Crystal Imports Limited v Certain Underwriters at Lloyds of London

[2016] NZHC 710

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-1539 [2016] NZHC 710

BETWEEN

CRYSTAL IMPORTS LIMITED

Plaintiff

AND

CERTAIN UNDERWRITERS AT LLOYDS OF LONDON

First Defendant

SIRIUS INTERNATIONAL INSURANCE GROUP LIMITED

Second Defendant

Hearing:

Judgment:

7 April 2016

7 April 2016

Counsel:

Z G Kennedy for plaintiff
B D Gray QC and C R Gates for defendants

Reasons:

18 April 2016

REASONS FOR JUDGMENT OF KATZ J

Solicitors:      MinterEllisonRuddWatts, Auckland

DLA Piper, Auckland

Counsel:       B D Gray QC, Shortland Chambers, Auckland

CRYSTAL IMPORTS LIMITED v CERTAIN UNDERWRITERS AT LLOYDS OF LONDON & ANOR [2016] NZHC 710 [18 April 2016]

Introduction

[1]      On 7 April 2016  I heard an application by the plaintiff,  Crystal Imports Limited (“Crystal”), to adjourn the trial in this matter.  The trial was scheduled to commence on 16 May 2016, with an estimated hearing time of two weeks.   At the conclusion of the hearing I granted Crystal’s adjournment application, with written reasons to follow. Those reasons are set out below.

[2]     The key issue in dispute was whether completion of a binding expert determination  process  (“Expert  Process”)  that  the  parties  have  agreed  to  is  a necessary precondition to the determination of the remaining issues by this Court.  It was common ground that, despite earlier hopes to the contrary, the Expert Process will not now be completed prior to 16 May 2016.

[3]      In assessing an application for adjournment, the Court is required to consider whether an adjournment is necessary in order to do justice between the parties. 1   The interests of the party seeking adjournment are balanced against the interests of the party resisting it.2

Do the issues that are subject to the Expert Process need to be resolved prior to the trial in this Court?

[4]      Crystal owns five properties in Christchurch that were damaged by the Christchurch earthquakes on 4 September 2010 and 22 February 2011.     Crystal’s properties were all insured under an insurance policy (“Policy”) issued by the defendant insurers (“Insurers”). The parties have been unable to agree upon whether, and to what extent, Crystal is entitled to recover under the Policy for losses arising from  the  September  earthquake  in  circumstances  where  the  properties  suffered further damage from the February earthquake (“September Claim Issue”).  It appears

to be common ground that all five buildings were substantially underinsured.

1      Pursuant to rule 10.2 of the High Court Rules.

2      O’Malley v Southern Lakes Helicopters Ltd HC Christchurch CP513/89, 4 December 1990 per

Tipping J.

[5]      In March 2012 Crystal commenced proceedings in this Court to recover its entitlements under the Policy for both the September and February earthquakes.  One of the key issues between the parties was the extent to which Crystal can claim an amount greater than one sum insured, because of the damage that was caused in the September  earthquake.  The  parties  submitted  a  preliminary  question  to  the High Court relating to that issue, in order to determine the scope of Crystal’s cover

under the Policy for the September earthquake.3

[6]      The  Insurers’  liability  to  indemnify  Crystal  for  damage  caused  by  the September earthquake was confirmed by the Court of Appeal.4     It held that liability was not limited to the repair sums that had already been spent when the February earthquake struck,5  but extended to the actual costs of repair of the “cumulative damage” to the buildings after both the September and February earthquakes.6   The relevant policy therefore allows Crystal up to one additional sum insured for the unspent cost of repairing the damage caused by the September earthquake, subject to the overall principle of indemnity.

[7]      Calculating the relevant figure in circumstances where few repairs had been carried out to the five buildings prior to the February earthquake, and few detailed records of the extent of damage were made, is necessarily a difficult exercise.   The parties therefore agreed to the quantification exercise being undertaken by experts, pursuant to the Expert Process.  The terms of the Expert Process were not settled by the  parties  until  25 February  2016.    By  that  time  (despite  earlier  hopes  to  the contrary) it had become apparent that the process could not be completed before the commencement of the High Court trial.

[8]       The issue of the quantum of the September damage is accordingly no longer before this Court.  Rather, it is envisaged that the Court will be able to use the figures

3      Crystal Imports Limited v Certain Underwriters at Lloyds of London  [2013] NZHC 3513; (2013) 18 ANZ Insurance Cases 61-997. A further question, concerning the interpretation of the average clause in the Policy, was also submitted to the High Court for determination at the same time.

4      QBE Insurance (International) Limited v  Wild South Holdings Limited  [2014] NZCA 447, [2015] 2 NZLR 24. (The Supreme Court declined an application by the Insurers for leave to appeal).

5       At [67] and [142].

6       At [85] and [88].

derived from the Expert Process when determining the various issues between the parties.  Crystal summarised those issues as follows:

(a)       the September Claim Issue;

(b)      the cost of repairing/reinstating the cumulative damage caused by the

September and February Earthquakes;

(c)       any effect of the average clause on the amount of Crystal’s entitlement

under the Policy;7

(d)Crystal’s  entitlement  to  consequential  losses  from  the  Insurers, including in connection with quantum arising from the September Claim Issue;

(e)       Crystal’s  entitlement  to  interest  from  the  Insurers,  including  in

connection with quantum arising from the September Claim Issue;

(f)      Crystal’s entitlement to recovery under the subsidence memorandum in the Policy;

(g)      Crystal’s entitlement to indemnification for losses to its building at

Plaza Mall, New Brighton; and

(h)whether the Insurers can claim a set-off in connection with payments made under the business interruption memorandum in the Policy.

[9]      The Insurers submitted that the issues above are largely discrete and that it is therefore not necessary that the Expert Process be completed before the hearing in this Court. In particular, the Insurers submitted that:

(a)       The September Claim Issue will be resolved by the Expert Process.

7      This encompasses queries as to whether the average clause applies at all as a matter of fact and law, and to which buildings the clause might apply (raising a related issue as to whether certain buildings are ‘destroyed’ for the purposes of the Policy).

(b)      A cumulative damage issue does not arise, because Crystal’s position

is that all the buildings are destroyed.

(c)      The effect of the average clause is a legal issue.  Once determined by the Court, the result can be applied to the figures derived from the Expert Process, if need be.

(d)      Crystal’s entitlement to consequential losses is primarily a legal issue.

Any quantum issues are separate to the quantum of the September damage.

(e)       Crystal’s  entitlement  to  interest  is  a mixed issue of fact  and  law.

Again the quantum of the September damage is not directly relevant.

(f)       Crystal’s entitlement under the subsidence memorandum is a policy

interpretation issue.

(g)Crystal’s entitlement to an interim payment of the indemnity value of the damage to Plaza Mall is primarily a legal issue and the September damage has no direct relevance.

(h)The  Insurers’ set-off  issue  relates  to  mistaken  payments  made  to Crystal under the Business Interruption section of the Policy that are in  excess  of  the  sums  insured  under  that  section. This  has  no connection with the September damage.

[10]     Crystal, on the other hand, rejected the Insurers’ comments regarding the issues (as set out above) as being inaccurate and overly simplistic.  In particular, it submitted that the outcome of the Expert Process is a necessary precondition to the final resolution of its claim in relation to the accumulated losses arising from the September and February Earthquakes, as well as its claim to consequential losses arising from the Insurers’ repudiation of the Policy.  Crystal further submitted that the Insurers’ argument that average applies cannot be finally resolved prior to the determination of the Expert Process.   It submitted that additional issues may also

arise out of the Expert Process that could affect the final nature of the relief sought. Finally, Crystal expressed concern that there is a real risk that if the trial and Expert Process were run in parallel, inconsistent outcomes could arise that might result in Crystal being deprived of its lawful entitlements.

[11]     It is simply not possible at this preliminary stage, and in the absence of any evidence, to conclude with certainty that the issues that are the subject of the Expert Process and the issues before this Court are entirely discrete.   There appear to be some areas of overlap.  Other linkages may not become apparent until the hearing itself.   Further, I accept that if the two processes are run in parallel there is some risk of inconsistent outcomes or factual findings that could prejudice one or both parties.

[12]     Obviously, it may ultimately become apparent at trial that the Insurers were correct, and that the issues are entirely discrete.   It is not possible, however, to reach that conclusion with any certainty at this stage, on the limited information before the Court.

[13]     I also note, for completeness, that Mr Gray QC frankly acknowledged that an adjournment was probably inevitable for pragmatic reasons, given that Crystal’s evidence has not yet been filed.   It seems likely that the Insurers would not now have sufficient  time to respond  to  such evidence,  even  if  it  was  filed forthwith (which Crystal says is not possible).

[14]     Somewhat unusually, it is the plaintiff, not the defendants, who is seeking an adjournment.   Although there may also be additional reasons for Crystal seeking an adjournment (such as the state of its preparedness for trial) I accept that it genuinely believes that if the trial were to proceed in May it will not be possible for the Court to finally determine all remaining issues between the parties.  If Crystal is correct, it will potentially face significant prejudice if the trial proceeds.  On the other hand, the prejudice to the Insurers of delaying the trial for six months or so does not appear to be significant, particularly given the delays that have occurred to date.

[15]     Finally, I take into account that Court hearing time is a precious and scarce resource.  The risk that further Court hearings might be required, because all of the issues could not be resolved at the forthcoming hearing, should be avoided.  Further, at the time the adjournment application was heard the trial was still five weeks or so away.  It is therefore likely that the scheduled hearing time will be able to be made available for other matters that are definitely ready to proceed.

Result

[16]     Taking all of these matters into account, I concluded that the appropriate course was to grant the adjournment application and vacate the 16 May 2016 fixture.

I directed accordingly.

Katz J