Freer v Earthquake Commission
[2023] NZHC 1301
•29 May 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-428
[2023] NZHC 1301
BETWEEN ANDREW ROBERT FREER and LUCINDA RAE MCEVEDY
PlaintiffsAND
EARTHQUAKE COMMISSION
Defendant
Hearing: 22 and 23 February 2023 Appearances:
A R B Barker KC and G D R Shand for Plaintiffs N L Walker and C J Curran for Defendant
Judgment:
29 May 2023
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 29 May 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 1301 [29 May 2023]
Table of Contents
Para No
Introduction [1] The plaintiffs’ claim
[8]
Legal principles
[12]
The proposed class and common issue
[21]
The Earthquake Commission case
[32]
The interpretation argument
[38]
Criticisms of process and counsel
[41]
Section 19
[43]
Private insurance
[44]
The plain meaning of s 19
[46]
Priority of reinstatement over payment
[59]
The legislative and drafting history
[69]
Michalik v Earthquake Commission
[77]
Natural Hazards Insurance Act
[79]
Conclusion on the interpretation issue
The application argument
[81]
[82]
Further issues
[101]
Result
[103]
Introduction
[1] As a result of the 2010/2011 Canterbury earthquakes, many properties were left more vulnerable to liquefaction in future natural disaster events (known as increased liquefaction vulnerability (ILV)) and/or more vulnerable to flooding in such future events (known as increased flooding vulnerability (IFV)).
[2] The plaintiffs own a property that was damaged during the earthquakes resulting in ILV. The Earthquake Commission (EQC) settled the plaintiffs’ claim for land damage by payment of its assessment of the diminution of value (DOV) of the land caused by ILV and not the cost of reinstatement of the land. EQC considers this was lawful in accordance with declarations granted by this Court in Earthquake Commission v Insurance Council of New Zealand Inc.1
[3] The plaintiffs have brought this action for recovery of what they say is their true entitlement under the Earthquake Commission Act 1993 (the Act) being the cost to reinstate their land up to the limit of cover in s 19(a) of the Act, less what they have already been paid by EQC and an excess of $5,000.2 The difference is more than
$132,000.
[4] The plaintiffs’ claim was set down for trial, but the hearing has been vacated as they have applied under r 4.24 of the High Court Rules 2016 to represent almost all (save with some minor exceptions) property owners whose claims for land damage caused by ILV and/or IFV were settled by payment on a DOV basis. They contend settling such claims on a DOV approach was wrong and there are thousands of property owners in the same position as them who have not received their full entitlement under the Act.
[5] EQC opposes the application for representative orders. It says the plaintiffs’ claim is plainly meritless. Further, it says there is no common issue for the class the plaintiffs seek to represent. Finally, EQC says that if, notwithstanding those matters,
1 Earthquake Commission v Insurance Council of New Zealand Inc [2014] NZHC 3138, [2015] 2 NZLR 381.
2 Earthquake Commission Regulations 1993, reg 4(2)(b).
the Court was minded to grant the plaintiffs leave to bring a representative action, it should be on an opt-in basis rather than the opt-out basis which the plaintiffs propose.
[6]The issues 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 representative action?
(b)If the first hurdle is overcome by the plaintiffs, should the Court exercise its discretion to grant leave under r 4.24 in the plaintiffs’ favour?
(c)Should a representative order be made on an opt-in or opt-out basis?
[7] In light of the finding I make in respect to the first of these issues, it is not necessary for me to consider the other two issues at this juncture.
The plaintiffs’ claim
[8] The plaintiffs own the property at 51 Quinns Road, Shirley which includes a residential dwelling and detached garage, that at all material times was insured with IAG New Zealand Ltd against physical loss and damage by fire. The property suffered land damage, including ILV, and the plaintiffs made claims to EQC under ss 18 and 19 of the Act. The claims were accepted by EQC. EQC paid them $22,214 in respect of natural disaster damage to their land comprised of $18,900 in respect of ILV (assessed on a DOV basis) and $5,782 in respect of visible land damage, less an excess of $2,468.
[9] The plaintiffs plead the cost to repair the land was $214,881 and the limit of EQC’s liability for land damage under s 19(a) of the Act was $160,000, so EQC is liable to pay the plaintiffs a further sum up to the limit of cover of over $132,785. The plaintiffs allege EQC breached its obligations under the Act in the following respects:
EQC should have assessed and paid the plaintiffs the cost to repair the land up to the value of the cap as set out in s19(a) of the Earthquake Commission Act 1993.
…
EQC breached its obligations to the plaintiffs by its failure to:
(1)Properly assess the claim under s19;
(2)Pay the balance due of $132,785.16.
[10] The plaintiffs say EQC’s conduct has caused them distress, inconvenience and mental anguish, for which they claim general damages.
[11] EQC denies that it breached its obligations under the Act or that the plaintiffs have not received their full entitlement.
Legal principles
[12] Rule 4.24 of the High Court Rules provides the Court may allow a plaintiff to bring representative proceedings on behalf of others having the same interest in the subject matter of the proceeding:
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.
[13] The general principles governing applications under r 4.24 are set out by the Court of Appeal in Cridge v Studorp Ltd, as follows:3
(a)The rule should be applied to serve the interests of expedition and judicial economy, a key underlying reason for its existence being efficiency. A single determination of issues that are common to members of a class of claimants reduces costs, eliminates duplication of effort and avoids the risk of inconsistent findings.
(b)Access to justice is also an important consideration. Representative actions make affordable otherwise unaffordable claims that would be beyond the means of any individual claimant. Further, they deter
3 Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11] (footnotes omitted).
potential wrongdoers by disabusing them of the assumption that minor but widespread harm will not result in litigation.
(c)Under the rule, the test is whether the parties to be represented have the same interest in the proceeding as the named parties.
(d)The words “same interest” extend to a significant common interest in the resolution of any question of law or fact arising in the proceeding.
(e)A representative order can be made notwithstanding that it relates only to some of the issues in the claim. It is not necessary that the common question make a complete resolution of the case, or even liability, possible.
(f)It must be for the benefit of the other members of the class that the plaintiff is able to sue in a representative capacity.
(g)The court should take a liberal and flexible approach in determining whether there is a common interest.
(h)The requisite commonality of interest is not a high threshold and the court should be wary of looking for impediments to the representative action rather than being facilitative of it.
(i)A representative action should not be allowed in circumstances that would deprive a defendant of a defence it could have relied on in a separate proceeding against one or more members of the class, or conversely allow a member of the class to succeed where they would not have succeeded had they brought an individual claim.
[14] Counsel for EQC identified what they submit are the most important principles governing the granting of leave under r 4.24. They argue the importance of these principles cannot be understated because it has been recognised that representative actions may work injustice,4 and while access to justice is an object of representative proceedings, defendants are no less entitled to access to justice than plaintiffs.5 Several of these principles are engaged in this case, which I summarise below.
[15] The first principle is the requirement for a common issue of fact or law of significance to each member of the represented class. EQC submits this is foundational to the operation of a representative proceeding because such a proceeding aims to establish a res judicata through the representative plaintiff on a common issue for the benefit or burden of the whole class. EQC relies upon Saunders v Houghton where the Court of Appeal described the identification of the common issues to be
4 Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [53] and [130].
5 Houghton v Saunders [2020] NZCA 638 at [84].
“essential to the decision as to the practicability of a representative order and identification of whether, and, if so, what res judicata arises”.6
[16] The second principle is said to be a merits assessment. EQC submits the courts undertake a provisional merits assessment of the proposed representative proceeding and will not grant leave to a representative proceeding which is meritless. It says this recognises that litigation is capable of causing immense harm unless its use is properly controlled7 and that the bringing of a meritless proceeding is not in the interests of justice and is contrary to the objectives of the High Court Rules as expressed in r 1.2.8
[17] In Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, it was noted that the Court cannot grant leave to the bringing of plainly meritless claims but it is “highly undesirable” that this criterion be seen as creating a need or opportunity for a mini trial at the leave stage.9 The Court of Appeal held:
[17] A provisional assessment requires no more than consideration of the claims as pleaded, to ensure that on their face they disclose an arguable case on the facts as pleaded. 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.
(footnotes omitted)
[18] Counsel for EQC notes the Court may approach the merits assessment in a number of ways and contexts, such as where there is a fundamental weakness in the case, for instance where the plaintiff’s claim was barred by a settlement agreement,10
6 Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [20].
7 At [42].
8 The Law Commission has recently supported a requirement that a representative plaintiff is to establish a reasonably arguable cause of action as a pre-requisite to bringing a class action on behalf of others: Te Aka Matua o te Ture | Law Commission Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa | Class Actions and Litigation Funding (NZLC R147, 2022) at [6.25].
9 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group
[2017] NZCA 489, [2018] 2 NZLR 312 at [16].
10 Sneesby v Southern Response Earthquake Services Ltd [2022] NZHC 262 at [45].
where there is no available cause of action,11 or where the proposed common issue is not reasonably arguable.12
[19] A further principle is identified as the adequate representation requirement. EQC says that it must be for the benefit of the other members of the represented class that the plaintiff is able to sue in a representative capacity. Related to this, it has been held that a representative plaintiff must fairly and adequately represent the class13 and will not be permitted to advance claims other than those which its own claims represent.14
[20] This point was made in Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group where the Court said: 15
We do not accept that a representative plaintiff can advance claims other than those which its own claim “represents”. The representative plaintiff may, as Mr Cooke argues, have the same interest as other claimants, in the sense that he has the same insurance policy for earthquake damage and alleges that Southern Response has breached that insurance policy, but that common interest does not give rise to a common issue the resolution of which will advance the disposal of the claim.
The proposed class and common issue
[21]The plaintiffs’ application identifies the proposed represented class to be:
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
11 Alberta v Elder Advocates of Alberta Society 2011 SCC 24, [2011] 2 SCR 261 at [55] [63].
12 Lloyd v Google LLC [2021] UKSC 50, [2022] AC 1217 at [159].
13 Ideal Investments Ltd v Earthquake Commission [2022] NZHC 400 at [14](c); and Beggs v Attorney-General (2006) 18 PRNZ 214 (HC) and [16](c).
14 The Law Commission has recommended a certification test requiring the Court to be satisfied that at least one representative plaintiff is suitable and will fairly adequately represent the class. Te Aka Matua o te Ture | Law Commission, above n 8, at [6.52].
15 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 9, at [32].
the residential land to the owner/former owner under s 29 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.
[22] The application does not identify any common issue of fact or law of significance for each member of the proposed represented class. The plaintiffs’ proposed common issues have been something of a work in progress.
[23] In the plaintiffs’ written submissions, the proposed common issue was said to be:
Whether, when settling a homeowner’s claim for natural disaster damage for residential land insured pursuant to s19 of the Earthquake Commission Act 1993, EQC’s use of diminution of value (DOV) is in accordance with the Earthquake Commission Act 1993.
[24] EQC submits this issue needed to be put in a revised form to ensure it was in fact common and did not turn on the individual circumstances of members of the represented class. It argued the common issue should be put in this way:
That it is never lawful for EQC to pay diminution of value to meet statutory entitlements for natural disaster damage to residential land insured pursuant to s 19 of the Earthquake Commission Act 1993.
[25] At the hearing, Mr Barker KC submitted the plaintiffs’ proposed common issue in fact had two aspects to it which he described as the interpretation argument and the application argument. The interpretation argument concerns the use of an indemnity approach to the settlement of claims under s 19. The application argument concerns whether the indemnity approach was misused by EQC.
[26] Mr Barker proposed a reformulation of the common issue(s) that better identifies the interpretation and application arguments, as follows:
Whether, when settling a claim for natural disaster damage for residential land under s19 of the Earthquake Commission Act 1993, EQC’s use of Diminution
of Value (DOV) is in accordance with the Earthquake Commission Act 1993. In particular:
a.Are claims for natural disaster damage to residential land to be settled on an indemnity basis?
If so
b.Was the use of a Diminution of Value (DOV) approach to determine the indemnity value of claims for natural disaster damage to residential land by IFV and/or ILV applied to such claims in a mechanical way and without proper consideration of their individual circumstances;
c.Was the use of the DOV approach in that way consistent with EQC’s indemnity obligation.
[27] As far as the interpretation argument is concerned (para a), Mr Barker submits that while in the Earthquake Commission case a full bench of the High Court held that s 19 insures residential land on an indemnity basis, that ruling does not bind this Court and was arguably wrongly decided.16 He submits I must undertake my own assessment in determining whether the plaintiffs have an arguable case that land damage claims under s 19 of the Act were to be settled on a reinstatement basis and not an indemnity basis.
[28] In relation to the application argument (paras b and c), Mr Barker submits the evidence discloses there was no individual assessment of the plaintiffs’ claim for ILV land damage before a decision was made by EQC to settle it on a DOV basis. I understood him to go further and argue there were no individual assessments made in any similar case either and that “all areas of IFV and ILV were treated on a global basis as not capable of repair”.
[29] EQC accepts the interpretation argument (at least as it has framed it at [24]) is a common issue capable of creating a res judicata. However, it argues the resolution of the common issue will not advance the disposal of the claims of members of the represented class. It says that to succeed on their claim the plaintiffs would have to establish that under no circumstance could EQC’s indemnity response ever include payment of DOV. If the plaintiffs were only able to establish that payment of DOV
16 Earthquake Commission v Insurance Council of New Zealand Inc, above n 1.
was unlawful on the facts of their case, there would be no res judicata established for the benefit of the class.
[30] EQC further submits it is not reasonably arguable that s 19 of the Act prohibits in all cases settlement based on DOV and it cannot be right that it must pay repair costs up to the statutory cap in all cases. This is the case because:
(a)as was held in the Earthquake Commission case, s 19 insures residential land on an indemnity basis;17
(b)indemnity insurance only covers an insured’s actual loss; and
(c)in some circumstances, an insureds’ actual loss will incontrovertibly not be the costs of repairs.
[31] As far as the application argument is concerned, this was not raised in the plaintiffs’ pleading or in the common issue as originally proposed. It was raised during the hearing. EQC contends this is not an issue of significance common to the plaintiffs and the represented class as liability will depend only upon the individual circumstances of homeowners’ claims. Further, it says that if what is being alleged is that there was a strategy on the part of EQC that was applied to settle all claims on a DOV basis, the existence and components of the strategy must be pleaded and there must also be some evidence to support it, which EQC says there is not.
The Earthquake Commission case
[32] In 2014, the Earthquake Commission sought declarations of the High Court to give effect to policies it developed for settling claims for damage to residential land resulting in IFV.18 The Insurance Council filed a counterclaim seeking declarations in respect of ILV.19
17 At [105].
18 At [2].
19 At [9].
[33]The Court described the physical changes to land that constitute IFV as:20
The physical change to the land is the reduction in the height or level of the land relative to sea level or, in some cases, relative to nearby land, directly resulting from one or more of the earthquakes.
[34]The Court also described ILV as:21
Following the earthquakes, some areas of residential land have become more vulnerable to liquefaction damage from future earthquakes. This is broadly because the affected area now has a thinner “crust”, being the non-liquefiable layer of earth between the ground surface and water table. This reduction in the thickness and quality of the crust renders the land more prone to liquefication damage and less able to support a house in the event of a future earthquake.
[35] One issue argued before the High Court was whether land was insured under the Act on a reinstatement basis and not merely for any loss of value.22 Counsel representing certain homeowners had been given leave to intervene in the proceeding.23 They argued the plain and ordinary meaning of s 19 of the Act was that residential land was insured up to the value of the land lost or damaged and EQC was required to pay the cost of reinstating the land up to the limit of indemnity.24
[36]For present purposes, important findings of the Court were:
(a)IFV and ILV may be natural disaster damage for the purposes of the Act.25
(b)Residential land is insured under s 19 on an indemnity rather than reinstatement basis as:26
(i)The wording of s 19 sets the limit of indemnity based on the value of the residential land, calculated in the prescribed
20 At [63].
21 At [89].
22 At [103] [104].
23 At [6].
24 At [103] [104].
25 At [80] and [93].
26 At [94] and [105]
manner, plus indemnity value of any associated retaining wall, bridges and culverts.27
(ii)“Replacement value” is defined in s 2(1) of the Act with reference to residential buildings and personal property but there was no comparable provision for residential land. This shows Parliament drew a distinction between the indemnity value available under the Act in respect of residential land and that provided for residential buildings and personal property.28
(iii)The legislative history tended to confirm the Court’s preferred interpretation.29
(c)Indemnity insurance (such as that provided by s 19) focuses on the actual loss to the insured, which will be a question of fact in each case, and which will not necessarily be satisfied by a payment representing the loss in market value of the insured property.30
(d)The Act contemplates that EQC may settle claims for natural disaster damage to residential land by meeting repair or reinstatement costs in appropriate cases,31 however repair or replacement will not always be an available or appropriate response.32
(e)EQC could settle claims for IFV and ILV land damage by paying, in appropriate cases, the loss of market value of the insured land. The Court said:
[112] … The Commission has flexibility under the Act to tailor the indemnity response to meet the particular circumstances of any given case. Where, for example, a claimant has no intention of carrying out repair or reinstatement works to residential land suffering from [IFV] because this is neither technically feasible nor lawful, the plaintiff would be
27 At [105].
28 At [106].
29 At [107] [108].
30 At [109].
31 At [110].
32 At [112].
overcompensated if he or she received the estimated costs of such repairs to the extent that these exceed the diminution and value of the property.
[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 a windfall benefits. That would be contrary to the purposes of the Act.
…
[122] The appropriate indemnity response will be a question of fact to be determined in the particular circumstances of each case. The claimant’s intention to carry out repairs and the feasibility of these repairs will be relevant. There may be cases where repair costs are disproportionate and unreasonable in all of the circumstances. That question can only be judged on a case by case basis. We can go no further than to state that proportionality, and the consequent reasonableness of repair costs, will be a relevant consideration that the Commission should take into account.
[37] The Court made declarations in respect to the approach to be taken to the settlement of ILV claims as follows:33
The settlement of claims compliant with the Act for natural disaster damage to residential land involving Increased Liquefaction Vulnerability may be approached on the basis of the Commission:
(a)indemnifying the claimant against his or her financial loss by an appropriate payment, including by payment of:
(i)the costs of relevant and appropriate repair or reinstatement activities; or
(ii)in appropriate circumstances, by payment of the loss of market value of the insured land together with any associated residential buildings; or
(b)the option of the Commission, by undertaking relevant and appropriate repair or reinstatement activities.
33 At [125].
The interpretation argument
[38] The plaintiffs contend it is at least arguable the High Court was wrong in the Earthquake Commission case to find that residential land is insured on an indemnity rather than a reinstatement basis.
[39] All counsel agree the decision in the Earthquake Commission case is not binding on this Court. I accept that is so, but the decision is highly persuasive. The case was brought so that EQC could give effect to policies it had developed to resolve claims for IFV land damage consistent with its obligations under the Act and the hearing was widened to include ILV claims. It was a decision of a full bench of the High Court. It was not appealed. The decision has been considered to accurately state the law since it was decided and in reliance upon it EQC has processed and settled thousands of IFV and ILV claims. To the best of my knowledge, none of those settlements has been successfully challenged in the courts on the basis the plaintiffs now seek to advance.
[40] In a letter of 1 June 2022 to Mr Shand, EQC’s solicitors, Russell McVeagh, advised that 9,553 properties had been assessed as qualifying for ILV and in all but approximately 15 cases the ILV land damage claims were settled on a DOV basis. A further 31 properties were repaired through EQC’s Ground Improvement Programme. I understand all IFV land damage claims were settled on a DOV basis. It follows that if a finding was made that the Earthquake Commission case was wrongly decided, each of the claims made and settled in respect of IFV and/or ILV land damage (except in just a small handful of cases) may have to be reassessed, and, according to Mr Shand, EQC would have a potential liability in the region of $1.5 billion. However, I consider there is no prospect of that happening for the reasons that follow.
Criticisms of process and counsel
[41] Mr Shand (in written submissions) made several criticisms of the process the Court followed in the Earthquake Commission case. He says homeowners had limited ability to make submissions and had no opportunity to provide evidence. He
challenges the independence and quality of counsel appearing, as well as the expert witnesses.
[42] The issues arising in the case were regarded to be of such importance that a full Court sat to decide them. The proceeding was case-managed by a senior Judge to ensure all relevant interests were represented.34 Two parties were granted leave to intervene to represent homeowners. Mr Shand represented one such intervener.35 Mr Shand does not explain why he did not have the ability to make submissions and it appears from the judgment that he did do so. Counsel for the parties and those appointed to assist the Court were unquestionably of top quality. I do not accept Mr Shand’s criticism of the Court’s processes or of counsel.
Section 19
[43]Section 19 of the Act provides:
19 Residential land
Subject to any regulations made under this Act and to Schedule 3, where a residential building is deemed to be insured under this Act against natural disaster damage, the residential land on which that building is situated shall, while that insurance of the residential building is in force, be deemed to be insured under this Act against natural disaster damage to the amount (exclusive of goods and services tax) which is the sum of, in the case of any particular damage,—
(a)the value, at the site of the damage, of—
(i)if there is a district plan operative in respect of the residential land, an area of land equal to the minimum area allowable under the district plan for land used for the same purpose that the residential land was being used at the time of the damage; or
(ii)an area of land of 4 000 square metres; or
(iii) the area of land that is actually lost or damaged— whichever is the smallest; and
34 At [7].
35 At [6].
(b)the indemnity value of any property referred to in paragraphs
(d) and (e) of the definition of the term residential land in section 2(1) that is lost or damaged.
Private insurance
[44] The first matter raised by Mr Barker is that residential buildings are insured under s 18 of the Act against natural disaster damage for replacement value. He notes that while s 18 is limited in its coverage by virtue of the statutory cap that applies, s 18 is complemented by private insurance. By contrast, residential land is not usually covered by private insurance for natural disaster damage so limitations on the extent of cover under s 19 are going to be significantly greater than those in s 18.
[45] I do not see anything in this point. It is often not possible to reinstate or repair land in the same way as a residential building. The High Court in the Earthquake Commission case identified some of the difficulties that arise when remediating land that has sustained IFV, which in many cases may not be possible or, if technically feasible, prohibitively expensive.36 It will be the same with ILV land damage. In such circumstances it makes perfect sense to provide for an indemnity response.
The plain meaning of s 19
[46] The plaintiffs then submit the plain meaning of s 19 is that land is insured under the Act on a reinstatement basis and not merely for a loss of value to the land. They argue the Act requires EQC to compensate the homeowner for the costs of reinstatement of the relevant part of the land, being the smaller of the options in s 19(a). They note the only mention of indemnity cover is in s 19(b), which is limited to retaining walls, bridges and culverts. They contend that reference would be entirely unnecessary if the primary statement of coverage in s 19 was itself one limited to the indemnity value only.
[47] The plaintiffs also submit that given s 19(a) does not specify the basis of cover, the “default position” under the Act, said to be reinstatement cover, is to apply. It is argued that EQC is asking the Court to read the section as requiring compensation for
36 At [95] [97].
“the loss of value, at the site of the damage” instead of “the value, at the site of the damage”.
[48] EQC accepts the term “indemnity value” does not appear in s 19(a) but is used in s 19(b). However, it notes there is no reference to “replacement value” in s 19 and contends that term would be present if Parliament’s intention was to insure the land up to replacement value, as it has done in ss 18 and 20 (now repealed).37
[49]The definition of “replacement value” in s 2(1) of the Act provides:
replacement value, in relation to a residential building, means any costs which would be reasonably incurred in respect of—
(a)demolition and removal of debris, to the extent that is essential to enable the building to be replaced or reinstated; and
(b)replacing or reinstating the building to a condition substantially the same as but not better or more extensive than its condition when new, modified as necessary to comply with any applicable laws; and
(c)complying with any applicable laws in relation to the replacement and reinstatement of the building; and
(d)other fees or costs payable in the course of replacing or reinstating the building, including architects’ fees, surveyors’ fees, and fees payable to local authorities[.]
[50]This previously included a definition in relation to personal property of:
(b)in relation to any personal property, the lesser of—
(i)the cost of replacing the property with similar property, in a condition equal to but not better or more extensive than its condition when new:
(ii)the cost of reinstating the property to a condition substantially the same as but not better or more extensive than its condition when new[.]
[51] EQC argues that “residential land” is defined in the Act as including the land itself and land infrastructure, being the retaining walls, bridges and culverts
37 Section 20 was repealed on 1 July 2019 by s 9 of the Earthquake Commission Amendment Act 2019.
indemnified in s 19(b),38 and if Parliament wished to bifurcate cover for different parts of the residential land definition, it would have done so expressly.
[52] These arguments were considered in the Earthquake Commission case. The High Court held:
[105] Section 19 sets a limit of indemnity based on the value of the residential land, calculated in the prescribed manner, plus the indemnity value of any associated retaining walls, bridges and culverts. The words “to the amount” make clear that this is the limit of the Commission’s liability for such damage. Whereas residential land is insured for its indemnity value, residential buildings and personal property are separately insured against natural disaster damage, under ss 18 and 20 respectively, for replacement value.
(footnote omitted)
[53] The High Court noted the term “replacement value” was defined in s 2 of the Act with reference to residential buildings and personal property but not in respect of residential land, including retaining walls, bridges and culverts, which showed that Parliament drew a distinction between the indemnity available under the Act in respect of residential land and that for residential buildings and personal property.39
[54] The plaintiffs’ submissions fail to adequately distinguish two different concepts, namely the basis and limit of cover under s 19. 40 Section 19 can be considered in two parts. The first part deals with the existence of cover in respect of residential land on which a residential building is located and the circumstances under which such land is “deemed to be insured under this Act against natural disaster damage”. The second part provides for a limit on EQC’s liability in respect of such claims. This is signalled by the words “to the amount” and is to be calculated in accordance with paras (a) and (b). This is the same structure as in s 18 for residential building cover, but there the Act specifies the type of cover by providing that a residential building is insured for its replacement value, before stating the limit of cover by reference to the claimant’s private contract of fire insurance or a set monetary figure (whichever is the lesser).
38 Earthquake Commission Act, s 2(1) definition of “residential land”.
39 Earthquake Commission v Insurance Council of New Zealand, above n 1, at [106].
40 At [105].
[55] The plaintiffs are not correct, therefore, that the words “indemnity value” in s 19(b) have no utility if residential land is insured under the Act on an indemnity basis. Paragraphs (a) and (b) do not define the basis of cover, only the maximum amount of cover, which in the case of retaining walls, bridges and culverts is indemnity value, but otherwise to be calculated according to the formula in para (a). In the same way, paras (a) (c) of s 18(1) do not change the nature of insurance in respect of residential buildings being for replacement value.
[56] It is reasonable to expect that had Parliament intended to provide cover on other than an indemnity basis for residential land, it would have enacted a similar definition as to what that entails. In contrast, where indemnity value is mentioned explicitly in the Act in s 19(b) and in s 41, being the transitional provision for voluntary insurance for non-residential property, it is not defined. This is consistent with s 19 providing indemnity cover.
[57] I therefore also do not agree with the plaintiffs’ submission that EQC’s interpretation requires s 19 to be read as only providing compensation for loss of value of the land at the site of the damage.41 EQC is not reading down the limit of cover at all. I understand EQC reads it in the same way as the plaintiffs.42
[58] It is notable that both the plaintiffs and EQC seek support for their respective positions from the fact the words “indemnity value” only appear in s 19(b). The plaintiffs say this suggests a differentiation between the basis of cover for land and for land infrastructure. On the other hand, EQC argues that Parliament would not have intended bifurcated cover under the same section for land and land infrastructure. Neither argument gives proper weight, in my view, to the fact that para (b) relates to the limit of cover, not the type of cover provided for. Having said that, the position that the plaintiffs advance, if correct, would produce the odd result that while s 19 provided replacement cover the property owner could only claim indemnity value for land infrastructure.
41 The same argument was made before the full High Court in Earthquake Commission v Insurance Council of New Zealand, above n 1, at [103].
42 See for instance para 22 of the statement of defence.
Priority of reinstatement over payment
[59] The plaintiffs then argue several sections show the Act prioritises replacement and reinstatement over payment as the means of settling claims. The plaintiffs refer to s 29, which relevantly states:
29 Settlement of claims
…
(2)Subject to any regulations made under this Act and, where a contract has been entered into under section 22, to the provisions of that contract, if, during the period for which any property is insured under this Act, the property suffers natural disaster damage, the Commission shall settle any claim (by payment, replacement, or reinstatement, at the option of the Commission) to the extent to which it is liable under this Act.
…
[60] The plaintiffs submit this subsection expresses “payment, replacement, or reinstatement” as equivalences and the clear implication is that EQC can choose to carry out replacement or reinstatement works or make a payment that reflects the cost of those works up to the value of the relevant caps. I do not accept that submission.
[61] As I have previously noted, in respect to land damage, replacement or reinstatement is not always possible, and reinstatement or replacement can be a form of indemnity response depending on the circumstances. Furthermore, s 29 does not define the cover that is provided for under the Act, it is concerned with the mechanics of settling claims. So, for instance, s 29(4) requires payments for which EQC is liable to be made as soon as reasonably practicable, and no later than one year after the amount of damage has been determined. The plaintiffs’ argument also overlooks the fact that the options of payment, replacement and reinstatement are not equivalences in circumstances where s 19 imposes a limit on cover.
[62]Then there are cls 3(a) and 4 of sch 3 of the Act which relevantly provide:
3Circumstances where Commission may decline claim
The Commission may decline (or meet part only of) a claim made under any insurance of any property under this Act where—
(a)the natural disaster damage to which the claim relates was caused or exacerbated by earlier natural disaster damage for which the Commission made payment and that payment was not used to repair the property; or
…
4Cancellation of insurance in certain circumstances
(1)Where—
(a)the Commission settles a claim in respect of any property by payment of the full amount to which that property is insured under this Act; and
(b)the property in respect of which the claim is settled is neither replaced nor reinstated to the satisfaction of the Commission—
the Commission may cancel the insurance under this Act by giving written notice to the insured person of such cancellation.
…
[63] The plaintiffs argue that if s 19 provides for indemnity cover, these provisions would allow EQC to settle a claim for less than the amount required to reinstate the land and then decline a future claim or cancel an insurance policy under the Act where the insured did not in fact reinstate the land. They argue this would be unfair when the claimant had not been compensated to a level that would allow them to reinstate, and that this cannot have been what was intended by the Act.
[64] EQC says these provisions prevent windfall gains and the exercise of the powers they confer are subject to the ordinary restraints on the use of statutory powers such that the cancelling of a policy or rejecting a claim in the cases the plaintiffs identify would be unreasonable and not permissible.
[65] I consider the plaintiffs’ argument is not correct. The concern they identify, resulting from the claimant receiving insufficient to reinstate the land, will frequently arise even under their interpretation of s 19. This is because s 19 limits how much is payable by EQC by reference to the value of the land or to the indemnity value in respect to certain infrastructure.
[66] The plaintiffs also rely on cls 9 and 10 of sch 3. These clauses relevantly provide:
9Replacement of property
(1)The Commission may at its option replace or reinstate any property that suffers natural disaster damage, or any part thereof, instead of paying the amount of damage, but—
(a)the Commission shall not be bound to replace or reinstate exactly or completely, but only as circumstances permit and in a reasonably sufficient manner; and
(b)to the extent that the damage is to residential land and consists of or results from ground-forming materials or other debris on the land (including as a consequence of a natural landslip), the Commission shall not be bound to replace or reinstate other than by removal of the debris.
…
10Relocation of building
(1) Instead of paying the amount of any natural disaster damage to, or reinstating, a residential building or residential land, the Commission may, at its option, relocate the building concerned on the same site or, where that site is unsuitable because of damage which it has suffered or is likely to suffer, to a different site determined by the Commission, being a site that is reasonably equivalent in all material respects to the existing site immediately before the damage occurred.
…
[67] The plaintiffs argue these clauses confirm the Act’s focus on repair and reinstatement and the right of EQC to undertake those works directly instead of paying for them in settlement of a claim. The submission emphasises that these provisions are the same for both residential buildings and residential land and therefore contemplate the reinstatement of land.
[68] The point that the plaintiffs’ submission overlooks, and was noted by the High Court in the Earthquake Commission case, is the fact insurance cover for residential land is provided on an indemnity basis does not exclude reinstatement or replacement as an appropriate response. The Court recognised the “Act’s emphasis on repair or reinstatement” which “will often be required to indemnify an insured for damage to real property”.43
43 At [111]. See also at [125].
The legislative and drafting history
[69] That takes me to the legislative history which was discussed in the Earthquake Commission case and found to be of assistance in determining the meaning to s 19.44 This history was summarised by Williams J in Michalik v Earthquake Commission.45
[70] The preceding Act was the Earthquake and War Damage Act 1944 (the 1944 Act). It replaced the War Damage Act 1941. The 1944 Act provided coverage for earthquake and war damage. Coverage was linked to private fire insurance and property owners would pay a compulsory levy to the fund creating the statutory indemnity scheme. Originally, only buildings were covered under the 1944 Act, but it covered all buildings, including non-residential buildings. Levies under the 1944 Act were calculated on an indemnity value and coverage was also on this basis. This reflects that it was not until the late 1940s or early 1950s that the insurance industry started to market full replacement insurance.46
[71] Amendments were made to s 14 of the 1944 Act in 1951 to make explicit that coverage was confined to indemnity value only, even where the insurance policy was “upon a basis more favourable to the insured person than its indemnity value”.47 This section relevantly provided:48
(2A) Where the contract of fire insurance provides for settlement of any claim for damage to or destruction of the property upon a basis more favourable to the insured person than its indemnity value,
(a)The property shall be deemed to be insured under this section to the amount of the indemnity value only:
(b)The earthquake and war damage premium in respect of each period of the insurance shall be computed on the amount of the indemnity value of the property as approved by the Commission after being certified at the commencement of that period by a valuer approved by the Commission, being a registered member of the New Zealand Institute of Architects or by a valuer registered under the Valuers Act 1948 or an engineer registered under the Engineers Registration Act 1924:
44 At [107] [108].
45 Michalik v Earthquake Commission [2014] NZHC 2238 at [55] [65].
46 At [59].
47 Earthquake and War Damage Act 1944, s 14(2A).
48 Section 14.
Provided that if no such certificate is approved by the Commission in respect of any period the premium shall be computed on the amount to which the property is insured under the contract.
(2B)This section shall not apply with respect to any contract of insurance that is limited to an excess over the indemnity value of the property.
[72] In 1984, the 1944 Act was amended again in response to the Abbotsford landslip in Dunedin.49 In those amendments, Parliament included coverage for the land itself for the first time. This was done under reg 6 of the Earthquake and War Damage (Land Cover) Regulations 1984, which provided:
6. Commission to make good damage—
(1)Subject to the provisions of the Act and of these regulations if, while any property is insured under regulation 5 of these regulations, the property or any part of it is destroyed or damaged by earthquake damage or disaster damage or landslip damage, as the case may be, the Commission shall be liable to make good (by payment or reinstatement or repair or by a combination thereof, at the option of the Commission) all such loss or damage to an amount not exceeding—
(a)The value, at the site of the destruction or damage, of—
(i) An area of land equal to the minimum area allowable under the district scheme for land used for the same purpose that the destroyed or damaged land was being used at the time of the destruction or damage; or
(ii) An area of land of 4000 square metres; or
(iii) The area of land actually destroyed or damage— whichever is the smallest; or
(b)If there is no district scheme operative in respect of the destroyed or damaged land, the value, at the site of the destruction or damage, of—
(i) An area of land of 4000 square metres; or
The area of land actually destroyed or damaged—
whichever is the smaller.
…
49 At [62].
[73] It will be noted the limit of liability in reg 6 was substantially the same as under s 19 of the Act. It did not provide for the type of cover but, as noted by Williams J in Michalik v Earthquake Commission, all coverage under the 1944 Act was on an indemnity basis.50
[74] It appears then that the 1944 Act provided for indemnity cover, and that position was changed in respect of residential buildings and personal property with the enactment of the Act in 1993. That would suggest that in the case of land damage, where s 19 of the Act largely mirrored the regulations made under the 1944 Act, it was intended to provide indemnity cover only.
[75] The High Court in the Earthquake Commission case considered the drafting history of the Act:
[107] The legislative history tends to confirm [Parliament’s distinction between indemnity value in s 19 and replacement value in ss 18 and 20]. As originally drafted, the Earthquake Commission Bill provided for “residential property”, which included both the residential building and the associated land, to be insured against natural disaster damage “to the amount which is the lesser of the replacement value of the property or the maximum amount [$100,000], plus the value of any land covered under this section suffering natural disaster damage”.51 In its submissions to the Select Committee, the Commission pointed out that the effect of these provisions would be to provide replacement cover for land as well as buildings, whereas this was not intended and was not previously provided:52
It is not intended that cover for land be on a replacement basis. Instead, the aim is to continue the existing level of land cover. In a number of respects the Bill fails to do this.
Perhaps most fundamentally, the consequence of including land associated with a building in the definition of “residential property” is that clauses 18 and 21 confer replacement cover for land as well as buildings.
[108] For that reason, the Commission submitted to the Select Committee that “residential building” and “residential land” should be defined separately and that there should be separate insuring provisions for each. This submission appears to have been accepted. The Act separately defines residential buildings and residential land and these are insured under separate provisions. Further, the replacement cover expressly provided in the cases of residential buildings and personal property is not referred to in the insuring
50 Michalik v Earthquake Commission, above n 45, at [64].
51 Earthquake Commission Bill 1992 (210-1), cl 18.
52 Earthquake Commission “Submission of the Earthquake Commission on the Earthquake Commission Bill” at [4.7.1] and [4.7.2].
provision for residential land. Nor does the definition of “replacement value” extend to residential land.53 This supports the submissions made by the Commission, the Insurance Council and Mr Weston that residential land is insured on an indemnity basis for its market value.
[76] I accept the Court’s analysis in relation to what became ss 18 and 19 of the Act. I note in this regard that in reporting to Parliament, the Finance and Expenditure Committee commented on separating the definition of residential property:54
The definition of residential property was dealt with by the committee. The definition contained in the Bill covered residential property—being buildings and land—and the committee heeded the presentation of submissions that stated that it was advisable to split those two areas and to define carefully residential buildings and residential land. That has been done in the Bill as reported back.
Michalik v Earthquake Commission
[77] The plaintiffs also relied upon Michalik, which was decided prior to the hearing of the Earthquake Commission case. Michalik was only concerned with whether retaining walls are insured under the Act on a replacement basis.55 In his judgment, Williams J said:
[31] It is thus noteworthy that residential buildings and personal property are insured to full replacement value up to the stated maximums; residential land is insured to the full value of the damage or loss at the site (within the parameter of the three maximum area options set out in s 19); while bridges, culverts and retaining walls on residential land are insured to their “indemnity value”.
[78] However, the issue of the type of insurance cover for land provided by s 19(a) of the Act was not before Williams J and any comments he made that appear to have a bearing on the issue are obiter dicta. Further, in summarising the limits of cover provided in the section, the Judge incorrectly stated the limit in s 19(a) was as “to the full value of the damage or loss at the site” instead of the wording of the section which is “the value, at the site of the damage”. By way of contrast, the issue was squarely before the High Court in the Earthquake Commission case.
53 See Earthquake Commission Act, s 2(1) definition of “residential land”.
54 (20 July 1993) 536 NZPD 16561.
55 Michalik v Earthquake Commission, above n 45.
Natural Hazards Insurance Act
[79] Finally, the plaintiffs rely upon the Natural Hazards Insurance Act 2023 which will come into force on 1 July 2024. Section 38 of that Act makes it explicit that cover for residential land is on an indemnity basis. Section 39 provides that an insured can claim the lesser of the actual loss suffered (as determined in s 40) or the land cover cap (determined under s 43) minus the land cover excess. The land cover cap is the assessed market value plus an amount calculated for damaged retaining walls and an amount calculated for damaged bridges or culverts.56 The Act also defines “actual loss suffered” in s 40 and provides that this can be quantified by reference to reinstatement cost or DOV, which are defined in ss 41 and 42 respectively.
[80] In his written submissions, Mr Shand submits the Natural Hazards Insurance Act is as good as an admission of guilt that residential land was not insured under the Act on an indemnity basis. That is an unconvincing submission and was not advanced by Mr Barker at the hearing. If Parliament had considered the Earthquake Commission case was not correctly decided as it related to the basis for settlement of residential land claims, it would not be expected that it would wait almost a decade to take some action in respect to it and then in a manner that in substance endorses the decision.
Conclusion on the interpretation issue
[81] Having considered the arguments advanced by the plaintiffs, I can see nothing in them which leads me to the view that the Earthquake Commission case was wrongly decided or that the plaintiffs have any realistic prospect of convincing a court on the hearing of their claim that it was so. Accordingly, I do not consider the interpretation issue raises a substantial issue of significance common to the plaintiffs and the proposed represented class.
The application argument
56 Natural Hazards Insurance Act 2023, s 43.
[82] Mr Barker submits the plaintiffs’ pleading in the amended statement of claim is broad enough to raise the application argument. He argues global decisions were made that IFV and ILV land damage was too expensive and difficult to repair and that “[EQC] was not going to pay on that basis.” This is denied by EQC both in respect to the plaintiffs’ claim and to ILV and IFV claims generally.
[83] Mr Barker argues that EQC’s position that there were individual assessments undertaken ignores the reality that over 99.9 per cent of ILV and IFV claims were settled on a DOV basis. He says this can only be reconciled with an approach to the settlement of claims that was applied “mechanically” and “without individual consideration”.
[84] There are several difficulties with 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.
[85] Second, it is not obvious what is meant by the assertion that the DOV approach was applied in “a mechanical way” and “without proper consideration of their individual circumstances”. While I appreciate these words have been taken from the declarations made by the High Court in the Earthquake Commission case,57 I do not see what the term “mechanical way” adds to the words that follow it. Further, the additional proposed common issue (para c) is redundant as it has already been held in the Earthquake Commission case that claims had to be determined on an individual basis and there is no challenge to that finding.
57 Earthquake Commission v Insurance Council of New Zealand, above n 1, at [160].
[86] It appears also, there are several ways in which the plaintiffs may be seeking to advance their application but it is not clear which applies. At one extreme, it may be the plaintiffs’ position is that EQC had a strategy that regardless of individual circumstances, all IFV and ILV land damage claims would be settled on a DOV basis. That does appear to be the position Mr Barker is advancing when he refers to global decisions that EQC was not going to settle based on cost of repairs because that was too expensive.
[87] I would accept that the existence of a strategy to settle IFV and IVL land damage claims only on a DOV basis may be a common issue, proof of which is significant to resolution of the plaintiffs’ claim and the claims of the proposed represented class. The position might be considered similar to what was alleged in Southern Response Earthquake Services v Southern Response Unresolved Claims Group.58
[88] There, the claimants sought leave to bring a representative action and alleged Southern Response adopted a strategy designed to systematically reduce the cost of meeting earthquake claims below its true liability.59 Southern Response argued there were no common issues as all the claimants had done was to aggregate a number of individual issues, and recast them as common issues by labelling them as a strategy.60 Southern Response’s argument was not accepted by the Court.
[89]In delivering the judgment of the Court of Appeal, Winkelmann J said:
[44] Southern Response mischaracterises these allegations when it says that by alleging a “strategy” the Group attempts to dress up what is in reality a collection of 27 separate claims and 27 separate issues. It is a better characterisation of the second cause of action to say that the Group relies upon the experiences of multiple claimants to prove the existence of the strategy. Proving the application of a strategy will require evidence from, at least, several of the claimants as to how their claims were handled by Southern Response. If the Group can prove, through a pattern that emerges from that evidence, that Southern Response formulated and applied a strategy to misrepresent the nature of the claimants’ contractual rights, and to delay the processing of those claims, that may be evidence of a breach of contractual duty of good faith, whether express or implied.
58 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 9.
59 At [3].
60 At [21].
[45] It may be that individual claimants will then need to show that aspects of this strategy were applied to their claim. But that is a far less onerous task than each being required to prove the strategy. They will also, as Southern Response contends, have to lay out the basis for their general damages claim. At least the portion of general damages based upon delay will need to be assessed on a claimant by claimant basis. Again, the need for aspects of the claim to be determined individually is not a bar to the use of the r 4.24 procedure. We accept however that it is relevant to the assessment of issues of efficiency and efficacy.
…
[52] We see obvious efficiencies in proceeding under r 4.24. A single plaintiff can prove the existence of a strategy, calling upon such of the evidence of the 26 other claimants as it needs for that purpose. For this reason, the second cause of action is suited to the representative procedure. ...
[90] However, the application argument, as the plaintiffs have presently formulated it, makes no reference to any strategy to not subject claims for ILV and/or IFV land damage to individual assessment. If the plaintiffs intend to advance the case on this basis they will, in effect, be asserting that for financial expediency EQC ignored the directions of the High Court and acted unlawfully. Such an allegation must in my view be expressly asserted and supported with particulars. It certainly cannot be said the plaintiffs’ amended statement of claim makes such an allegation either. If made, it will be open to EQC to argue that even upon a provisional appraisal of the merits such a contention is clearly wrong.61
[91] Another possibility is the plaintiffs are alleging there were systemic flaws in the manner in which EQC dealt with claims for ILV and IFV land damage such that regardless of the individual circumstances of any claim, the result was effectively pre- determined that EQC would settle on a DOV basis. This might relate, for instance, to the terms of EQC’s policies for dealing with such claims or the manner in which the policies were interpreted and applied.
[92] Again, I accept that if it could be established that EQC’s policies for dealing with claims or the manner of their application was flawed, the resolution of that issue may be of significance in advancing the disposal of the claims of the plaintiffs and the proposed represented class. As was the case in the Southern Response Earthquake Services case, such a finding would not necessarily mean that either the plaintiffs or
61 At [16] [17].
all members of the represented class were entitled to a reassessment of their claims or that they had not received their entitlements under the Act. They may need to show that any flaws in EQC’s approach applied to their particular claim as well as establish their true entitlement under the Act. Despite that, they would derive considerable benefit from the identification of any aspects of EQC’s policies or application of them that were flawed. As recognised by Winkelmann J, the need for aspects of claims to be determined individually is no bar to the use of the r 4.24 procedure.62
[93] However, before me there was no analysis by the plaintiffs of EQC’s published policies for assessing claims for ILV and IFV land damage or identification of any flaws in the terms or application of them, except in the very broadest sense that almost all claims were settled on a DOV basis. If the plaintiffs wish to advance the case on the basis the policies or their application were flawed, then particulars must be provided. It is not sufficient that the plaintiffs broadly assert a failure by EQC to consider individual circumstances. That, to my mind, does not give rise to a common issue suitable for a representative action, but would involve an assessment of the circumstances of individual cases.63
[94] My assessment, then, is that the plaintiffs have failed to identify a suitable common issue justifying the granting of leave under r 4.24, but the potential to do so exists. At the present time they have failed to clearly articulate the underlying foundational issue or issues upon which the proposed representative proceeding will proceed.
[95] That leaves me in the position of having to decide whether to dismiss the application or provide the plaintiffs with a further opportunity to propose a suitable common issue. On the one hand, the courts have emphasised the proposed common interest requirement under r 4.24 is to be assessed purposively, flexibly and consistently with the just, speedy and inexpensive determination of proceedings so
62 At [45].
63 See Ideal Investments Ltd v Earthquake Commission, above n 13; Ideal Investments Ltd v Earthquake Commission [2022] NZCA 641.
that “a multiplicity of actions can be avoided in circumstances where use of the representative process will not be unfair to the proposed defendant”.64
[96] On the other hand, in Ideal Investments Ltd v Earthquake Commission the Court of Appeal rejected a submission for the applicant seeking leave under r 4.24 that the Associate Judge failed to take a suitably liberal and flexible approach by requiring the common interest to be precisely specified at the time of the application for a representative order. Ideal submitted that a more appropriate course would be for the scope of the issue to be determined by the High Court during the case management process. The Court of Appeal said:65
It would not be appropriate for the High Court to grant leave to bring a representative action, potentially on behalf of more than ten thousand class members, in circumstances where the applicant has failed to adequately identify a common or shared interest between all the members of the proposed class. This is a fundamental prerequisite to obtaining leave to bring a representative action under r 4.24 of the High Court Rules. This is not a matter that can be remedied during the case management process, or during the “second stage” of the process, when individual issues are considered.
[97] There is undoubtedly unfairness to EQC in allowing the plaintiffs a further opportunity to identify a suitable common issue. It was a fundamental requirement that the plaintiffs do so and to allow then a further opportunity to correct deficiencies in their application will put EQC to considerable additional expense. Relevantly, in the first round of the Southern Response Unresolved Claims Group litigation, the applicants failed to satisfy Mander J there was a significant common issue for the purposes of r 4.24.66 While acknowledging access to justice considerations, Mander J dismissed the application but without prejudice to any further application being made addressing the deficiencies he had identified in the application.67
[98] However, any prejudice to EQC in this regard can be compensated in costs. In my view, the access to justice considerations are more significant. Should the plaintiffs be able to identify a suitable common issue it will have the potential to
64 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 9, at [14] citing Credit Suisse Private Equity LLC v Houghton, n 4 above, at [55] [56] and [61].
65 Ideal Investments Ltd v Earthquake Commission, above n 63 at [17] (CA).
66 Southern Response Unresolved Claims Group v Southern Response Earthquake Services Ltd
[2016] NZHC 245 at [82] [83].
67 At [109].
benefit a large class of potentially thousands of claimants who might otherwise have no idea that they have a right to bring such a claim themselves or would not have the financial means to do so.
[99] Further, if the plaintiffs’ application was dismissed, despite the decisions in Credit Suisse Private Equity Group LLC v Houghton68and Cridge v Studorp Ltd,69 there is still the potential for limitation issues to be raised, potentially in respect to a large number of property owners within the proposed represented class
[100] Another factor in favour of granting the plaintiffs an indulgence of further time is that there has been a great deal of material filed in relation to this application and I heard argument from counsel over two days. It would be a tremendous waste of the parties’ and the Court’s time and resources if the plaintiffs had to start again.
Further issues
[101] The other issues that I identified in [6] above will arise only if the plaintiffs can satisfy the common issue requirement and I do not need to address them.
[102] A further issue, which I do not need to address now, concerns whether the plaintiffs are able to fairly and adequately represent persons whose claims were in respect of IFV land damage when the plaintiffs’ property did not suffer such damage. I simply flag the issue at this stage.
Result
[103] The plaintiffs’ application shall be adjourned for the plaintiffs to adequately identify a common issue or interest between all members of the proposed represented group. I will then allow the parties to make further submissions in respect of the matter. The Registrar is to arrange a telephone conference with counsel to put in place a timetable on the first available date.
68 Credit Suisse Private Equity Group LLC v Houghton, above n 4, at [127]-[128].
69 Cridge v Studorp Ltd, above n 3, at [80].
[104] Pending final determination of the application, or further order of the Court, costs are reserved.
O G Paulsen Associate Judge
Solicitors:
Grant Shand, Barristers & Solicitors, Auckland Russell McVeagh, Wellington
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