Freer v Earthquake Commission
[2023] NZHC 3662
•14 December 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-428
[2023] NZHC 3662
BETWEEN ANDREW ROBERT FREER and LUCINDA RAE McEVEDY
PlaintiffAND
EARTHQUAKE COMMISSION
Defendant
Hearing: 12 September 2023 Appearances:
A R B Barker KC and G D R Shand for Plaintiffs N L Walker and C J Curran for Defendant
Judgment:
14 December 2023
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 14 December 2023 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
FREER v EARTHQUAKE COMMISSION [2023] NZHC 3662 [14 December 2023]
Introduction [1]
The proposed common issues and class definition [15]
Legal principles [18]
Issue one — The proposed common issues [22]
The first proposed common issue [23]
The second proposed common issue [24]
Issue two — Are the plaintiffs adequate representatives to advance the common issues on behalf of the class? [42]
Do the plaintiffs lack the ability to undertake repairs to their land? [45]
Are there fresh causes of action that are time barred? [47] The application issue [48]
The strategy [66]
Can the plaintiffs represent claims for IFV land damage? [77]
Issue three — Is Mr Wootton a suitable representative in respect to IFV land damage? [82]
Issue four — Is the proposed class correctly defined? [93]
Persons who could not have suffered any loss because their entitlement could never be greater than DOV [94]
Former owners [95]
Subsequent owners [99]
Persons for whom repair was not feasible or not wanted [105]
Claims that are statute barred [107]
Issue five — Should the class be constituted on an opt in or an opt out basis?
[113]
Prospect of disadvantage to class members [116]
Objectives of r 4.24 [129]
Individual autonomy [132]
Summary [133]
Result [134]
Introduction
[1] The plaintiffs are the owners of 51 Quinns Road, Shirley. The property suffered increased liquefaction vulnerability (ILV) land damage in the Canterbury earthquakes. The plaintiffs made a claim to the Earthquake Commission (EQC) under the Earthquake Commission Act 1993 (the Act) in respect to the land damage.1
[2] EQC developed policies for the assessment and settlement of land claims in respect to ILV and increased flooding vulnerability (IFV) land damage which were considered by the High Court in 2014,2 and were subject to several iterations.
[3] In April 2017, EQC settled the plaintiffs’ claim by payment of its assessment of the diminution of value (DOV) of the plaintiffs’ land by reason of the ILV land damage. The plaintiffs were not unique in this regard. EQC settled over 99.5 per cent of all ILV claims, and 100 per cent of all IFV claims, on a DOV basis.3
[4] The plaintiffs consider it was wrong for EQC to settle claims in respect of ILV and IFV land damage otherwise than for the cost of repair. They objected to EQC and advised that the payment of DOV was received as part payment and, once they had settled their claim with their private insurer, they would be requesting a “full land remediation payment to reinstate our property”. However, once they settled with their private insurer, the plaintiffs did not undertake land repairs.
[5] On 15 September 2021, the plaintiffs commenced this proceeding and are seeking from EQC an additional amount of $132,785, assessed as the cost to repair their land up to the statutory cap, less excess and the DOV payment.4 They also claim general damages for distress and inconvenience.
1 Earthquake Commission Act 1993, s 19.
2 Earthquake Commission v Insurance Council of New Zealand Inc [2014] NZHC 3138, [2015] 2 NZLR 381 [Earthquake Commission case]. The policy that applied at settlement of the plaintiffs’ claim was titled “Increased Flooding Vulnerability (IFV) and/or Increased Liquefaction Vulnerability (ILV) Land Damage: Consolidated policy statement” (September 2016).
3 In respect to residential properties in the green zone, there were 11,193 properties assessed as having ILV and/or IFV land damage.
4 The original amount claimed was $111,750 but was changed to $132,785 in the first amended statement of claim filed on 15 November 2021.
[6] On 18 July 2022, 10 months after commencing the proceeding, the plaintiffs applied under r 4.24 of the High Court Rules 2016 to represent all (with some minor exceptions) owners of residential properties whose claims for land damage under s 19 of the Act arising from the Canterbury earthquakes were settled by payment on a DOV basis after 13 September 2015.
[7] The plaintiffs’ r 4.24 application did not state any proposed common issue(s), but counsel’s submissions identified a single common issue — whether EQC’s use of DOV when settling homeowners’ claims under s 19 of the Act was lawful (the interpretation issue).
[8] The proposed common issue involved a challenge to the decision of a full bench of this Court in Earthquake Commission v Insurance Council of New Zealand Inc (Earthquake Commission case).5 There it was held that residential land was insured under the Act for its indemnity value,6 and in appropriate cases settlement of claims on a DOV basis was consistent with EQC’s obligations under the Act.7
[9] On 22 February 2023, when the r 4.24 application came on for hearing before me, the plaintiffs advanced additional proposed common issues concerning whether EQC misused the approach dictated in the Earthquake Commission case for settlement of ILV and IFV land damage claims.
[10]In a judgment of 29 May 2023, I held:8
(a)the interpretation issue did not raise a substantial issue of significance common to the plaintiffs and the proposed class;9
(b)the plaintiffs’ then pleading was not sufficiently broad to encompass the argument EQC had a strategy to misuse the approach dictated in the
5 Earthquake Commission case, above n 2.
6 At [94].
7 At [114].
8 Freer v Earthquake Commission [2023] NZHC 1301.
9 At [81]. The plaintiffs have applied for leave to appeal that ruling which is yet to be heard.
Earthquake Commission case,10 and it was therefore not a suitable common issue justifying the granting of leave under r 4.24;11
(c)the plaintiffs did not provide sufficient particulars to advance as a common issue that EQC’s policies or application of those policies were flawed;12
(d)the plaintiffs’ application was adjourned so that they could file an amended application to adequately identify a common interest or issue between all members of the proposed represented group;13
(e)it was not necessary for me to deal with the issue whether, if leave was granted to the plaintiffs to bring a representative action, that should be on an opt in or opt out basis;14 and
(f)I flagged that the plaintiffs may not be suitable representatives of landowners whose properties suffered IFV land damage.15
[11] On 7 July 2023, the plaintiffs filed a second amended statement of claim, an amended application under r 4.24, and several affidavits in support. The second amended statement of claim provides a more detailed explanation of the interpretation issue and pleads that EQC’s 2016 policy in relation to ILV and IFV land claims was not consistent with EQC’s obligations under the Act and was not implemented flexibly in a way that allowed for a good faith assessment of individual claims. The plaintiffs also plead the existence of an unlawful strategy on the part of EQC to settle all IFV and ILV claims on a DOV basis, regardless of individual circumstances, to minimise its overall financial exposure arising from land damage resulting from the Canterbury earthquakes.
[12]The plaintiffs’ amended application under r 4.24 seeks orders that include:
10 The first amended statement of claim filed 15 November 2021.
11 At [90].
12 At [91]–[93].
13 At [103].
14 At [6]–[7].
15 At [102].
(a)leave to sue as representatives of all those people within the class identified in schedule A of the amended application;
(b)leave be granted for Nigel William Wootton (whose land suffered IFV land damage) to be the representative of a sub-class of the represented group, being IFV assessed landowners; and
(c)representation be certified on an opt out basis.
[13] EQC opposes the amended application. It filed much expert affidavit evidence in respect to the nature of ILV and IFV land damage, the means of remediating it, and EQC’s policies and processes in handling claims made in respect of such damage, including in relation to the plaintiffs’ claim.
[14]The issues that arise on the amended application are as follows:
(a)Is there a common issue of fact or law of significance to the plaintiffs and each member of the proposed represented class that can be determined in the proposed representative action?
(b)Are the plaintiffs adequate representatives to advance the common issue(s) on behalf of the proposed represented class?
(c)Is Mr Wootton a suitable representative of claimants with IFV land damage?
(d)Is the proposed class correctly defined?
(e)Should the class be constituted on an opt in or an opt out basis?
The proposed common issues and class definition
[15]The broad thrust of the case the plaintiffs wish to advance is:
(a)under the Act, EQC must settle claims for natural disaster damage to residential land on a cost of repair, not an indemnity, basis;
(b)EQC’s policies, which it applied for assessing and settling ILV and/or IFV claims, meant it was predetermined that all claims would be settled based on DOV;
(c)EQC had a deliberate strategy of settling claims for ILV and/or IFV on a DOV basis to reduce its financial liability in respect of those forms of land damage; and
(d)neither of the alternatives in (b) or (c) above are consistent with EQC’s obligations under the Act or the guidance and directions provided in the Earthquake Commission case for the settlement of claims in respect to ILV and IFV land damage.
[16]The plaintiffs’ proposed common issues are:
Whether, when settling a claim for natural disaster damage for residential land under s19 of the Earthquake Commission Act 1993 (“the Act”), EQC’s use of DOV is in accordance with the Act. In particular:
(a)Are claims for natural disaster damage to residential land to be settled on an indemnity basis?
If so
(b)Did EQC misuse the DOV approach to determine the indemnity value of claims for natural disaster damage to residential land, by:
(i)Incorrectly applying the [Earthquake Commission case];
(ii)Formulating and applying a policy not in accordance with the [Earthquake Commission case] and/or the Act;
(iii)Not making individual assessments to determine if the ILV and/or IFV was capable of repair and assessing the costs of repair;
(iv)Having a strategy to wrongly minimise its payments by using DOV.
[17]The proposed class definition is:
1.An owner, or former owner (who has the rights to EQC claim(s)), in relation to residential land insured under s19 of the Earthquake Commission Act 1993.
2.The residential land suffered natural disaster damage in the Canterbury Earthquake Sequence that commenced on 4 September 2010 and ended on 23 December 2011.
3.EQC determined the amount of natural disaster damage to the residential land and/or made a payment for natural disaster damage to the residential land to the owner/former owner under s29 of the Earthquake Commission Act 1993 after 13 September 2015.
4.EQC quantified the payment (in full or in part) based on alleged diminution in/of value of the land by the natural disaster damage.
5.The cost to reinstate the natural disaster damage to the land exceeded the payment in 3 and 4 above.
6.There is no binding settlement agreement between the EQC and the owner/former owner in respect of any residential land claim.
Legal principles
[18]Rule 4.24 of the High Court Rules relevantly provides:
4.24 Persons having same interest
One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding—
(a)with the consent of the other persons who have the same interest; or
(b)as directed by the court on an application made by a party or intending party to the proceeding.
[19] The legal principles in relation to applications under r 4.24 were referred to in my earlier judgment.16 A succinct statement of those principles was set out by Associate Judge Lester in Ressels v Southern Response Earthquake Services Ltd as follows:17
[12] The claims advanced in representative proceedings typically involve both common and individual issues. Common issues are factual or legal issues common to the claims of the representative plaintiff and all class members represented in the proceeding. A judicial decision obtained by the
16 Freer v Earthquake Commission, above n 8, at [12]–[20].
17 Ressels v Southern Response Earthquake Services Ltd [2023] NZHC 3344; and see also Ideal Investments Ltd v Earthquake Commission [2022] NZHC 400 at [13]-[14].
representative plaintiff on a common issue will bind all class members.18 Thus, an issue is only common if determination of that issue is able to establish a res judicata for the class. Class members are required to prove their individual issues separately, rather than through the representative plaintiff’s claim. The claims brought by separate class members to prove their individual claims are commonly known as “Stage 2 claims”.
[13] There are three established requirements that must be met before a court will grant a plaintiff leave to commence a representative proceeding.19 The three requirements are:
(a)there must be a common issue of fact or law of significance for each member of the representative class (same interest requirement);
(b)a representative order cannot allow a class member to succeed where they would not have succeeded in private proceedings, cannot deprive a defendant of a defence they could otherwise have raised in such a separate action (the justice principle); and
(c)it must be for the benefit of the other members of the class that the plaintiff is able to sue in a representative capacity (adequate representation requirement) and the representative will not be permitted to advance claims other than those which its own claim represents.20
[20] One additional matter that was brought into sharp focus in this case is the extent to which the Court will consider the merits of a proposed representative plaintiff’s claims when deciding whether to grant leave under r 4.24. The authorities establish that the Court will conduct a provisional appraisal of the representative plaintiff’s claims only, requiring an assessment as to whether the plaintiff’s pleadings on their face disclose a reasonably arguable case.
[21] In Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, Winkelmann J said:21
… But it is highly undesirable that [the criterion of a provisional appraisal of the merits of the proposed claim] be seen as creating the need or opportunity
18 Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [6]; Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [30]; and Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [14].
19 Cridge v Studorp Ltd, above n 18, at [11(d), (f) and (i)]; Saunders v Houghton, above n 18, at [13]; Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [53]; and Ross v Southern Response Earthquake Services Ltd, above n 18, at [51].
20 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group
[2017] NZCA 489, [2018] 2 NZLR 312 at [32].
21 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 20, at [16]–[17] (footnotes omitted).
for a mini trial at the leave stage, at which the Court receives and reviews evidence on contested fact. Such an approach would be inconsistent with the objectives of the High Court Rules, and would substantially undermine the effectiveness of the r 4.24 procedure. We consider the facts of this case demonstrate very clearly the unfortunate consequences of approaching the leave application as an opportunity for a wide-ranging attack on the merits …
… In Saunders v Houghton (No 2) this Court approved the approach of French J who adopted a “broad brush impressionistic approach” to that issue, rather than a detailed analysis of every allegation. Such an assessment does not require an applicant to prove the facts upon which its claim is based, but it would allow a defendant to refute through the production of evidence a clearly wrong and critical factual allegation; the receipt of evidence in support of a strike-out application provides a useful analogy. The approach we describe is consistent with the approach taken in jurisdictions with detailed class action rules.
Issue one — The proposed common issues
[22] The identification of a suitable common issue is a fundamental prerequisite to obtaining leave to bring a representative action and often the critical issue in applications under r 4.24.22 This requirement must be construed purposively towards the just, speedy and inexpensive determination of proceedings “so that a multiplicity of proceedings can be avoided in circumstances where use of the representative process will not be unfair to the proposed defendant”.23 The representative proceeding is to be used as a “flexible tool of convenience in the administration of justice”.24
The first proposed common issue
[23] I have already held that the interpretation issue is not a viable common issue.25 It can be set aside for present purposes.
The second proposed common issue
[24] The second proposed common issue is divided into four sub-issues. They are set out in para [16] above.
22 Ideal Investments Ltd v Earthquake Commission [2022] NZCA 641 at [17].
23 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 20, at [14].
24 Credit Suisse Private Equity LLC v Houghton, above n 19, at [2] citing John v Rees [1970] Ch 345 (Ch) at 370; and cited in Smith v Claims Resolution Service Ltd [2019] NZHC 127 at [21].
25 Freer v Earthquake Commission, above n 8, at [81].
[25] EQC submits the first and second sub-issues are framed at a level of abstraction that makes it impossible to discern what form of legal non-compliance is asserted. It argues the plaintiffs have failed to identify a legal flaw that affects every class member, and early identification of a common issue “with precision” is vital because it determines whether and, if so, what res judicata arises.26
[26] I agree with EQC that the first proposed sub-issue is so vague as to be unsuitable as a common issue. The Earthquake Commission case considered and made findings on a range of issues, including the nature of IFV and ILV land damage, the basis of cover under s 19 of the Act, EQC’s policies, the approach EQC should take to the assessment and settlement of claims and the factors that may have a bearing on the assessment of indemnity value, to identify just a few. The first proposed sub-issue does not identify any findings in that case that are relied upon or the way it is alleged EQC incorrectly applied them. Importantly, the proposed sub-issue is also superfluous adding nothing to the second proposed sub-issue.
[27] As to the second proposed sub-issue, EQC assessed and settled ILV and IFV claims under its policies, which it says are lawful and consistent with the directions of the High Court in the Earthquake Commission case and the Act. That fact does not, of itself, give rise to a qualifying common issue. That said, the representative procedure is to be used purposively and flexibly. With that in mind, this proposed sub-issue should be considered with reference to the plaintiffs’ second amended statement of claim.
[28] The plaintiffs plead that EQC’s 2016 policy was not consistent with EQC’s obligations under the Act or the Earthquake Commission case, and EQC failed to consider claims flexibly and on a good faith basis having regard to individual circumstances. The plaintiffs provide particulars of the ways EQC’s policy and method of its implementation are contrary to the directions in the Earthquake Commission case and the Act. They plead the policy:
(a)did not provide for EQC to determine the cost of reinstatement or repair before determining the basis of settlement;
26 Saunders v Houghton, above n 18, at [20].
(b)placed the obligation on claimants to establish that DOV was not the appropriate basis for settlement of claims;
(c)required claimants (and not EQC) to prove the cost of repairs, the availability of consents and their intention to undertake repairs within a reasonable time without any consideration of the circumstances of individual cases and timing for repairs to be undertaken;
(d)allowed EQC to settle based on DOV if reinstatement costs were considered disproportionate to the DOV; and
(e)excluded the possibility of certain repair strategies, such as in respect of IFV that involved the removal of houses.
[29] If it is found at the hearing of the plaintiffs’ claim that EQC’s policy was not lawful in any of the pleaded respects, that may establish a res judicata for the benefit of the represented group. Individual class members will still need to establish, at a second stage of the proceeding, an entitlement to payment assessed on some basis other than DOV and quantify that entitlement. As has been recognised in other cases, that is no bar to the grant of leave under r 4.24.27 I consider the second proposed sub-issue is a suitable common issue.
[30] In relation to the third proposed sub-issue, EQC argues this is not tenable as a matter of law because it is contrary to the wording of the Act, normal insurance law principles, and because assessment of the feasibility of repairs could not be required in every case. EQC also argues that it did take reasonable steps to assess the feasibility of repairs for the plaintiffs’ property but could not price a repair when the plaintiffs did not have a viable and properly designed repair methodology as part of a strategy across the land and buildings.
[31] I do not consider the third proposed sub-issue is a suitable common issue. This sub-issue has two parts; namely, first, that EQC did not make individual assessments
27 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 20, at [36].
to determine if ILV and/or IFV was capable of repair and, second, it did not assess the costs of repair. I will examine each part.
[32] As to the first part, and although mindful of the limited nature of a merits assessment to be undertaken at this stage, it is inconsistent with the plaintiffs’ pleadings that assessment of the damage to the plaintiffs’ property and whether it was repairable was in fact undertaken by EQC.
[33] Further, while it is now advanced as a major plank of the plaintiffs’ case that EQC did not make individual assessments of whether ILV or IFV land damage was capable of repair, EQC is correct that such an assessment cannot have been required in all cases where an ILV or IFV claim was made. Obvious examples are where the landowner does not wish to undertake repairs because they have since sold the land or because they understand the practical, technical and financial consequences of doing so, about which there was discussion in the Earthquake Commission case and expert evidence before me.28 Ultimately, whether such assessments were required and not made is inherently fact specific and dependent upon the individual circumstances of the property, the damage and the landowner.
[34] The point is illustrated by Ideal Investments Ltd v Earthquake Commission, where Associate Judge Lester declined leave to bring a representative action against EQC.29 The claim advanced was premised on the proposition that “come-what may” EQC had to resolve all claims no later than 4 June 2015.30 Associate Judge Lester considered the progress of individual claims could be influenced by a wide range of factors which could not be controlled or overcome by EQC,31 and the issue of whether EQC breached its obligations was “inherently specific to the individual circumstances of each property”.32 He held that Ideal’s application “should be declined on the basis the common issue as advanced raises what are factual issues personal to each homeowner”.33 The Court of Appeal refused leave to appeal and said Ideal failed to
28 Earthquake Commission case, above n 2, at [95]–[97] and [112]–[113].
29 Ideal Investments Ltd v Earthquake Commission, above n 17.
30 At [20].
31 At [31].
32 At [32].
33 At [50] (emphasis removed).
identify an arguable error of law or fact in relation to the “critical finding that underpinned the High Court decision”.34
[35] As to the second part, concerning whether EQC was obliged to assess the cost of repairs, I am minded to the view it suffers the same flaw; such assessments cannot have been required in every case and therefore a finding on that matter will not give rise to a res judicata in favour of group members. Be that as it may, insofar as the plaintiffs wish to advance such an argument it is sufficiently raised under the second proposed sub-issue.
[36] In respect to the fourth proposed sub-issue, EQC argues this is also untenable because there was no such strategy, and there is clear evidence that EQC did not ignore the guidance given in the Earthquake Commission case to act unlawfully for financial expediency.35
[37] If, to minimise its financial liability, EQC had a deliberate strategy that regardless of the individual circumstances it would settle all claims on a DOV basis, that would be a breach of EQC’s obligations under the Act potentially affecting all group members. In Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, the Court of Appeal accepted that the allegation of a strategy to misrepresent the nature of claimants’ contractual rights and to delay processing claims was a suitable common issue as evidence of a breach of a contractual duty of good faith.36 The fact that aspects of claims would still need to be determined individually was not a bar to the use of the r 4.24 procedure.37
[38] EQC submits the plaintiffs’ argument as to the existence of the strategy is untenable and relies entirely upon the percentage of claims settled on a DOV basis without any recognition of the evidence as to the practical difficulties rendering repairs of ILV and IFV land damage unfeasible in most cases. EQC also says the existence of the strategy is not a viable contention when it:
34 Ideal Investments Ltd v Earthquake Commission, above n 22, at [24].
35 Earthquake Commission case, above n 2.
36 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 20, at [44] and [54].
37 At [45].
(a)initiated the Earthquake Commission case to ensure its policy for settling IFV, and subsequently ILV, land damage was lawful;
(b)funded a ground improvement programme to design and test practical and cost-effective ground improvement solutions to repair ILV land damage;
(c)was in regular contact with property owners regarding ILV and IFV land damage, including to understand whether they intended to pursue land repair;
(d)made Tonkin + Taylor available to some customers to design land repairs; and
(e)ultimately did settle some claims for the cost of repair.
[39] The primary difficulty with EQC’s submission is that it requires a detailed merits assessment of the plaintiffs’ case, which the authorities make clear is not appropriate at this stage of the proceeding.
[40] It is also not the case that the plaintiffs rely only upon the statistics as evidence of the strategy. Rather, the plaintiffs seek to draw together several threads which they say establish the existence of the strategy. These include the statistics and, among other things, what the plaintiffs say was the rejection of available repair methodologies, other obstacles placed in respect to certain repair strategies, an alleged lack of engagement to calculate costs of repairs, and misleading fact sheets and other information issued by EQC.
[41] Once again, should the plaintiffs be successful in proving the existence of the strategy, each class member will then need to establish at a second stage of the proceeding an entitlement to payment greater than DOV. But, as noted above, a representative action does not become inappropriate simply because it will not resolve all issues for all members of the class. On that basis, I accept that the existence of the strategy would be a suitable common issue.
Issue two — Are the plaintiffs adequate representatives to advance the common issues on behalf of the class?
[42] A representative plaintiff must be able to advance a common issue on behalf of the represented class and have experienced the conduct they allege forms the common issue. They cannot advance claims other than those that their own claim represents.38 Furthermore, EQC submits, and I accept, the representative plaintiff’s claim must be arguable,39 they must advance the right claims and intend to advance them appropriately.40
[43] EQC submits the plaintiffs are not adequate representatives of the proposed class as:
(a)the plaintiffs’ claims cannot succeed because:
(i)the plaintiffs always lacked the ability to undertake repairs to their land; and
(ii)the plaintiffs’ second amended statement of claim advances new causes of action that are time barred; and
(b)the plaintiffs cannot represent claims for IFV land damage.
[44]I will deal with these arguments in that order.
Do the plaintiffs lack the ability to undertake repairs to their land?
[45] The plaintiffs could not repair the ILV damage to their land until they settled their claim with their private insurer. They settled with their private insurer on a repair basis. They did not carry out the land repairs, nor did they then seek a cost of repair settlement from EQC. There is no evidence that the plaintiffs could undertake land
38 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 20, at [32]; Ideal Investments Ltd v Earthquake Commission, above n 17, at [42]; and Proprietors of Wakatū v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [795]–[796], [810] and [952].
39 Sneesby v Southern Response Earthquake Services Ltd [2022] NZHC 262 at [45]; with leave to appeal declined in Sneesby v Southern Response Earthquake Services Ltd [2023] NZCA 206.
40 Smith v Claims Resolution Service Ltd [2021] NZHC 3561 at [64].
repairs now or that they intend to do so, except potentially in respect to land upon which a garage is situated. EQC says in those circumstances the plaintiffs were never entitled to a cost of repair settlement and are inadequate representatives of a class seeking repair cost entitlements.
[46] I do not consider the plaintiffs are unsuitable representatives on this basis. Their case is that EQC’s policies prevent anything other than settlement based on DOV. Whether the plaintiffs are now feasibly able and intend to undertake land repairs, and whether EQC has an obligation to pay for the cost of such repairs if the plaintiffs were to incur them, are trial issues they will need to confront but does not make them unsuitable to advance the common issues on behalf of the represented class.
Are there fresh causes of action that are time barred?
[47] EQC argues the pleadings in the plaintiffs’ second amended statement of claim that EQC misused the DOV approach (which for convenience I will refer to as the application issue) and the existence of an unlawful strategy are fresh, raising new and significantly different facts and legal issues. EQC says the plaintiffs cannot now raise these fresh causes of action as they are statute barred. I will deal with this submission as it concerns the application issue and the strategy separately.
The application issue
[48] In advancing the interpretation issue the plaintiffs will argue that the Earthquake Commission case was wrongly decided insofar as it was held that cover for damage to residential land was on an indemnity basis.41 However, the application issue assumes the Earthquake Commission case was correctly decided and the controversy is whether the DOV approach was misused.
[49] EQC says the application issue is a fresh claim involving very different enquiries of fact and law, including as to the interpretation of EQC’s policies; consideration of whether the policies were consistent with the Act (in light of the
41 Earthquake Commission case, above n 2.
guidance in the Earthquake Commission case); whether EQC had to assess the feasibility and cost of repair in every case or, if not, in what situations; whether EQC’s assessments were adequate; and the relevance of any such obligation when the plaintiffs ultimately could not or did not intend to repair in any event.
[50] The plaintiffs argue that whether any of their claims are statute barred is a matter that ought to be left for resolution at trial.42 They submit this is consistent with the principle that a claim should not be struck out unless it is so clearly statute barred that it can be regarded as frivolous, vexatious or an abuse of process.43
[51] The plaintiffs also argue they are not raising fresh claims and, if the Court was to find otherwise, those claims are not statute barred as having been filed within three years of the late knowledge date under s 14 of the Limitation Act 2010.
[52] Rule 7.77 of the High Court Rules permits the addition of a fresh cause of action or a fresh ground of defence, if it is not statute barred. It relevantly provides:
7.77 Filing of amended pleading
(1)A party may before trial file an amended pleading and serve a copy of it on the other party or parties.
(2)An amended pleading may introduce, as an alternative or otherwise,—
(a)relief in respect of a fresh cause of action, which is not statute barred; or
…
(3)An amended pleading may introduce a fresh cause of action whether or not that cause of action has arisen since the filing of the statement of claim.
[53] The principles for determining whether amended pleadings raise a fresh cause of action were summarised in Transpower New Zealand Ltd v Todd Energy Ltd as follows:44
(a)A cause of action is a factual situation the existence of which entitles one person to obtain a legal remedy against another …
42 Referring to Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906, [2020] 3 NZLR 145 at [190].
43 Citing Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33].
44 Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61] (citations omitted).
(b)Only material facts are taken into account and the selection of those facts “is made at the highest level of abstraction” …
(c)The test of whether an amended pleading is “fresh” is whether it is something “essentially different” … Whether there is such a change is a question of degree. The change in character could be brought about by alterations in matters of law, or of fact, or both; and
(d)A plaintiff will not be permitted, after the period of limitations has run, to set up a new case “varying so substantially” from the previous pleadings that it would involve investigation of factual or legal matters, or both, “different from what have already been raised and of which no fair warning has been given” …
[54] In ISP Consulting Engineers Ltd v Body Corporate 89408, the Court of Appeal considered the question to be asked is whether the amended pleading has “an essentially different character” and the “assessment is objective and the consideration must be of the substance of what is pleaded, rather than the form”.45
[55] Mr Barker KC argues the plaintiffs’ claim is based on s 19 of the Act and the obligation on EQC, if it does not repair or reinstate the damaged land, to pay the amount that is due. He argues the latest amendments in the second amended statement of claim are not fresh as the broad allegation made has always been that EQC failed to assess the plaintiffs’ claim correctly and this remains the case.
[56] Mr Barker also notes that, in response to the plaintiffs’ first amended statement of claim, EQC pleaded the DOV payment was appropriate and confirmed lawful by the Earthquake Commission case and that it was settling in accordance with its ILV policy.46 He says this pleading directly put in issue whether EQC’s actions were authorised by the Earthquake Commission case prior to the application for a representative order.
[57] Relevantly in this context, the plaintiffs’ first amended statement of claim pleads that EQC:
(a)assessed the plaintiffs’ claim on a DOV basis;
45 ISP Consulting Engineers Ltd v Body Corporate 89408 [2017] NZCA 160, (2017) 24 PRNZ 81 at [22].
46 Earthquake Commission case, above n 2.
(b)settled the claim on a DOV basis;
(c)should have assessed and paid the claim on a cost of repair basis up to the value of the statutory cap; and
(d)breached its obligation under the Act by failing to properly assess the claim and pay a further $132,785 to the plaintiffs, representing the statutory cap less excess less the DOV payment.
[58] In its statement of defence to the first amended statement of claim, EQC pleaded:
24.In answer to paragraph 24, it:
…
(b) says further that DOV is an appropriate basis for settling ILV damage claims and was confirmed as lawful by the full bench of the High Court in [the Earthquake Commission case] …
…
25.In answer to paragraph 25, it:
…
(b) says further that details of the land settlement amount were provided to the plaintiffs by letter dated 18 April 2017, which stated that, in accordance with the terms of the EQC’s ILV policy, it was settling the plaintiffs’ ILV land damage claim for the amount of the DOV as assessed by EQC’s valuers, and recorded the details of the settlement ...
[59] The argument that the plaintiffs have not raised a fresh cause of action because their claim is ultimately based on an entitlement arising from s 19 of the Act misunderstands the term “cause of action” as it appears in r 7.77. The test is whether an amended pleading raises something that is “essentially different” from what was previously pleaded.47 The fact that the source of the plaintiffs’ entitlement is s 19 of the Act is not determinative.48
47 Transpower New Zealand Ltd v Todd Energy Ltd, above n 44, at [61(c)].
48 See for instance Ophthalmological Society of New Zealand Inc v Commerce Commission
CA168/01, 26 September 2001 at [30]–[31].
[60] However, I have arrived at the view that the application issue is not a fresh cause of action. I accept it is arguable that the plaintiffs’ pleading in the first amended statement of claim was broad enough in its terms to encompass the application issue.
[61] EQC’s view is that the first amended statement of claim only raised the interpretation issue. That was also the view I took and expressed in my first judgment.49 No doubt that view was influenced by the fact the plaintiffs initially raised the interpretation issue as the single common issue to be advanced.
[62] However, the first amended statement of claim does not plead that EQC must always settle ILV (or IFV) claims on a cost of repair basis. The pleading is that EQC failed to properly assess the plaintiffs’ claim on that basis. In response to that, EQC has raised both the Earthquake Commission case and its policy as justifying the DOV settlement.50
[63] To my mind, on the face of those pleadings, in the event the plaintiffs failed to convince the trial judge that the Earthquake Commission case was wrongly decided that would not be an end of the matter. The judge would still be required to go on and consider whether EQC’s assessment that DOV was the appropriate basis upon which to settle the plaintiffs’ claim was correct. That would inevitably involve consideration of EQC’s policies, whether they were consistent with EQC’s obligations under the Act, and the manner in which they were applied to the plaintiffs’ claim.
[64] I am mindful this view appears inconsistent with how I expressed myself in my earlier judgment when I said:
[84] There are several difficulties with [the] application argument as it has been formulated. First, I do not accept that the plaintiffs’ pleading is sufficiently broad to encompass the application argument as it has now been expressed. The amended statement of claim refers on several occasions to EQC having made assessments of the plaintiffs’ claim. As I read the pleading, what is alleged is that EQC assessed the plaintiffs’ claim incorrectly, not that EQC undertook no assessment of it. In this respect the pleading contradicts the assertion that there was no individual assessment of claims. My view of the pleading is consistent with the manner in which the plaintiffs initially framed the common issue which, to my mind, simply advanced the interpretation issue.
49 Freer v Earthquake Commission, above n 8, at [84].
50 Earthquake Commission case, above n 2.
[65] However, I agree with Mr Barker’s submission that it is important not to confuse the basis of the plaintiffs’ claim and the matters advanced as common issues for the purposes of the proposed representative action. The comments in my earlier judgment were in the context of the plaintiffs’ failure to properly articulate a viable common issue. It follows therefore that I am not able to accept EQC’s submission that the application issue is fresh and therefore statute barred.
The strategy
[66] As far as the plaintiffs allege the existence of the strategy, it is self-evident that is a fresh cause of action. It is not encompassed by the pleading that EQC failed to properly assess the plaintiffs’ claim, rather the allegation is that there was a deliberate and unlawful failure to assess the claim (or any other claim) at all. That raises new factual issues, including as to the existence of the strategy and EQC’s motivations, as well as the legal issue of whether any strategy that is established was in fact unlawful. It will no doubt widen the scope of discovery and take the Court down lines of enquiry that the interpretation and application issues will not.
[67] That leads to the issue of whether this fresh cause of action is statute barred. In this respect there does not appear to be any dispute that the plaintiffs are raising a money claim as defined in s 10 of the Limitation Act. The other relevant provisions are ss 11 and 14 of that Act, which provide:
11 Defence to money claim filed after applicable period
(1)It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period).
(2)However, subsection (3) applies to a money claim instead of subsection (1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—
(a)the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and
(b)the claim is made after its primary period.
(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—
(a)3 years after the late knowledge date (the claim’s late
knowledge period); or
(b)15 years after the date of the act or omission on which the claim is based (the claim’s longstop period).
…
14 Late knowledge date (when claimant has late knowledge) defined
(1)A claim’s late knowledge date is the date (after the close of the start date of the claim’s primary period) on which the claimant gained knowledge (or, if earlier, the date on which the claimant ought reasonably to have gained knowledge) of all of the following facts:
(a)the fact that the act or omission on which the claim is based had occurred:
…
(e)if the defendant’s liability or alleged liability is dependent on the act or omission on which the claim is based having been induced by fraud or, as the case may be, by a mistaken belief, the fact that the act or omission on which the claim is based is one that was induced by fraud or, as the case may be, by a mistaken belief.
(2)A claimant does not have late knowledge of a claim unless the claimant proves that, at the close of the start date of the claim’s primary period, the claimant neither knew, nor ought reasonably to have known, all of the facts specified in subsection (1)(a) to (e).
(3)The fact that a claimant did not know (or had not gained knowledge), nor ought reasonably to have known (or to have gained knowledge), of a particular fact may be attributable to causes that are or include fraud or a mistake of fact or law (other than a mistake of law as to the effect of this Act).
[68] It is a defence under s 11 if a money claim is filed with the court at least six years after the date of the “act or omission on which the claim is based”. It is for the defendant to prove that is the case.
[69]Section 6(1) of the Act provides that the date on which a claim is filed means:51
51 In Credit Suisse Private Equity LLC v Houghton, above n 19, the Supreme Court held by a majority that the limits imposed on bringing an action by the Fair Trading Act 1986 and the Limitation Act 1950 did not deal with the question of when an action was brought. That was said to be a function of the rules of the court, in particular r 5.25 of the High Court Rules which provides that an action is commenced on the filing of a statement of claim. The Supreme Court held, therefore, that a representative action was brought on behalf of the plaintiff and those represented when the statement of claim was filed: at [125]–[127].
… the date on which a statement of claim, or other initiating document, that contains the claim, is filed in, or lodged with, the specified court or tribunal in accordance with rules of court or other laws relating to the claim.
[70] A money claim’s primary limitation period may be subject to both a late knowledge and a longstop period. Where a claimant has late knowledge of the claim and the claim is made after its six-year primary period, it is a defence if the defendant proves that the date on which the claim is filed was at least three years after the late knowledge date. This is the date on which the claimant gained, or ought reasonably to have gained, knowledge of all the matters set out in s 14(1)(a)–(e). The onus is on the claimant to prove that at the close of the start date of the primary period they neither knew, nor ought reasonably to have known, of those matters. The late knowledge date cannot exceed the 15-year longstop period,52 unless the longstop period is disapplied by s 48.53
[71] EQC says the plaintiffs had all the necessary knowledge from 18 April 2017, when EQC informed them of the basis for the DOV settlement, and they had to bring all claims within six years of that date. On this basis, the plaintiffs’ fresh cause of action alleging the strategy (filed for the first time on 7 July 2023) was brought out of time and is statute barred.
[72] The plaintiffs rely on the late notice provision in s 14(1) of the Limitation Act. Mr Barker submits that the evidence establishes there was a great deal the plaintiffs did not know, and could not reasonably be expected to have known, about the way EQC assessed and processed the plaintiffs’ land claim. He argues the plaintiffs only discovered these matters because of an information request in 2021 and through particulars and information filed by EQC in this application.
[73] Further, the plaintiffs rely on the statistics communicated by EQC’s lawyers to the plaintiffs’ lawyer, Mr Shand, by letter dated 1 June 2022. EQC advised that it had assessed 9,553 properties as qualifying for ILV and that of these EQC settled 15 claims based on repair cost (either fully or partially) and 31 properties were repaired through the EQC Ground Improvement Programme.
52 Limitation Act 2010, s 11(3)(b).
53 The plaintiffs have not relied on s 48 of the Limitation Act which may disapply the longstop provisions in the case of concealed fraud.
[74] Given the limited merits assessment to be undertaken at this stage of the proceeding, I am prepared to accept that the plaintiffs have an arguable case to late knowledge as to the existence of the alleged strategy.
[75] Recently, in Ressels v Southern Response Earthquake Services Ltd, Associate Judge Lester declined to grant leave to Mr Ressels to bring a representative action in circumstances where Mr Ressels’ claim was time barred unless he could show late knowledge.54 Associate Judge Lester held that even if Mr Ressels could establish late knowledge that was something personal to him and he was unable to extend late knowledge protection to persons he wished to represent in the proposed proceeding, thereby defeating a defence that was available to Southern Response. The Judge said:
[55] Mr Ressels may seek to rely on the late notice provisions of the Limitation Act 2010 to avoid being statute barred in respect of his claim for P&G. Mr and Mrs Ressels received their OOS payment in late 2014. This proceeding was commenced in March 2023. That Mr Ressels may establish a late notice extension would not, in my view, extend late notice protection to an OOS claimant who, on the facts of their case, could not satisfy the requirements of late notice. Whether a late notice extension is available depends on the circumstances of each insured. Some OOS claimants may have had actual knowledge of the issues raised by Mr Ressels at a time that means they cannot now rely on late notice. Mr Ressels' application will not be granted if it would not permit the class action to defeat a defence presently available to Southern Response (the justice principle at [13](b)).
[56] The granting of an application to sue as a representative, if the claim is brought within time, stops time running for the class. However, Mr Ressels' claim is out of time unless he can establish late notice. Mr Ressels establishing late notice is something personal to him — he cannot confer a late notice extension on all OOS claimants.
…
[60] In respect of P&G, each policyholder will have to address limitation based on their own circumstances, just as Mr Ressels has to do. Mr Ressels cannot, through establishing a late knowledge extension dependent on his own personal circumstances, confer a late notice extension on all OOS claimants irrespective of their circumstances. Were it otherwise, a class member with actual knowledge of their right to claim, would avoid a defence otherwise available to Southern Response.
[76] I take a different approach than Associate Judge Lester. While, in my view, at trial the plaintiffs will need to establish late knowledge of the strategy, other members of the represented class would still benefit from a finding as the existence of the
54 Ressels v Southern Response Earthquake Services Ltd, above n 17.
strategy (whether proven or not). I also do not consider that, in granting the plaintiffs leave to advance this common issue, EQC would be deprived of a defence presently available to it in breach of the justice principle. I can see no reason why EQC could not raise its limitation defence at the second stage of the proceeding in response to individual class member’s claims in the usual way.
Can the plaintiffs represent claims for IFV land damage?
[77] EQC submits ILV and IFV are different forms of land damage as recognised in its policies applying to each and in the expert evidence it filed setting out the nature and causes of each kind of land damage, and the different considerations going to the feasibility and desirability of conducting ILV repairs and IFV repairs.
[78] EQC argues the plaintiffs were not affected by IFV land damage or settlement decisions in respect to IFV land damage claims and cannot establish a res judicata through a judicial determination of their ILV claim for the benefit of class members with IFV claims. It says treatment of IFV claims can only be advanced by truly representative plaintiffs with IFV land damage.
[79] Mr Barker argues the Act does not distinguish between the different forms of land damage, and the terminology “ILV” and “IFV” appears to have been developed by EQC and has little obvious basis in fact.
[80] It is the case the Act does not refer to ILV or IFV land damage, nor does it refer to other kinds of land damage identified in EQC publications and in the expert evidence. It is also the case that, broadly speaking, both ILV and IFV land damage result from a change in the levels of land in a natural disaster. However, I do not accept the submission that there is no obvious basis for distinguishing between ILV and IFV land damage. The distinction was made in the Earthquake Commission case,55 the vulnerability to which the land is exposed is different in each case and the methods by which each can be repaired, as well as the practical impediments in effecting repairs, are also different. Consequently, EQC’s policies for assessing and settling ILV and IFV claims are materially different also.
55 Earthquake Commission case, above n 2, at [89]–[92].
[81] The plaintiffs’ claim was not in respect to IFV land damage, and their claim was not assessed under the provisions of EQC’s policy relevant to IFV damage. Therefore, I accept no finding can be made in respect to the plaintiffs’ claim that creates a res judicata binding upon members of the group who made claims in respect of IFV land damage. The plaintiffs are not a suitable representative for claimants in respect to IFV land damage.
Issue three — Is Mr Wootton a suitable representative in respect to IFV land damage?
[82] Mr Wootton is advanced as a representative for a proposed IFV land damage sub-class. Mr Wootton has made a brief affidavit in which he says he owns a property at 10 Riverlaw Terrace that suffered earthquake damage in respect of which he made a land claim to EQC. He says EQC advised him in a letter of 13 September 2016 that his property has IFV and settlement of his claim would be by DOV. He does not say what he received on settlement of this claim. He says it is apparent from documents he received from EQC in 2023 that it never considered methods to restore ground- height loss or priced the cost to remediate the ground-height loss at his property. He says it was not until he received the documents that he knew what EQC had done in its assessment of the land damage claim. He agrees to represent the interests of homeowners who were assessed and paid for IFV land damage on a DOV basis.
[83] EQC says Mr Wootton cannot be a representative sub-class plaintiff because he has not sought to be joined to the proceeding as a plaintiff and his adequacy as a representative cannot presently be properly assessed. Further, EQC argues that, to the extent Mr Wootton’s claim can be assessed, it appears to have fundamental weaknesses both in terms of substantiating a repair cost entitlement and from a limitation perspective.
[84] Mr Barker argues it is not unusual in the context of r 4.24 applications for there to be a need to identify potential classes within the represented group and for potential new plaintiffs to be added. He referred me to Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group where the Court of Appeal noted it would be necessary for the pleadings to be amended to create necessary sub-groupings and to link the allegations to the relevant sub-groups and
representatives of those sub-groups.56 He also referred me to Ross v Southern Response Earthquake Services Ltd, where the Court of Appeal considered there was some attraction in having an additional plaintiff added to the proceeding, but whether that was necessary was best left to be addressed in the course of case management of the proceedings in the High Court.57
[85] I am not prepared to make an order granting leave to Mr Wootton to be a representative of a sub-class of IFV assessed claimants. I accept EQC’s submission that Mr Wootton cannot be a representative of any sub-group unless he is first joined as a plaintiff.
[86] Rule 4.24 provides that a person may “sue … on behalf of, or for the benefit of, all persons with the same interest”. To sue on behalf of others or for the benefit of others Mr Wootton must either commence an action in his own name by filing a statement of claim under r 5.25 or be joined under r 4.56 to an existing proceeding, requiring the necessary amendments to the statement of claim. Consistent with this, in Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group the Court of Appeal held that “representative plaintiffs” could represent the interests of sub-classes if “the claims are organised … behind truly representative plaintiffs”.58
[87] I note also that in Simons v ANZ Bank New Zealand Ltd the plaintiffs could not represent certain class members.59 Venning J determined that:60
If the plaintiffs wish to join other plaintiffs to represent that class of customer they will have to make the appropriate application under rr 4.2 and 4.56.
[88] The requirement to be joined as a plaintiff is not a mere formality. The making of an order for joinder is dependent upon the requirements of r 4.56 being satisfied.
56 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 20, at [41].
57 Ross v Southern Response Earthquake Services Ltd, above n 18, at [131]–[132].
58 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 20, at [37].
59 Simons v ANZ Bank New Zealand Ltd [2022] NZHC 1836.
60 At [109].
Further, the making of an order joining Mr Wootton as a plaintiff is needed so that EQC has recourse to a party liable for costs for the issues he wishes to advance.61
[89] This issue arose in Sneesby v Southern Response Earthquake Services Ltd where Mr Sneesby was refused leave to bring a proceeding as a representative action.62 His counsel proposed an alternative homeowner, Mr Ressels, to be the representative plaintiff. Associate Judge Lester refused to make such an order on the basis that a formal application to introduce an alternative representative plaintiff was required.63
[90] Subsequently Mr Ressels applied to be joined as an additional plaintiff to the proceeding which was dismissed by Associate Judge Lester.64 The Judge held that such an application was to be made under r 4.56 of the High Court Rules and the requirements of that rule were not satisfied.65 He also rejected the submission that, in the context of a representative action, a liberal approach should be taken consistent with the ultimate role of the Court to act in the interests of justice, even if r 4.56 was not satisfied.66 His approach was upheld by the Court of Appeal, where it was said:67
[30] We accept that one of the purposes of representative proceedings is to facilitate access to justice. We also accept that the courts take a liberal approach to representative proceedings. However, a liberal approach cannot overcome the insuperable difficulty that faces Mr Ressels. Logically, if he is not able to become a party to the Sneesby proceedings there is no basis on which an order under r 4.24 could be made in that proceeding.
[91] Here, there is no application to join Mr Wootton as a plaintiff and no consideration given by the plaintiffs to the requirements of r 4.56. The submission that Mr Wootton may later be joined as a plaintiff as part of case management appears to be based on Ross v Southern Response Earthquake Services Ltd, but I do not consider that the Court of Appeal’s comment in any way avoids the requirement for a person in Mr Wootton’s position to be joined as a plaintiff after satisfying the requirements of r 4.56.68
61 Smith v Claims Resolution Service Ltd, above n 24, at [63]–[64].
62 Sneesby v Southern Response Earthquake Services Ltd, above n 39.
63 At [48].
64 Sneesby v Southern Response Earthquake Services Ltd [2023] NZHC 246.
65 At [17]–[39].
66 At [53].
67 Ressels v Southern Response Earthquake Services Ltd [2023] NZCA 614 (footnotes omitted).
68 Ross v Southern Response Earthquake Services Ltd, above n 18, at [131]–[132].
[92] EQC is correct also that there are obvious deficiencies in Mr Wootton’s evidence and there is no pleading upon which his viability as a representative plaintiff can be assessed.
Issue four — Is the proposed class correctly defined?
[93] EQC argues that the intended class confers claims on claimants who could not bring a claim independently, thereby offending the principle that a representative order cannot allow a class member to succeed where they would not have succeeded in separate proceedings and cannot deprive a defendant of a defence it could otherwise have raised in such an action.69 These are said to be:
(a)persons who could not have suffered any loss because their entitlement could never be greater than DOV;
(b)persons for whom repair was not feasible or not wanted; and
(c)persons whose claims are statute barred under the Limitation Act because their land claim entitlement was determined on or before 8 July 2017 (being six years before the plaintiffs filed their second amended statement of claim).
Persons who could not have suffered any loss because their entitlement could never be greater than DOV
[94] EQC argues the following persons could not have an entitlement greater than DOV:
(a)former owners of properties who have retained rights to the land claim; and
(b)subsequent owners who have purchased their property after the land damage occurred and were assigned the rights to the land claim.
69 Credit Suisse Private Equity LLC v Houghton, above n 19, at [53] per Elias CJ and Anderson J; Saunders v Houghton, above n 18, at [13]; Cridge v Studorp Ltd, above n 18, at [11(i)]; and Ross v Southern Response Earthquake Services Ltd, above n 18, at [51].
Former owners
[95] EQC says any former owner of land who sold the property without effecting repairs but retained their land claim can only receive their actual loss, which is DOV. It says they cannot now receive the cost of repairs they did not, and do not have an intention to, carry out. Any other approach would confer a windfall.
[96] I agree with EQC’s submission. The ordinary principles of insurance law apply to the Act except so far as it is clearly indicated otherwise.70 On first principles, a former owner of land who retains the rights to the land claim under the Act cannot recover repair costs they will not incur. In Castellain v Preston, Brett LJ said:71
In order to give my opinion upon this case, I feel obliged to revert to the very foundation of every rule which has been promulgated and acted on by the Courts with regard to insurance law. The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified. That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a full indemnity, that proposition must certainly be wrong.
[97] Consistent with EQC’s submission, in the Earthquake Commission case, when referring to circumstances where repair or reinstatement of ILV and IF V land damage would not always be available or an appropriate response, the Court stated:72
[113] Similarly, where a claimant has sold the property without repairing the damage prior to settlement of the claim, he or she would receive a windfall benefit if the indemnity payment is calculated on the basis of repair or reinstatement costs to the extent that these exceed the diminution in value of the property. It cannot have been Parliament’s intention that claimants would receive payments from the Natural Disaster Fund that exceed their actual loss and provide windfall benefits. That would be contrary to the purposes of the Act.
70 Earthquake Commission case, above n 2, at [171]; and AMP Fire and General Insurance Co (NZ) Ltd v Earthquake and War Damage Commission (1983) 2 ANZ Insurance Cases 78,016 (CA) at 78,021–78,022.
71 Castellain v Preston (1883) 11 QBD 380 (CA) at 386.
72 Earthquake Commission case, above n 2, at [94]. Counsel also referred to Perry v Sidney Phillips & Son [1982] 1 WLR 1297 (CA) at 1303; and Dominion Mosaics and Tile Co Ltd v Trafalgar Trucking Co Ltd [1990] 2 All ER 246 (CA) at 253.
[98] I therefore consider EQC is correct that the represented class should not include former owners who did not undertake repairs but who retained their rights to the land claim, as such persons could not be entitled to a payment based on cost of repair.
Subsequent owners
[99] In respect to subsequent owners who were assigned the rights to the land claim, EQC submits there is nothing in the Act to suggest that the usual principles applying to the assignment of indemnity insurance do not apply to an indemnity claim under s 19. EQC relies upon Xu v IAG New Zealand Ltd and Toomey v IAG New Zealand Ltd. 73 It submits that the right to an indemnity payment is in the nature of an existing debt and the assignment of a claim assigns only the right to payment of the debt, which is limited to the insured’s accrued right to payment (being the assignor’s actual loss).
[100] In Xu, the Barlows were the owners of a house damaged in the Canterbury earthquakes. Their insurance policy with IAG provided claims would be settled based on either an indemnity payment or by IAG meeting reinstatement costs in the event the insured elected to restore the home.74 The Barlows made a claim under the policy but then sold before the claim was settled and assigned the purchasers their rights in respect of their claim under the policy. At issue was whether the reinstatement benefits were assignable to entitle the purchasers to reinstate and be reimbursed.75 A majority of the Supreme Court held that under the terms of the policy the entitlement to the reinstatement benefit was conditional on reinstatement by the Barlows.76 It followed that when the Barlows sold the property without personally incurring the cost of repairs, it did not matter what rights in respect of the reinstatement benefit they purported to assign because the purchasers could not recover costs personally incurred to repair the home, only the costs of repair incurred by the Barlows.
[101] In Toomey, it was held the insured suffered no loss when selling a house with undiscovered earthquake damage.77 Because the property was sold without a discount,
73 Xu v IAG New Zealand Ltd [2019] NZSC 68, [2019] 1 NZLR 600 at [13]; and Toomey v IAG New Zealand Ltd [2019] NZHC 2882 at [50].
74 At [1].
75 At [2].
76 At [45]–[46].
77 Toomey v IAG New Zealand Ltd, above n 73, at [56].
the assignee of the indemnity claim under the policy could not recover anything under the assignment. In that decision I noted that Xu applied, as the key provisions of the policy to engage Xu were that the insured’s entitlement to the reinstatement benefit was conditional upon reinstatement by the insured, and if the insured did not reinstate the property indemnity cover was available.78
[102] I do not consider that the position under the Act can be distinguished from that which applied under the insurance policies in issue in Xu and Toomey. Specifically, I do not consider it can be argued that a landowner’s right under s 19 to cost of repair arises at the time of the earthquakes and could be assigned at that point regardless of whether repairs were undertaken. That is clearly not the view taken by the High Court in the Earthquake Commission case.79
[103] Mr Barker says EQC’s approach is surprising and would be of concern if it was applied to ILV and IFV claims because that is not the approach EQC applies to other land damage claims. He refers to EQC’s current guidance note on “Assignment of Claims with Earthquake Damage”, which he submits makes it clear that the assignee has the same rights as the assignor in respect of the claim.80 That document provides:81
If a property you are looking to buy has a claim with EQC, this claim can be transferred to you from the current owner. This process is called an assignment of claim.
When an EQC claim is assigned, the new homeowner may have the same entitlements as the previous owner. That means they will receive any remaining entitlement up to EQC’s liability under the Act for an event, for natural disaster damage to residential dwellings and land covered by EQC. This remaining entitlement is referred to as residual benefit(s).
…
A new homeowner with an assigned claim has the same rights as the previous homeowner had. However, assigned claims may have no residual benefits, or residual benefits may be limited by previous settlements.
[104] I do not see anything that suggests the position EQC adopts before me is different from what is set out in the guidance note. The point is that an assignee of a
78 At [24], citing Xu v IAG New Zealand Ltd, above n 73.
79 Earthquake Commission case, above n 2, at [112].
80 Earthquake Commission “Assignment of Claims with Earthquake Damage” (4 February 2021)
< 1 (footnotes omitted).
land claim under the Act receives the right to payment from EQC of the assignor’s accrued entitlement, which does not include the cost of repairs it has not and will not incur.
Persons for whom repair was not feasible or not wanted
[105] EQC also says the represented group should not include those for whom repair was not feasible or not wanted. It says there were many properties where repair was not lawful, not feasible or where owners preferred not to repair, either because they were not entitled to an insurer-funded rebuild or because the insurer was providing enhanced foundations and separate ground improvement was necessary and/or financially risky. It submits customers who could not, or did not want to, repair do not have a claim to repair cost and DOV was the correct measure of their loss. It says that is likely to include almost everyone who did not have an insurer-funded rebuild.
[106] Whether a particular property owner could feasibly carry out repairs or had/has any intention of doing so are trial issues to be determined on a case-by-case basis in stage two of the proceeding. The issues are likely to be contested and it is not a suitable basis to restrict members of the proposed group.
Claims that are statute barred
[107] The plaintiffs’ original application sought an order granting leave under r 4.24 taking effect from 13 September 2021. That is the date that appeared on the plaintiffs’ first statement of claim but is not the date the proceeding was filed, which was 15 September 2021.
[108] In response to EQC’s submissions, the plaintiffs’ position changed, and counsel accepted the order should take effect from the date of filing of the application under r 4.24, which was 18 July 2022.
[109] The plaintiffs’ amended application reverts to the plaintiffs’ original position that the order should take effect from 13 September 2021.
[110] In Credit Suisse Private Equity LLC v Houghton, the Supreme Court held that a representative action is brought when the statement of claim is filed and is brought not only on behalf of the representative plaintiff but also on behalf of those represented.82 Glazebrook J noted that, where the date of filing a claim was not the date of the order granting leave to sue in a representative capacity, it may be necessary to backdate the representative order:83
… to ensure the court’s process does not disqualify those on behalf of whom a representative proceeding is brought, should the limitation period end in the period between filing and when the representative order is made.
[111] Glazebrook J was obviously speaking to the circumstance where a claim is filed along with an application for leave to sue as a representative and there is a delay until the representation order is made. The situation here is quite different.
[112] The plaintiffs did not apply to bring a representative action at the time of filing their claim. Until they made their application under r 4.24 the plaintiffs had not purported to sue on behalf of those they now seek to represent. To backdate the order as the plaintiffs suggest could well include persons whose claims were already statute barred when the plaintiffs made their application, and would offend the principle that a representative order should not deprive a defendant of a defence that could otherwise have been raised by it in a separate action.84 I consider the correct approach is that the representation order should take effect from the date it was originally filed, which was 18 July 2022.
Issue five — Should the class be constituted on an opt in or an opt out basis?
[113] The plaintiffs argue that the representative order should be made on an opt out basis because:
(a)it is their choice the order be granted on that basis;
82 Credit Suisse Private Equity LLC v Houghton, above n 19, at [127].
83 At [128].
84 Credit Suisse Private Equity LLC v Houghton, above n 19, at [53] per Elias CJ and Anderson J; Saunders v Houghton, above n 18, at [13]; Cridge v Studorp Ltd, above n 18, at [11(i)]; and Ross v Southern Response Earthquake Services Ltd, above n 18, at [51].
(b)the represented class will not be small;
(c)it will be more efficient and effective to protect the interests of claimants;
(d)it enhances access to justice;
(e)there is no financial risk to the potential class members, with all costs being met by a litigation funder; and
(f)potential class members do not currently have any alternative option to seek compensation from EQC apart from this action.
[114] EQC argues that any representation order should be made on an opt in basis because:
(a)there is a real prospect of disadvantage to class members with an opt out approach;
(b)an opt in approach better realises the r 4.24 objectives of access to justice and efficient use of judicial resources; and
(c)an opt in approach promotes class members’ freedom of choice over, and autonomy in respect of, a significant asset being their residential land.
[115] In Southern Response Earthquake Services Ltd v Ross, the Supreme Court provided general guidance as to how the discretion under r 4.24 should be exercised in this context.85 The matters noted included:
(a)generally, the Court should adopt the procedure sought by the applicant unless there is good reason to do otherwise, but the Court must consider
85 Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126, [2021] 1 NZLR 117 at [94].
all relevant factors in light of what will best meet the permissible objectives of the representative action in the particular case;86
(b)the Court may depart from this starting point and favour an opt in approach where there is a real prospect some class members may end up worse off or be adversely affected by the proceeding;87 and
(c)while not determinative, class size will have some relevance. An opt in approach may be a preferable option where the class is small relative to other claims and there is a natural community of interest between the class members.88
Prospect of disadvantage to class members
[116] EQC argues that if a representative action may disadvantage class members, an opt in approach at least ensures those class members are not exposed to that risk except with their consent. EQC contends that an opt out approach has the potential to disadvantage class members in the following respects:
(a)through the unwitting loss of any ultimate additional entitlements they may have arising from the proceeding through the transfer of their rights to EQC claims;
(b)exposure to potentially adverse legal and economic consequences of reliance on an unproven litigation funder of uncertain means; and
(c)the loss of the right to select their own legal representation.
[117] EQC says class members may lose both their rights to participate in the representative action and the benefit of any entitlements found to exist upon the transfer of rights to EQC claims for land damage to other parties. It says this is not a mere theoretical possibility as it is standard practice in Canterbury for purchasers of
86 At [95].
87 At [97].
88 At [98].
land to routinely take an assignment of EQC claims. It says an opt in approach would ensure that no class member would assign away the fruits of the class action in ignorance of the consequences.
[118] There are several difficulties with this argument. First, the assignment of rights to EQC claims generally only occurs upon a sale of the property, in which case the vendor can be expected to have factored in the value of such rights in the sale price. Most vendors will also be legally represented and can be expected to have been properly advised of the consequences of assigning their rights to land claims.
[119] Second, a person who has settled their claim with EQC on a DOV basis and is selling their land would no longer have any intention to undertake the repairs and would not therefore be entitled to any additional benefits. They would not be giving up any rights upon the assignment.
[120] Third, if an opt in approach is adopted, the risk that those entitled, through ignorance of their rights, inertia, or other factors, will not opt in appears to me to be significantly greater than the risk that people might unwittingly assign away claims.
[121] The next matter EQC raises concerns the risk to class members of claims failing for want of secure funding.89 EQC says here the proposed litigation funder has only recently incorporated and has no track record of successful litigation or funding matters to trial. It has a single shareholder director and there is no information about its ability to fund the litigation and meet costs.
[122] I do not consider these are matters to be considered at the stage of certification of a representative proceeding, but rather are matters for later case management. I do accept that potentially there are risks as EQC has identified but the major risk, in the form of potential liability for unpaid or adverse costs above any sum provided as security for costs, will fall upon the plaintiffs. As it is the plaintiffs who are making
89 Citing the recent strike out of a representative proceeding for lack of funding: Houghton v Saunders [2020] NZHC 1088; affirmed Houghton v Saunders [2020] NZCA 638; and leave to appeal declined in Houghton v Saunders [2021] NZSC 38. EQC did not raise the potential risk to it as a defendant should the litigation funder not be able to maintain its financial commitments under the funding agreement.
this application and they are represented by counsel, it is expected they are properly advised in respect to the risks they face.
[123] A similar issue was raised in Claims Resolution Service Ltd v Smith where the Court of Appeal said:90
[39] In that eventuality, the appellants asked us to vary the High Court’s decision by requiring the initial notification of the representative action to include specification of the way in which the claim would be funded and to require the provision to the appellants of security for unpaid fees — that is, the amounts that CRS says are presently due and owing.
[40] The Judge declined to order disclosure of funding at this stage. We agree with him. The issue cannot be meaningfully dealt with until it is known how many people have joined the representative action and to what extent, if any, external funding has been secured and its terms. The matter can be dealt with at a subsequent case management stage.
[124] As far as class members generally are concerned, if an opt in order is made there may be many potential class members who will not have notice of the proceeding or who, for other reasons, will not exercise their rights to opt in and will lose the benefit that being members of the class might provide them. On the other hand, on an opt out basis, if there is a risk of the proceeding failing through a lack of funding the Court may make appropriate orders to protect class members’ interests at that time.91
[125] The plaintiffs also submit that members of the intended class have no other options available to obtain redress from EQC and face no risk because of the proceeding. EQC says that is wrong as there are alternatives available to EQC customers by way of the EQC claims review process, civil action in respect of lower value claims in the District Court or, in appropriate cases, before the Canterbury Earthquake Insurance Tribunal. It submits they should not be compulsorily enlisted in a potentially insecure class action on the basis it is better than nothing.
[126] I am not convinced by EQC’s submission for several reasons. First, any review using the EQC claims review process will be considered under EQC’s policies for settlement of claims in respect of ILV and IFV land damage, whereas in this proceeding it is intended to challenge the lawfulness of the policies and their
90 Claims Resolution Service Ltd v Smith [2020] NZCA 664.
91 Smith v Claims Resolution Service Ltd, above n 40, at [67].
application. The alternative processes EQC say are available may proceed on a more limited basis than the plaintiffs advance here. Second, EQC’s argument overlooks the benefits a representative proceeding offers by enhancing access to justice, and that separate civil proceedings may not be an option for many class members for a host of reasons including cost.
[127] The next matter concerns the legal representation offered by the plaintiffs’ solicitor. While EQC says it does not oppose the engagement of the plaintiffs’ current solicitor, Mr Shand, to conduct the litigation, it argues that class members typically have a low level of engagement with the representative claim and identify matters concerning Mr Shand that class members may consider relevant to the choice of whether to participate in the proceeding, particularly when the proceeding concerns a significant asset. I do not consider that any of the matters raised affect whether the proceeding proceeds on an opt in or opt out basis. Representative proceedings are subject to close supervision by the Court, and if matters concerning counsel’s competence or capacity to conduct the proceeding occur they can be dealt with at the stage they arise.
[128] Further, it is contemplated that this proceeding will proceed in stages. At stage one I would expect the plaintiffs’ claim to be heard in respect to individual and common issues. If they succeed, class members will then need to make an election whether to participate at stage two, by which time they would have had ample opportunity to consider the merits of the claim and the solicitor’s performance. In Southern Response Earthquake Services Ltd v Ross, the Supreme Court said:92
Finally, the Court considered that the case for an opt out approach was stronger than in many other representative proceedings because of the fact claimants would need to opt in at stage two if they wanted to obtain compensation. An election to opt in would be needed if and only if the claimants had succeeded. At that point the relevant advantages and disadvantages of pursuing the claim would be clarified and more apparent.
Objectives of r 4.24
[129] EQC says only an opt in approach will identify all class members at stage one of the proceeding and allow them to be advised of the forensic needs of the action,
92 Southern Response Earthquake Services Ltd v Ross, above n 85, at [105].
including the need to preserve increasingly elderly evidence of assignments, land damage and the applicable costs of repair to establish loss. It says these forensic needs have only increased since the amended application, adding new claims concerning EQC’s policy and strategy, was filed. It contends that all class members being alert to these requirements at the outset of the litigation would promote the recognised objectives of improved access to justice for both parties (in the form of accurate outcomes on the best evidence) and the efficient use of judicial resources.
[130] EQC also submits it will be beneficial from a judicial efficiency perspective to determine class size at stage one as that will influence case management in the areas of discovery, interlocutory steps and appeals, security for costs and the scope and preparation of evidence for a stage one trial, as well as alternative dispute resolution options. It says the plaintiffs’ position that this representative action involves a multi- thousand strong class is wrong for several reasons, including that the number of EQC customers who can claim that a land repair was both feasible and something they intended to pursue is likely to be very small.
[131] It would be expected that directions would be made to advertise the proceeding to class members, which could include information concerning steps they should take to preserve evidence they may require to advance individual claims. Further, I do not accept the class will necessarily be small or share the community of interest the Supreme Court thought was important in Southern Response Earthquake Services Ltd v Ross.93
Individual autonomy
[132] The final matter relied upon by EQC is that the opt in approach promotes individual autonomy over their residential land claims. While I recognise in most instances the proceeding will concern class members’ most valuable asset, the proceeding does not put that asset at risk.
93 Southern Response Earthquake Services Ltd v Ross, above n 85, at [98].
Summary
[133] I consider the representative action should proceed on an opt out basis. The matters raised by EQC are not sufficiently cogent to depart from the starting point that the plaintiffs’ choice to proceed on an opt out basis should be respected. The intended class may be large, there is no significant prejudice to the intended class in proceeding on an opt out basis, the class members will in the main be homeowners not commercial entities,94 and an opt out basis enhances the objectives of access to justice.
Result
[134] Leave is granted to the plaintiffs to bring this proceeding against EQC as a representative action on behalf of all persons who meet the class definition set out in the attached schedule on the basis that:
(a)this order shall take effect from 18 July 2022;
(b)any of the class members may opt out of the plaintiffs’ action by completing an opt out election form approved by the High Court for that purpose;
(c)the plaintiffs may only settle or discontinue this proceeding with leave of the Court;
(d)leave is reserved to all parties to apply for such further directions as may be necessary or appropriate in relation to the representative orders; and
(e)the common issues to be determined in stage one of the proceeding shall, subject to further order of the Court, be those set out in the attached schedule.
[135] By 19 January 2024, the plaintiffs are to file and serve any memoranda they wish addressing directions for the future conduct of this proceeding.
94 At [103].
[136] By 2 February 2024, EQC is to file and serve any memoranda it wishes in response addressing directions for the further conduct of this proceeding.
[137] By 9 February 2024, the plaintiffs shall file and serve any memoranda strictly in reply.
[138] After receipt of counsel’s memoranda, I will either convene a telephone conference with counsel or a further hearing to make directions to advance the proceeding.
[139] In relation to costs, my preliminary view is that costs should lie where they fall in circumstances where the plaintiffs have had some success, but the application was not initially advanced on a proper basis resulting in substantial and unnecessary costs to both parties. That is not a concluded view, and if either party seeks costs, they may apply do so by memoranda to be filed by 19 January 2024 with replies to be filed by 2 February 2024. I will deal with costs on the papers.
O G Paulsen Associate Judge
Solicitors:
Grant Shand, Auckland Russell McVeagh, Wellington
SCHEDULE
Class definition
[1] An owner who made a claim to EQC in relation to residential land insured under s 19 of the Earthquake Commission Act (the Act).
[2] The residential land suffered increased liquefaction vulnerability (ILV) damage in the Canterbury Earthquake Sequence that commenced on 4 September 2010 and ended on 23 December 2011.
[3] EQC determined the amount of ILV damage to the residential land and/or made a payment for ILV damage to the residential land to the owner under s 29 of the Act after 18 July 2016.
[4] EQC quantified the payment (in full or in part) based on alleged diminution in/of value of the land by the ILV damage.
[5] The cost to reinstate the land to remediate the ILV damage exceeded the payment in 3 and 4 above.
[6] There is no binding settlement agreement between EQC and the owner in respect of any ILV damage claim.
Common issue
Whether, when settling a claim for natural disaster damage for residential land under s 19 of the Act, EQC misused the DOV approach to determine the indemnity value of claims for ILV damage to residential land, by:
(a)formulating and applying a policy not in accordance with the Earthquake Commission case and/or the Act in the respects pleaded in the second amended statement of claim; and
(b)having a strategy to wrongly minimise its payments by using DOV.
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