a member’s request for indemnity, provided a greater scope for establishing liability (on the basis that the decision was an unreasonable exercise of the discretion) than establishing liability via the narrower requirements of s 9.

63     Contracts and Commercial Law Reform Committee, above n 45, at [3]–[4].

64     Law Commission | Te Aka Matua o te Ture, above n 44, at [33]–[41], referring to commercial insurers.

[67]   I accept that many of the arguments the Council intends advancing in this case do not appear to have been made by counsel in WCC. I also accept that it would be premature to strike out the Council’s claim as there is a basis to consider that contextual evidence will be relevant to determination of the contractual interpretation issues.

[68]   I acknowledge the arguments the Council intends making will have their difficulties given the conclusions reached by Collins J in WCC, but I am not satisfied that the arguments are untenable. They require full consideration following evidence at trial.

Issue (b): breach of implied terms/fiduciary duty

[69]   This issue essentially mirrors the alternative basis of liability argument from WCC. The Council’s draft amended statement of claim pleads separate causes of action for breach of trust and breach of implied terms of the contract. However, I tend to agree with Collins J’s view in WCC that the requirement that the contractual discretion be exercised consistently with the terms and purpose of the Scheme (and not arbitrarily, capriciously, or irrationally), is for practical purposes the same as the claim that Riskpool breached its fiduciary duties in the circumstances.65

[70]As to the merits of this claim, I also agree with Collins J’s conclusion in WCC

that:

[184] In my assessment, however, Riskpool has understated the required level of prejudice in this case. Requiring the Board to be satisfied that Riskpool was materially prejudiced by the Council’s breach or omission is more consistent with the discretionary nature of the Board’s decision-making power. The Board would not be honouring its obligations as the administrator of the Scheme, or the rights of members if it were to decline a claim for indemnity based on late notification of that claim in circumstances where Riskpool suffered less than material prejudice as a result of the member’s breach or omission.

(Emphasis added and footnotes omitted)

[71]   I do not accept Riskpool’s position in respect of this issue. Mr Ring KC’s initial position appeared to be that the entirety of Collins J’s decision about whether

65     WCC, above n 3, at [168]–[170].

the discretion was exercised reasonably was obiter due to the finding that the failure to notify was a breach of a condition precedent in the PW. This meant Riskpool did not need to consider exercising its discretion because the PW had not been met. In other words, the part of Collins J’s decision dealing with the exercise of Riskpool’s discretion was only relevant if the finding that there had been a breach of the PW was wrong. When pressed in oral argument for any support for this proposition in the judgment, Mr Ring relied on the following:66

[230]  The Council was required to notify Riskpool before 1 October 2011  of the Lofts proceeding. Its failure to do so:

(1)constituted a breach of a condition precedent to being indemnified by Riskpool in relation to the Lofts proceeding; and/or

(2)caused material prejudice to Riskpool when it agreed to commute its reinsurance policies without being notified of the Lofts proceeding.

[72]   Mr Ring’s submission was that the words “and/or” after [230](1) indicate that Collins J was only considering the question of the exercise of the discretion in case he was wrong about the breach of the condition precedent. However, the paragraph does not contain all of the Judge’s conclusions. It is focused on two aspects: whether there was a breach of a condition precedent; and whether Riskpool suffered material prejudice. The “or” in “and/or” indicates that if the Judge was wrong that there was a breach of a condition precedent, the breach nevertheless caused material prejudice, which would still provide Riskpool with a defence under both the Scheme and s 9 (if it applied).

[73]   In contrast, the Judge’s conclusions on the alternative argument relating to the discretion was contained in the following paragraphs:67

[234]    In exercising its discretion not to indemnify the Council, Riskpool was required to exercise its discretion for the purpose for which it was conferred. In exercising its discretion, the Board did not take into account irrelevant factors. Nor did the Board act arbitrarily, capriciously or irrationally. On the contrary, the Board took advice from responsible professionals and reached a decision that was reasonably available. Its decision was not contrary to the evidence or legal principles which governed the Board’s decision.

66     WCC, above n 3.

67     WCC, above n 3.

[235]    The Board did not breach either its contractual or fiduciary obligations to Riskpool. The Council’s claim is accordingly dismissed.

[74]   There is no suggestion in those conclusions that they were only being made in case the Judge was wrong about whether there had been a breach of a condition precedent in the PW.

[75]   Moreover, Riskpool concedes that the discretion applies to non-complying claims as well. In other words, the discretion can be exercised despite a failure to meet the PW. However, Mr Ring argued that the discretion only applies at the point when the Board has the Claim before it for consideration. It does not apply to a decision that a Claim should not be considered by the Board at all because it does not meet the PW. I find the distinction illusory but need not resolve the issue at this point in the proceedings. It certainly does not reach the standard required to justify strike out. As Riskpool accepts that it has a discretion to pay non-complying claims, it is not an attractive proposition that a decision by an employee or officer of Riskpool to decline the claim should be less open to scrutiny than a decision by the Board itself. In both cases, Riskpool has decided (and thereby exercised its discretion), not to pay the Claim. The principled basis for the employee’s exercise of the discretion being free from judicial scrutiny, while the Board’s is not, eludes me. Moreover, cl 6.1.2 of the Deed imposes a duty on the Board of “considering all Claims made against the fund and determining whether or not the Board’s discretion should be exercised to meet the Claim …”. Given this clause, the basis on which anyone at Riskpool other than the Board can decline a claim is not apparent; it would seem to be an abdication of the Board’s contractual duty to consider all claims made against the fund.

[76]   I therefore accept there is a tenable argument that Riskpool’s failure to meet the claims based on late notification in the circumstances of this case and in the absence of material prejudice would be a breach of its obligations to exercise its contractual discretion consistently with the terms and purpose of the Scheme (and not arbitrarily, capriciously, or irrationally).

Issue (c): estoppel

[77]   Given my conclusions in respect of these first two issues, the decision on the remaining issues can be relatively brief.

[78]The elements of estoppel are:68

(a)A belief or expectation encouraged through some action, representation or omission to act;

(b)Reliance on that belief or expectation;

(c)Detriment as a result of that reliance; and

(d)It being unconscionable to depart from the belief or expectation.

[79]   The Council submits that since 2012 Riskpool has consistently declined mixed claims notified by the Council based on the exclusion in cl 13. This incorrect position was bolstered by senior counsel’s opinion, which was provided to the Council by Riskpool to support its position prior to the five claims relevant to these proceedings. By its conduct and representations, Riskpool encouraged the Council to accept that mixed claims were excluded. In these circumstances, the Council says it is reasonably arguable that the failure to notify mixed defect claims strictly in accordance with the PW was caused by Riskpool’s actions, having created in the Council a belief and expectation that the claims were not covered and would not be accepted.

[80]   The Council further submits that now that Riskpool seeks to benefit from the Council’s belief and expectation to decline what would have been properly indemnifiable claims under the PW, it is reasonably arguable that the Council has suffered detriment and that Riskpool is acting unconscionably.

68 Mitchell v Trustees Executors Ltd [2011] NZCA 519; Wilson Parking New Zealand Ltd  v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567; Hansard v Hansard [2014] NZCA 562, [2015] 2 NZLR 158; and HHR Christchurch NTL Ltd v Crystal Imports Ltd [2015] NZCA 283.

[81]   In response, Riskpool has undertaken a detailed assessment of the chronology of the notification of claims, which it says establishes that a number of mixed claims were notified over the relevant period, despite the Council being told that these claims would not be accepted due to the exclusion in cl 13.

[82]   I consider estoppel to be an essentially factual issue that needs to be explored at trial. Evidence is required regarding the representations made and the reliance placed on them. Moreover, I do not think it follows, as a matter of logic, that because some mixed claims were notified (presumably out of an abundance of caution and to preserve the position) there can be no instances where non-notification was due to an expectation, encouraged through Riskpool’s representations, that notification would be pointless.

Issue (d): Fair Trading Act 1986

[83]   The Fair Trading Act cause of action essentially raises the same factual issues regarding reliance on representations raised in the estoppel cause of action. I therefore decline to strike it out for the same reasons.

Issue (e): election

[84]   I consider the cause of action in election to be the most problematic. There is force in Riskpool’s submission that the right to decline the Council’s request for indemnity for a claim because of cl 13 is not inconsistent with its right to later decline the claim under the notification exclusion in cl 6(c) (even though it transpired in the meantime that Riskpool’s reliance on cl 13 was misplaced).

[85]   Riskpool submits that election only arises when a contracting party is faced with two mutually exclusive rights, or inconsistent courses of action. Riskpool relies on the decision of the English and Wales Court of Appeal in Bolton Metropolitan Borough Council v Municipal Mutual Insurance Ltd.69 In that case, indemnity was initially declined on the basis that the claim did not satisfy the insuring clause, and not

69 Bolton Metropolitan Borough Council v Municipal Mutual Insurance Ltd [2006] EWCA Civ 50, [2007] Lloyd’s Rep IR 173 (CA) at [31]–[32] per Longmore LJ. Relying on an exclusion is also denying liability on coverage grounds; see also Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147, [2008] 2 All ER 14 (Comm).

due to a breach of a condition requiring timely notice of the claim. The insurer relied on the notification breach for the first time in its statement of defence. The Court held:

31.        The judge was correct to hold that there must be a choice between inconsistent courses before a party to a contract is required to elect. Paradigm examples occur when a person has a choice to sue either the agent or the principal party to the contract, a choice to rescind a contract for misrepresentation or to affirm it, or a choice between accepting conduct as a repudiation of a contract or (again) to affirm it. The modern locus classicus in relation to waiver by election (and, indeed, by estoppel) is Lord Goff of Chieveley’s speech in Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391. The judge set out a large part of his speech. I need only refer to a passage in the left hand column of page 398 of the report

… where with knowledge of the relevant facts a party has acted in a manner which is consistent only with his having chosen one of the two alternative and inconsistent courses of action then open to him — for example, to determine a contract or alternatively to affirm it — he is held to have made his election accordingly …

Other cases at an appellate level which state that the relevant party must be faced with inconsistent courses of action (not just alternative ones) are Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, 882–883, China National Foreign Trade Transportation Corp v Evlogia Shipping Co SA [1979] 1 WLR 1018, 1024 and 1034, Peyman v Lanjani

[1985] Ch 457, 486 (citing Kammins), 494 and 499–500 (citing China National) and Oliver Ashworth (Holdings) Ltd v Ballard (Kent) Ltd [2000] Ch 12, 27 and 32. It is, therefore, not sufficient for a party to a contract to have alternative courses of action; for the doctrine of election to apply (which it must be remembered requires no acting on it by, or detriment to, the other party) the courses of action must be inconsistent or, as it is sometimes said, mutually exclusive.

The possible causes of action

32.        Mr Bartley Jones then submitted that CU had these courses open to them;

(1)Deny liability on coverage grounds;

(2)Deny liability for late notification;

(3)Deny liability on both grounds.

He categorised these courses as inconsistent with each other for the purpose of election. That is, however, not so; these course are all consistent with each other because they each lead to a denial of liability. The inconsistent course would have been for CU to accept liability rather than to deny liability. If that had happened they might well then be held to have elected not to deny liability; but that, of course, is something which did not happen.

[86]   The Council relies on a decision of the England and Wales High Court where it submits, on other facts, the insurer was precluded from relying on a breach of a policy condition because it did not raise the issue until a late stage.70

[87]   Finally, I was referred to another England and Wales Court of Appeal decision where the Court undertook an analysis of whether waiver of a breach of a condition to notify a claim should be considered a matter of waiver by election, or waiver by estoppel.71 Rix LJ for the Court concluded:

[70] In sum, I do not think that we have been shown any case where the doctrine of election has been applied, in the context of a merely procedural condition precedent, to the conduct of a claim on behalf of an insured by an insurer, nor do I think it would be consistent with the paradigm examples of election, or with the nature of the doctrine, which requires unequivocal conduct which has irrevocable effect, to treat that doctrine as being by its rationale applicable to this situation. The doctrine is ill-fitting in these circumstances, and unneeded. For there remains the doctrine of estoppel: in circumstances where it can be said that the handling of a claim by an insurer is unequivocal representation that the insurer accepts liability and/or will not rely on breach of some condition precedent as affording a defence, and there has been such detrimental reliance by the insured as would make it inequitable for the insurer to go back on his representation, the insured will have all the protection that he needs.

[88]   If this statement of principle represents the law of New Zealand, it seems that the Council’s claim can only succeed if there was an unequivocal representation that Riskpool would not rely on breach of the notice condition and there has been some detrimental reliance on that representation. However, that would amount to waiver by estoppel rather than waiver by election.

[89]   It therefore seems questionable whether the cause of action based on election is a separate cause of action to the proposed cause of action in estoppel. Some repleading of the two causes of action may be required, but I am not prepared to strike out either on the basis that they are untenable. Evidence is required as to the representations made and the reliance placed on them.

70     Moore Large & Co Ltd v Hermes Credit and Guarantee plc [2003] EWHC 26 (Comm), [2003] 1 Lloyd’s Rep 163.

71     Kosmar Villa Holidays plc v Trustees of Syndicate 1243, above n 69, at [1].

Conclusion

[90]For these reasons, the application to strike out the proceedings is declined.

[91]   My preliminary view is that the Council is entitled to costs on a 2B basis with certification for second counsel. If costs cannot be agreed, the parties should file memoranda within 10 working days (limited to five pages), and reply memoranda (limited to two pages) five working days thereafter. Costs will be determined on the papers.

La Hood J

Solicitors:

Wilson Harle, Auckland for Plaintiff/Respondent Young Hunter, Christchurch for Defendant/Applicant