Evans v IAG New Zealand Limited
[2020] NZHC 1326
•12 June 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-705
[2020] NZHC 1326
BETWEEN PAUL FREDERICK WILLIAM EVANS and JOY ELIZABETH EVANS
Plaintiffs
AND
IAG NEW ZEALAND LIMITED
First Defendant
INTERNATIONAL STRATEGIC DEVELOPMENT NEW ZEALAND LIMITED
Second Defendant
QBE INSURANCE (AUSTRALIA) LIMITED
Third Defendant
Hearing: 18 February 2020 Counsel:
C R Johnstone for Plaintiffs
M Ring QC and P M Smith for First Defendant No appearance for Second Defendant
D H McLellan QC for Third Defendant J McGuigan as amicus curiae
Judgment:
12 June 2020
JUDGMENT OF CHURCHMAN J
Introduction
[1] This proceeding concerns a case currently being heard in the Canterbury Earthquakes Insurance Tribunal (the Tribunal). The first respondent in that case, IAG New Zealand Ltd (IAG) has applied for referral of a question of law from the Tribunal to the High Court pursuant to s 53 of the Canterbury Earthquakes Insurance Tribunal Act 2019 (the Act).
EVANS and ANOR v IAG NEW ZEALAND LIMITED & ORS [2020] NZHC 1326 [12 June 2020]
Factual background
[2] Mr and Mrs Evans own a house at 3 Kimbolton Lane, Huntsbury, Christchurch. The house was damaged in the 2010 and 2011 Canterbury earthquakes. It was insured under a State Home Comprehensive Policy and had been so insured since it was built in 1998. Following the 22 February 2011 earthquake, Mr and Mrs Evans lodged an insurance claim with IAG (the parent company of State Insurance) for repairs on the damage to their house. This was accepted, and Mr and Mrs Evans entered into a contract with ISD, the second respondent, to repair the house, for a final contract price of $347,464.07, which IAG duly paid in total following completion of the repairs.
[3] Mr and Mrs Evans found the repair work to be defective and subsequently applied to the Tribunal to compel IAG to pay the costs of remedying the defective repair work. IAG disputes this application. Mr and Mrs Evans’ primary cause of action in their claim against IAG is that IAG’s obligations under the policy are not discharged until their house has been repaired to the policy standard, which in their view includes remedying defective repair work to achieve that policy standard. Put another way, the Evans’ argument is that if repair work has been carried out, but at the end of the work, the house has not been properly repaired, then IAG has not met the obligation to pay for the house to be repaired to the policy standard irrespective of the reason why the repairs have not achieved that result.
[4] Mr and Mrs Evans filed a joint affidavit in these proceedings. One of the topics it dealt with was the claims assessment process implemented by IAG. They deposed that once the Earthquake Commission (EQC) had confirmed that their house was over cap, State Insurance introduced them to their Canterbury Recovery Home Repair programme. They met with Mark Bone of IAG and Mike Toohey from Hawkins on 23 August 2012. Mr Bone was a loss adjustor employed by IAG. Mr Toohey was the IAG appointed project manager from Hawkins who would oversee the building works. They were introduced to two people from Falcon Residential Builders, an IAG approved builder who had been selected for their project. Their evidence was that Mr Toohey had described Falcon as “a really good builder”. They said that both Mr Bone and Mr Toohey assured them that their house could be repaired and that other
parts of the property not fully covered by EQC such as the driveway, paving, retaining wall and other features would also be fixed by Falcon.
[5] They say that at no stage did IAG or anyone else suggest that they get independent advice or discuss the possibility that another contractor might do the repairs. They said that IAG presented a package to them to the effect that they would do everything required to fix the house, and that they felt they had little option to go with what was presented to them.
[6] Their affidavit details the ongoing problems that they experienced with many aspects of the repair process. They said that Falcon asked to be released from that part of the building contract relating to the retaining wall and that IAG released Falcon without their involvement. They also say that IAG engaged, directed and paid the new contractor brought into repair the retaining wall.
The question
[7] In a decision dated 18 December 2019, Mr Somerville, Chair of the Tribunal allowed the referral application, and phrased the question to be referred to this Court as:1
Does IAG’s policy obligation to pay the cost of repairing the house to the policy standard, as and when incurred by the insured, include an obligation to pay for the reasonable cost required to remedy defective repair work?
[8] In the 18 December 2019 decision, Mr Somerville also classified the above question as one of contractual interpretation.2 On 31 January 2020, Associate Judge Lester issued a minute indicating that the post-contractual conduct of the respondents (the defendants in these proceedings) would be of significance to determining the question of contractual interpretation and thus the referred question as a whole.3
1 Decision of C P Somerville in the Canterbury Earthquakes Insurance Tribunal CEI-0013-2019 18 December 2019 at [41].
2 At [16].
3 Minute of Associate Judge Lester CIV-2019-409-705 31 January 2020 at [10].
The arguments
[9] Mr Johnstone, counsel for Mr and Mrs Evans, the applicants in the Tribunal (described as the plaintiffs in these proceedings), submitted that the post-contractual conduct of the respondents would be relevant to consideration of the referred question, while counsel for the respondents opposed this submission. Consequently, the Associate Judge directed that the hearing on 18 February 2020 would be focused on addressing whether the post-contractual conduct of the respondents could be considered in determining the meaning of the contract.4
[10] All counsel at the 18 February 2020 hearing invited the Court to do more than simply answer the question as to whether or not the Court can have regard to post- contractual conduct when discerning the meaning of a contract. The reason for that is that all counsel were in substantial agreement that following the cases of Firm PI Limited v Zurich Australian Insurance Limited,5 Gibbons Holdings Ltd v Wholesale Distributors Ltd,6 and Vector Gas Ltd v Bay of Plenty Energy Ltd,7 the following principles of contractual interpretation can be taken as being settled:
(a)the proper approach to contractual interpretation is an objective one with the aim being to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract;
(b)the context provided by the contract as a whole and any background information informs the meaning;
(c)evidence of the parties’ subsequent conduct is admissible for the purpose of construing a contract if it tends to establish a fact or circumstance capable of demonstrating objectively what meaning both parties intended their words to bear; and
4 At [15].
5 Firm PI Limited v Zurich Australian Insurance Limited [2015] 1 NZLR 432; [2014] NZSC 147.
6 Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277; [2007] NZSC 37.
7 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444; [2010] NZSC 5.
(d)the approach to interpretation of an insurance contract is no different from the construction of any other contract.8
[11] The main difference between the parties was the submission for IAG that to be relevant, any subsequent conduct needed to be mutual rather than unilateral. During the course of oral argument, Mr Ring QC, for IAG, appeared to concede that, in some circumstances, subsequent conduct could influence the interpretation of a policy but maintained that conduct relating to the implementation of a claims administration process could not possibly have that effect.
[12] While it is observed by the authors of Burrows, Finn and Todd on the Law of Contract in New Zealand that the admissibility of subsequent conduct was “largely put to rest” by the Supreme Court’s decision in Gibbons Holdings,9 there are two aspects of this decision that need elaboration.
[13] Firstly, while subsequent conduct is an admissible aid for contractual interpretation, it still remains only one of a number of factors to be considered alongside the contract.10 Subsequent conduct must ultimately be considered in the context of the overall determination of what a reasonable person, having all the background knowledge reasonably available to the parties at the time of contract, would consider the contract or term to mean.11 As noted in Gibbons Holdings, subsequent conduct will be useful as a “cross-check or reassurance that the meaning a court is leaning towards was that intended by the parties”,12 or “only for confirmatory or supporting purposes” in conjunction with other evidence.13 This is summarised by Professor David McLauchlan:14
Evidence of the parties’ subsequent conduct may be relevant to the resolution of an interpretation dispute in a number of respects. For example, it may assist
8 Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608; Parkin v Vero Insurance New Zealand Limited [2015] NZHC 1675.
9 Jeremy Finn, Stephen Todd and Matthew Barber (eds) Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 6.3.4(c).
10 Above n 6, at [19].
11 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 per Lord Hoffman.
12 Above n 6, at [74].
13 At [50].
14 David McLauchlan “Contract Interpretation: What Is It About?” (2009) 31 Sydney Law Review 5 at 43.
in establishing or verifying the commercial purpose of the contract or the existence of other background facts known to, or reasonably available to, the parties at the time of the contract. But, most importantly, and most contentiously, it may assist in the task of proving the existence of an agreed meaning. The fact that the parties have acted consistently with a particular interpretation, or at least the party now denying that interpretation has so acted, may sometimes provide a reliable basis for an inference that at the time of the contract they attached that meaning to the words in question, or that one of them attached that meaning and reasonably believed that the other did so too.
However, while evidence of such conduct should always be admissible, its probative value is, of course, entirely another matter. The conduct will rarely, if ever, be conclusive but, when taken in conjunction with other evidence of their intention and the surrounding circumstances, it may sometimes tip the evidential balance in favour of a conclusion that a particular meaning was indeed adopted at the time of the contract. In other words, the conduct will ordinarily be relevant ‘only for confirmatory or supporting purposes’, or as ‘a cross-check or reassurance that the meaning a court is leaning towards was that intended by the parties.
[14] In Gibbons Holdings, Tipping and Anderson JJ both indicated that the subsequent conduct must be mutual in that it must be that of all the parties to the contract, as opposed to one.15 Thomas J disagreed, observing:16
I consider that, as it is expressed, this requirement is misconceived and will undoubtedly cause confusion. There is no reason, certainly in this case, why evidence of subsequent conduct should have to be common to establish a common intention. Conduct which is not, and has not been, “shared” or “mutual” may nevertheless point to a meaning contrary to the meaning later asserted by one of the parties. That party has acted inconsistently with the meaning it seeks to persuade the court to place upon the contract. The value of the evidence stems from the inconsistency.
It would be unfortunate if the principle that evidence of subsequent conduct is admissible as an aid to interpretation becomes hedged with qualifications which undermine the objective of the principle. Providing that the evidence is relevant to the question of interpretation before the court, it should be sufficient that, following the completion of the contract, the party concerned has acted inconsistently with the meaning it now asserts in court.
[15] The authors of Burrows, Finn and Todd have observed that Thomas J’s approach appears to have been now “accepted generally”, and that evidence of subsequent conduct will be admissible where it shows that one party had a particular understanding of contractual meaning that they subsequently deny.17 The High Court
15 Above n 6, at [53] and [73].
16 At [135]-[136].
17 Above n 9, at 6.3.4(c).
appears to have differed either way on this approach, with Katz J in Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd ruling that “conduct must be mutual, so that evidence that only demonstrates one party’s subjective intention or understanding as to meaning is not admissible”,18 while Allan J inferred in Pernod Ricard NZ Ltd v Lion – Beer Spirits & Wine (NZ) Ltd that either mutual or unilateral conduct could be admissible.19
Subsequent conduct and other cases
[16] Subsequent conduct has been admitted as evidence in a number of contractual interpretation cases following Gibbons Holdings, to varying effect. In Watson v Whitehead, Wylie J found that the position of the plaintiffs maintained at trial in relation to the meaning of a contract for the provision of honey was inconsistent with the various agreements they signed with the defendants, and their subsequent conduct.20 In Bank of Tokyo-Mitsubishi UFJ Ltd v Solid Energy New Zealand Ltd, Winkelmann J similarly considered the contractual agreement itself, and then the subsequent conduct, to arrive at an interpretation that differed from what the plaintiff had maintained.21
[17] In other cases, admission of subsequent conduct as evidence has been less successful. For example, in Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd, Katz J gave little weight to subsequent conduct in the form of renegotiated tenancy agreements between the parties, noting that it is not unusual for commercial entities to seek to clarify any ambiguities in earlier contracts or to improve the clarity of expression when they enter into further contracts covering the same subject matter.22
18 Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2014] NZHC 84 at [38].
19 Pernod Ricard NZ Ltd v Lion — Beer Spirits & Wine (NZ) Ltd [2012] NZHC 2801 at [145].
20 Watson v Whitehead [2014] NZHC 2992 at [100].
21 Bank of Tokyo-Mitsubishi UFJ Ltd v Solid Energy New Zealand Ltd [2013] NZHC 3458 at [64]– [65].
22 Above n 18, at [41].
Analysis and conclusion
[18] All parties accept that subsequent conduct is admissible in at least some form as an aid to contractual interpretation. The dispute is with the scope of the evidence, and the weight that should be attached to it. Counsel for the first respondent has submitted that the subsequent conduct must be mutual, and that it is only one aspect of the interpretation exercise, while the amicus curiae has argued in favour of a broader scope and submitted that significant weight should be placed on subsequent conduct when interpreting the relevant policy in the insurance contract.
[19] Counsel for the first respondent is correct in submitting that subsequent conduct is only one aspect of the interpretation exercise, alongside the text, document as a whole and prior negotiations.23 Caution should be exercised in placing too much weight on subsequent conduct, as even in those cases where subsequent conduct was utilised successfully to ascertain an interpretation, it was one of a number of factors,24 and may, as observed in Gibbons Holdings, be better used for “confirmatory or supporting purposes”.25
[20] However, this does not mean that evidence of subsequent conduct is not capable of being admitted at all. The Supreme Court in Gibbons Holdings has clearly ruled that subsequent conduct may be relevant admissible evidence in contractual interpretation cases, as it can assist in helping to determine what the reasonable person having all the background knowledge reasonably available to the parties at the time of contract, would consider it to mean. Although Tipping J in Gibbons Holdings indicated that only mutual subsequent conduct could be relevant as an aid to interpretation, the Courts have left this question open, and as Thomas J has noted: “Conduct which is not, and has not been, “shared” or “mutual” may nevertheless point to a meaning contrary to the meaning later asserted by one of the parties”.26
[21] As a result, the post-claim subsequent conduct of IAG is admissible as an aid to interpretation in this case, in order to properly colour the factual background and
23 Above n 7, at [19].
24 Above n 20, at [100]; above n 21, at [64]–[65].
25 Above n 6, at [50].
26 At [135]-[136].
context of the case required for an objective assessment of the meaning of the policy clause in question, and in line with the Supreme Court’s ruling on admissibility of subsequent conduct evidence in Gibbons Holdings.
[22] Having concluded that, at least in theory, subsequent conduct is available as an aid to interpreting the meaning of the policy, I turn to IAG’s other argument which was that the subsequent conduct in issue here, namely the implementation and administration of a claims management process, could not possibly shed light on the meaning of the policy.
[23] The argument was that, at the date of the issue or renewal of the policy (the evidence was that the policy had been in place for some 15 years), neither of the parties could possibly have applied their minds to the sort of claims management procedures that IAG might have implemented to address the practical issues which arose after a catastrophic earthquake which caused damage resulting in numerous claims under the same sorts of insurance policies. Because they could not have applied their minds to this issue, it was argued that such subsequent conduct did not meet any of the tests for the admissibility of subsequent conduct in interpreting what the policy meant.
[24] Mr Ring further argued that to rely on such evidence in interpreting the meaning of the policy, would potentially result in different outcomes depending on the different claims experiences of people who were insured under the same policy. There is some force in that submission but it does not negate the availability of subsequent conduct as something the Court is entitled to have regard to.
IAG’s obligations
[25] The policy in question is a standard form document that was not negotiated. Its objective meaning is to be ascertained at the time it was entered into.
[26] The obligations that arise under the policy can clearly change as a result of either mutual or unilateral action. The adoption of a standard claims assessment and administration process is capable of altering the obligations on IAG but that is a different point to whether that is what the policy was intended to achieve when written.
[27] The question of whether or not the claims administration process adopted in this case has modified IAG’s obligations under the policy is a question of fact, not able to be answered in these proceedings because it needs findings of fact that the Tribunal has not yet made. As discussed below, there are some cases where claims assessment processes have been treated as if they modified the obligations on an insurer as set out in the policy27 and some cases where they have not.28
[28] Given that the claims assessment and handling process adopted by IAG appears to have been standard across all insured parties, if it is held that the adoption of that process did impose obligations on IAG other than those arising from its specific wording, then those obligations are likely to be common to all insureds who were subjected to the same sort of administration process. The decision in Bruce does not resolve that issue because the basis upon which liability was conceded by IAG was not articulated.
[29] These observations dispose of the query raised by Lester AJ in the minute of 31 January 2020, and I now address the actual question proposed in the case-stated.
Preliminary jurisdictional point
[30] As the submission on behalf of the third respondent (QBE Insurance (Australia) Limited) (QBE) was that the Court should decline to answer the case- stated, I need to first address the issue of jurisdiction.
[31]Mr McLellan QC, for QBE, advanced the following propositions:
(a)That IAG appeared to accept that some evidence of post-contract conduct was required for the Court to determine the referred question because, in its draft case to the Tribunal, IAG included the fact that the applicants subsequently entered into a building contract with the second respondent for work to repair the earthquake damage. It was submitted that the fact the applicants entered into the building contract did not preclude arguments that IAG elected to reinstate or that the policy
27 Bruce v IAG New Zealand Ltd [2018] NZHC 3444.
28 Above n 8.
impliedly provided that IAG would remain liable for defective repairs carried out pursuant to a programme it set up and controlled.
(b)On 10 February 2020, IAG filed an affidavit that set out in some detail the perspective of a senior IAG staff member on how IAG responded to the Canterbury earthquakes and the IAG claims process from 2012 onwards. It was submitted that this was difficult to reconcile with IAG’s position that post-contract conduct was irrelevant to the case- stated, and that the filing of this affidavit allowed other parties the opportunity to file evidence in response which tended to undermine any suggestion that the case-stated could proceed on the basis of tightly circumscribed facts.
(c)The policy holder who disagreed with the result of the case-stated would be able to call evidence in the trial of any proceedings against IAG and may do so to avoid the precedential effect of this Court’s answer to the question posed on the case-stated by submitting that the evidence they adduced distinguished their case.
(d)The parties in this case should not be prevented from tendering the evidence that they intend to rely on which can then be challenged for admissibility and cross-examined on. It was submitted that what was described as a “more economical procedure” restricted to affidavits or an agreed statement of facts was prone to cause conflicting High Court decisions.
(e)To the extent that the case-stated procedure may throw up intractable factual disagreements, that may suggest that the case-stated procedure was inappropriate to determine these issues.
(f)If this Court’s determination on the case-stated has low precedential value through being easily distinguished, there may be little point in attempting to determine an important legal issue by way of case-stated
rather than in the context of an appeal following proper examination of evidence in the first instance.
(g)The question in the present case-stated invited analysis directed to a wide range of issues, some of which by their very nature required evidence of subsequent conduct and that the interpretation question was so intimately connected with the parties’ subsequent conduct, it would be unsafe for the Court to attempt to give its opinion on the meaning of the contract without first understanding the situation that ultimately unfolded.
(h)The parties should not be prevented from tendering the evidence they intend to rely on which can be challenged for admissibility and, if it is adduced, cross-examined on.
[32]Both the amicus and counsel for IAG took a different position.
Position of the amicus curiae on behalf of Mr and Mrs Evans
[33] Ms McGuigan, counsel acting as amicus curiae on behalf of Mr and Mrs Evans, firstly submitted that the High Court had jurisdiction to consider the case at hand. Counsel asserted that in New Zealand, contract interpretation is a question of law, thus making the question at issue an appropriate one within the framework of s 53 of the Act, which requires the Tribunal to refer questions of law to the High Court, as opposed to questions of fact.29
[34] Counsel further submitted that while the Court is tasked in this case with determining a question of law under s 53, it may be appropriate, and indeed necessary, for the Court to assess what facts and documents are relevant to referred question of law. While counsel acknowledged that under r 21.9(1) of the High Court Rules 2016, it is in fact the task of the Tribunal to determine the relevant facts,30 it was also
29 Evans v IAG New Zealand Ltd - Submissions of Amicus Curiae HC Christchurch CIV-2019-409- 705 11 February 2020 at [10], [15]-[19].
30 High Court Rules 2016, r 21.9(1).
submitted that r 21.12(2) empowers the Court to amend the case stated at hearing.31 She submitted that because the parties are potentially disputing material facts, it may be appropriate for the Court to make a ruling determining what the material facts are.
[35] Counsel further submitted that the Court should address how the relevant facts should be put before it, either through a statement of facts agreed between the parties, or if that is not possible due to the parties disputing the facts, the relevant facts could be put before the Court as affidavit evidence.
[36] Counsel submitted that IAG’s post-contract, particularly post-claim, conduct provided relevant context to the interpretation of the clause at issue, the obligation to pay clause.
Position of IAG
[37] As discussed above, counsel for IAG submitted that interpretation of an insurer’s promise to pay reasonable repair costs incurred by the insured cannot include the additional factual content of post-contractual/post-claim conduct on the part of IAG.
[38] Counsel submitted that there are two possible interpretations of the obligation to pay clause:
(a)the insurer’s payment promise is to pay what the contractors and the insured reasonably agreed under the repair contracts to charge the insured to repair the home to the policy standard – which the insurer must also have agreed to; or
(b)the insurer’s payment promise is to pay whatever the insured ultimately pays to (all) the contractors until the home is repaired to the policy standard, including the costs of rectifying defective repair work for which the responsible contractor is directly liable.
31 High Court Rules 2016, r 21.12(2).
[39] There is arguably a third possible interpretation which is that the insurer’s promise is to pay the amount actually required to repair the house to an “as when new” condition and that obligation is not discharged until the repairs achieve that result.
[40] Despite acknowledging at least two alternative interpretations, counsel submitted that these did not give rise to an ambiguity in the contract, and that moreover, the aim of contract interpretation is to ascertain the objective meaning as intended by the parties, and that ambiguity only becomes relevant in this context if, despite application of the objective approach, the parties’ common intention remains elusive. That submission is accurate as far as it goes but it does not resolve the question of whether the policy obligation to meet the reasonable costs of repair is satisfied when those repairs do not result in the building actually being repaired to a condition as similar as possible to when it was new.
[41] Counsel rejected the notion that subsequent conduct by the insurer in setting up a claims handling process amounted to subsequent conduct which could inform the proper interpretation of the contract in this case and I have already addressed that argument. But, such conduct may also be admissible if it establishes an estoppel or an agreement as to meaning (sometimes referred to as the private dictionary meaning).
[42] Mr Ring placed considerable emphasis on the fact that this was a policy just to pay for the cost of repairs and did not give IAG the right to undertake the repairs themselves. He acknowledged that on p 7 of the policy, the following statement was made:
This section explains when we’ll repair or rebuild the home and when we’ll
pay you cash for your loss, if we accept your claim …
[43] He submitted that this passage was set out in a blue coloured box. He submitted that the wording on p 4 of the policy under the heading “Reading your policy” meant that words in a blue box did not form part of the policy. However, the heading “Reading your policy” does not actually refer to words in a blue box at all. Under the subheading “Examples and Headings” p 4 of the policy says:
To make it easy for you to understand your policy, we’ve included some examples and comments in italics. Note these don’t affect or limit the meaning of the section they refer to.
Please also note that the headings in this policy wording are designed to help you find your way around it. You mustn’t use them when interpreting the policy wording.
[44] The problem with the proposition advanced by Mr Ring is that the “Reading your policy” section on p 4 does not refer to parts of the policy in blue boxes or explain that they should be regarded as headings. The words on p 7 “What you get if we accept your claim” precede the words in the blue box. They are in much larger type and are all in bold. There is an argument that it is, in fact, the larger type words that are the heading covered by the words referred to in the “Reading your policy” provision, not the words in the blue box. That is not a question of fact that can be resolved in these proceedings.
[45] It is my view that it is a live issue whether this insurance policy is simply a “to pay” policy and the Tribunal will need to address and resolve the issue of whether the ambiguous wording set out on p 7 of the policy has the effect of converting it into a policy where the insurer is representing that, at its option, it can either pay or repair.
[46] The Tribunal will need to consider, in relation to this issue, the decision in Best Food Fresh Tofu Ltd v China Taiping Insurance (NZ) Co Limited where the Court rejected a similar “to pay” argument and concluded that where an insurer opted to assume responsibility for organising repairs, it was liable for the cost of rectifying defective repairs.32
The legislation
[47]The Act came into effect on 31 May 2019. Its stated purpose was to:33
… provide fair, speedy, flexible, and cost-effective services for resolving disputes about insurance claims for physical loss or damage to residential buildings, property, and land arising from the Canterbury earthquakes.
[48] Part 3 of the Act established the Tribunal. Section 56 of the Act provides that the Tribunal’s functions are inquisitorial in nature. Section 28 of the Act permits the Tribunal to transfer a claim before it to the Court in the following circumstances:
32 Best Food Fresh Tofu Ltd v China Taiping Insurance (NZ) Co Limited [2014] NZHC 1279.
33 Canterbury Earthquakes Insurance Tribunal Act 2019, s 3.
(a)the claim presents undue complexity;
(b)the claim is a novel claim;
(c)the subject matter of the claim is related to the subject matter of proceedings that are already before the Court.
[49] Section 53 of the Act authorises the Tribunal to refer a question of law to the High Court for its opinion.
[50]Section 53(3) is unusual in that it provides:
The High Court must give the Tribunal its opinion on the question, following which the Tribunal must continue the hearing of the claim in accordance with the opinion.
[51] Notwithstanding the apparent mandatory wording of this section, the parties were agreed that the Court’s inherent jurisdiction was not ousted, and it remained able to control its processes, including refusing to answer the question if the question posed by the Tribunal was not properly the subject of a case-stated because the facts upon which it was premised, were disputed, or for some other good reason.
[52] Mr Ring submitted that the wording in s 53(3) of the Act modified the normal approach of the Court to a case-stated. He submitted that it called for a robust approach on the part of the Court consistent with the purpose of the Act to facilitate fair, speedy, flexible and cost-effective resolution of these issues. He sought to distinguish s 53(3) of the Act with s 113(g) of the Credit Contracts and Consumer Finance Act 2003 that Courtney J considered in Commerce Commission v Harmoney Limited.34 In that case, the Court, on a case-stated, refused to state a case on two of five questions because they required determination of factual questions before the relevant law could be applied.
[53] Mr Ring submitted that under the Act, the Court had a higher obligation to attempt to give an answer on a case-stated if it possibly could. He also submitted that
34 Commerce Commission v Harmoney Limited [2017] NZHC 1167.
it was open to the Court to come back with an answer on the case-stated but to qualify the answer.
[54] I accept that, in line with the purpose of the Act, the Court does have an obligation, wherever possible to provide an answer to the question posed in the case- stated. For that reason, I will attempt to do so notwithstanding the fact that because there are disputed facts the case-stated procedure would not normally be appropriate.35 However, as a result of dispute as to the relevant facts, the answer to the question may be that it is not possible to answer the question in the form posed.
The reference
[55] In the decision of 18 December 2019 to refer a question of law to the High Court, the Tribunal does not expressly set out the facts upon which it is said the question turns. The most relevant passage is:36
[18] Some of the necessary facts (the terms of the policy, the lodging of a claim and the existence of the building contract) are not disputed. Other facts, such as whether the repair work was defective and how much the repair might cost to remediate, are currently mere allegations yet to be determined but they are capable of proof and are relevant to the case-stated because they demonstrate why IAG’s questions need determination in the proceedings.
[56] In a memorandum dated 29 January 2020, counsel for IAG suggested an agreed statement of facts which contained three facts but two allegations. The facts were:
·the Evans were insured under a State Home Comprehensive Policy;
·on 28 February 2011, the Evans lodged a claim with IAG for earthquake damage to their property at 3 Kimbolton Lane, Huntsbury, Christchurch (“property”), which IAG accepted;
·the Evans entered into a building contract dated 29 November 2012 with Falcon Residential Limited (now called International Strategic Development Limited (“ISD”)), for work to repair the earthquake damage to the home, on the terms set out in this contract (“repair contract”).
[57]The two allegations were:
·it is alleged that the work carried by ISD was defective; and
35 At [24].
36 Above n 1.
·it is further alleged that the defective work carried out by ISD will cost an estimated $1,161,770, to bring the property to the required standard.
[58] The memorandum further submitted that the case-stated involved simply a policy interpretation question and that was conceptually separate from whether, in the handling of the claim, IAG assumed responsibility for the actual repair work such as to have owed (and potentially breached) a duty of care.
[59] Ms McGuigan argued that notwithstanding the formal language used in the policy, the reality was that the insureds had no choice but to go along with the claims administration regime that IAG had proposed. It was implied that this fact was relevant when attempting to discern the meaning of the policy.
[60] It is not necessary for the policy to have had a particular meaning from the outset for IAG to have become liable for negligent repairs undertaken by others. Such liability is founded not on any obligation specifically set out in the policy, but upon subsequent conduct of IAG which results in an estoppel arising so that it would be inequitable for them to deny liability for the actions of entities which, in reality, they controlled and directed. Irrespective of how the question posed in the case-stated is answered, the Tribunal is still going to have to address and resolve that issue. That will involve very much a fact-based analysis.
[61] In the 18 December 2019 decision to refer a question to this Court, the Chair set out a number of factors to provide guidance on how this discretion ought to be exercised by the Tribunal and concluded that all those factors were satisfied in this case, thus allowing the application. Those factors were:37
(a)the question being referred must be a question of law that arises in the proceedings;
(b)that question must require determination in those proceedings;
(c)the answer provided by the High Court will determine one of the issues in the proceedings; and
37 Above n 1, at [15].
(d)regard should be had to the purposes of the Act, namely, to provide fair, speedy, flexible and cost-effective services.
Positions of the parties
Position of QBE
[62] Mr Ring acknowledged that in a previous case involving a similar policy, IAG had conceded that it had an obligation to repair rather than just an obligation to pay.38
[63] The judgment in that case does not articulate the basis upon which such a concession was made, and Mr Ring submitted that it was fact specific and “entirely consistent with the alternative proposition that the Evans are also running that at the time of the handling of the claim, it was handled in such a way that IAG assumed an obligation”.
[64] He submitted that IAG accepted that even an insurer who has a “to pay” policy which would not, at the time of the entry into the policy, give rise to an obligation to repair, can, by the manner in which the claim is handled, assume a repair obligation. As stated above, that is clearly correct. He submitted that because the Bruce decision does not address the question of whether the repair obligation arose at the point of entry into the insurance contract or at some subsequent time, it is of no assistance to the Court in this case. That is also correct.
[65] When asked why, if the claims handling process adopted in the Bruce case was the same as in the present case, that there should be a different outcome for the Evans, Mr Ring’s response was:
Well because we haven’t heard the Evans factual situation in relation to the allegation that, in the handling of the claim and not before, IAG assumed this obligation, and that’s still going to be dealt with by the Tribunal.
[66] Whether there are material differences in the claims handling process as between the Bruce and Evans’ cases is a question of fact that is incapable of being resolved by this Court on a case-stated process.
38 Above n 27.
[67] IAG thought that it was important enough in these proceedings to file an affidavit from Mr James addressing IAG’s usual claims handling processes. The fact that they felt the need to do so illustrates that unresolved questions of fact are potentially relevant to answering the question posed by way of case-stated.
Conclusions
[68] Answering the question posed in the case-stated and the additional question posed by Lester AJ will clearly not resolve all of the issues raised in this case. That is because a number of the issues upon which liability will turn are fact-based and the relevant facts are not agreed. However, in an attempt to try and provide some guidance, I answer the question as follows:
(a)subsequent conduct may be relevant to interpretation of the contract;
(b)to be relevant, the conduct does not have to be mutual but may be unilateral;
(c)the probative value to be given to subsequent conduct is normally limited to confirmatory or supporting purposes where some other evidence points to an interpretation consistent with the subsequent conduct and it is at least possible that evidence of subsequent conduct relating to the claims administration process may fulfil that role in this case;
(d)evidence as to the implementation and administration of a claims assessment regime is admissible and relevant in considering whether or not IAG’s policy obligations have been modified so that IAG should be liable to remedy defective repairs or estopped from denying such liability;
(e)the issue of whether the policy is merely a “to pay” one or one involving liability on IAG for the costs to remedy a defective repair, will need to be resolved by the Tribunal; and
(f)the issue of whether IAG has discharged its policy obligation to meet the cost repairing the home to an as new standard when the repairs have not achieved that result is not capable of being answered in these case- stated proceedings.
[69] Costs are reserved. My preliminary view is that this application is in the nature of a test case and costs should lie where they fall.
Churchman J
Solicitors:
Cuningham Taylor, Christchurch Duncan Cotterill, Christchurch
cc:C R Johnstone, Barrister, Christchurch D H McLellan QC, Auckland
J McGuigan, Barrister, Christchurch
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