Ideal Investments Ltd v Earthquake Commission
[2022] NZCA 641
•20 December 2022 at 9:00am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA292/2022 [2022] NZCA 641 |
| BETWEEN | IDEAL INVESTMENTS LIMITED |
| AND | THE EARTHQUAKE COMMISSION |
| Court: | Goddard and Katz JJ |
Counsel: | G D R Shand for Applicant |
Judgment: | 20 December 2022 at 9:00am |
JUDGMENT OF THE COURT
AThe application is declined.
BThe applicant must pay costs to the respondent for a standard application on a band A basis with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Katz J)
Introduction
[1] Ideal Investments Ltd (Ideal) seeks leave to appeal an interlocutory decision of Associate Judge Lester (the High Court decision) in which the Judge declined to grant Ideal leave to bring a representative proceeding against the Earthquake Commission (Commission).[1]
Background
[1]Ideal Investments Ltd v Earthquake Commission [2022] NZHC 400 [High Court decision].
[2] Section 29(2) of the Earthquake Commission Act 1993 (the Act) relevantly provides that if an insured property suffers natural disaster damage, the Commission shall settle any claim to the extent to which it is liable under the Act. Following such a settlement, s 29(4) provides that:
Subject to any regulations made under this Act and without limiting the liability of the Commission under this Act, any payments or expenditure for which the Commission may be liable under this section shall be made as soon as reasonably practicable, and in any event not later than 1 year after the amount of the damage has been duly determined (which determination shall be made as soon as reasonably practicable).
The High Court proceeding
[3] Ideal issued proceedings in the High Court claiming that the Commission had breached the requirement under s 29(4) of the Act in relation to two properties Ideal owned that had been damaged by the Canterbury earthquakes in 2010 and 2011. Ideal claims that as a result of delays by the Commission in paying Ideal’s full entitlement, Ideal incurred mortgage interest it would not have otherwise incurred.
[4] In addition to bringing its own claim, Ideal applied for leave to represent certain other owners of residential properties damaged in the Canterbury earthquakes, pursuant to r 4.24 of the High Court Rules 2016. That rule relevantly provides that a person may sue on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding, with leave of the court.[2] To bring a representative proceeding there must be a common issue of fact or law of significance for each member of the represented class.[3] As the Judge observed in the High Court decision:[4]
[13] 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 representative plaintiff on a common issue will bind all class members. 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.
[2]High Court Rules 2016, r 4.24(b).
[3]Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431 at [51], citing Cridge v StudorpLtd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11]. See also Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [53] per Elias CJ and Anderson J.
[4]Footnote omitted.
[5] The Commission was not opposed to leave being granted to Ideal to bring a representative action. Rather, the Commission’s concern was that the class of persons that Ideal sought to represent did not have a sufficient common interest in the subject matter of the proceeding. The Commission therefore proposed an alternative common issue and class. Ideal decided, however, to press ahead based on its preferred formulation of the common interest and class. The Commission opposed leave being granted on that basis.
The High Court decision
[6] The key difficulty the Judge identified with Ideal’s application lay with the same interest requirement. Ideal proposed that all of those homeowners whose properties were damaged between 4 September 2010 and 23 December 2011 would be in the represented class. This reflected “Ideal’s core proposition … that ‘come‑what may’ [the Commission] had to resolve all such claims no later than 4 June 2015.”[5]
[5]High Court decision, above n 1, at [20].
[7] Mr Shand (counsel for Ideal) informed the Judge that Ideal did not intend to advance its proceeding by focusing on how the Commission had actually dealt with the claims of individual homeowners within the class. Rather, Ideal proposed to provide a “high level” analysis aimed at showing that the Commission had had more than enough time by 4 June 2015 to have processed and paid all claims made for earthquake damage that occurred prior to 2012, regardless of the individual circumstances of any particular class member. A finding to this effect, Mr Shand submitted, would assist all members of the represented class. They would receive the benefit of a liability finding (namely that the Commission had not paid them “as soon as reasonably practicable”) without the need for any of them to prove the specific circumstances of their claim.
[8] The Commission did not accept Ideal’s proposition that all claims arising from the Canterbury earthquakes prior to 2012 can be treated as if they were the same, and that a general liability finding could be made in favour of all such claimants, regardless of their individual circumstances. Rather, the Commission submitted, the wording of s 29(4) of the Act showed the Commission’s obligation under that section was in respect of each individual claim and breach and was therefore a question that turned on the facts of each claim. Section 29(4) did not create some form of collective duty. Rather, every claimant would have to satisfy the factual question of whether their claim had been dealt with as soon as reasonably practicable, which required an assessment of the circumstances of their individual case.
[9] The Judge rejected Ideal’s submission that the question of whether s 29(4) was satisfied “is a high level [one] and does not turn on the facts of each case”.[6] He noted that on such an approach:[7]
… even if [the Commission’s] dealings with an individual case had been “text book”, that is, a model of perfection, on Mr Shand’s case that would not matter if the claim was not resolved by the deadline nominated by Ideal (15 June 2015). I am satisfied that absolute proposition cannot be correct.
[6]At [28].
[7]At [29].
[10] The Judge observed that the progress of individual claims can be influenced by a wide range of factors, many of which are beyond the control of the Commission.[8] He expressed concern that Ideal’s proposition assumes that all variables in relation to tens of thousands of earthquake claims could be controlled or overcome by the Commission.[9] The Judge’s view was that the issue of breach is inherently specific to the individual circumstances of each property.[10] Ultimately, he concluded that:[11]
[50] Accordingly, I am satisfied that Ideal’s application, as it stands, should be declined on the basis the common issue as advanced raises what are factual issues personal to each homeowner. [The Commission] does not oppose a representative action, has suggested an alternative common issue and class, and has invited the Court to give directions in those terms.
[8]As set out at [30].
[9]At [31].
[10]At [32].
[11]Emphasis in original.
[11] Ideal’s application was accordingly dismissed. The Judge reserved leave, however, for Ideal to request to proceed on the basis of the Commission’s proposed class.[12] Ideal elected not to do so, but instead sought leave to appeal the Judge’s decision.
[12]At [59].
[12] For completeness, we note that the Judge also addressed several other objections to the proposed representative action, which we do not need to traverse for present purposes.
The High Court leave application
[13] As the High Court decision was an interlocutory one, Ideal requires leave to appeal it.[13] In the first instance Ideal was required to seek leave from the High Court. The Judge declined to grant leave. He found that Ideal’s draft notice of appeal did not set out a reasonably arguable ground of appeal in relation to the key basis upon which the application to bring a representative proceeding was dismissed (as set out at [10] above).[14] Ideal then applied to this Court for leave to appeal.[15]
Should this Court grant leave to appeal?
Relevant legal principles
[13]Senior Courts Act 2016, ss 27 and 56(3).
[14]Ideal Investments Ltd v Earthquake Commission [2022] NZHC 1079.
[15]Pursuant to Senior Courts Act, s 56(5).
[14] The relevant test for leave to appeal an interlocutory decision under s 56(5) is set out in Greendrake v District Court of New Zealand as follows:[16]
(a) a high threshold exists;
(b) the applicant must identify an arguable error of law or fact;
(c) the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d) the circumstances must warrant incurring further delay; and
(e) the ultimate question is whether the interests of justice are served by granting leave.
Did the Judge make an arguable error of law or fact?
[16]Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
[15] In order to succeed on appeal, Ideal would have to persuade the Court that the Judge erred in finding that the members of Ideal’s proposed representative class do not share a significant common issue. For present purposes, Ideal must persuade us that it is at least arguable that the Judge made such an error. If, as the Judge found, determination of liability under s 29(4) of the Act must turn on the assessment of factual issues personal to each homeowner, then there can be no basis for a representative action on the basis proposed by Ideal.
[16] Ideal says that the Judge failed to take a liberal and flexible approach to determining a common interest. Specifically, the Judge is said to have wrongly required the common issue to be precisely specified at the time of 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.
[17] We do not accept that submission. 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.
[18] We also reject the submission that the Judge incorrectly considered that the application needed to provide answers to almost all issues, overlooking that a representative order can be made notwithstanding that it relates only to some issues of the claim. The Judge expressly noted that claims advanced in representative proceedings typically involve both common and individual issues (as set out in the quote at [4] above). The difficulty here was not that the proposed common issue was limited in scope, but that (as articulated by Ideal) the proposed class did not have a common interest at all.
[19] Mr Shand submitted that the Judge looked for impediments to the representative action rather than being facilitative of it. We also see no merit in that submission. The Judge appropriately identified a fundamental impediment to a representative action on the basis proposed by Ideal. He did, however, give Ideal the option of proceeding with a representative action on the basis of orders the Commission would not have opposed.
[20] Ultimately, Mr Shand submits that the Judge was wrong to consider that each claimant would have to satisfy the factual question of whether their claim had been dealt with as soon as reasonably practicable. However, the Judge’s reasons for his conclusion on this issue (as summarised at [9] and [10] above) are compelling. In our view it is not reasonably arguable that the Judge erred in finding that s 29(4) of the Act did not require the Commission to settle all claims arising prior to December 2011 by 4 June 2015, failing which the Commission would be liable to all members of the proposed class (even if, for example, any delays in settling the claim were entirely due to a claimant’s own conduct).
[21] Mr Shand also criticises the Judge’s decision not to consider an amended statement of claim filed after the hearing, in which Ideal attempted to address some of the issues raised at the hearing. The Judge’s view was that the appropriate course was to determine the application on the basis of the pleadings as they were on the date of the hearing as “[t]o do otherwise would be to re-open the hearing”.[17] That was clearly a reasonable and available approach in the circumstances.
[17]High Court decision, above n 1, at [18].
[22] If Ideal’s proposed amendment to the class definition was capable of curing the defects in the original class definition, we would have considered granting leave to appeal. Arguably, the same latitude should be extended in the context of defining a representative class that is extended in the context of strike out applications, allowing the applicant an opportunity to amend the class definition if it is capable of effective repair.[18] We have therefore considered Ideal’s proposed amendment, which would define the class on a “two payments basis” to include homeowners who received a payment from the Commission after 4 June 2015, and then received a subsequent payment from the Commission. Mr Shand submitted that in those circumstances the first determination must have been erroneous. So an assessment of the circumstances of each individual case would not be necessary in order to establish liability.
[18]Marshall Futures Ltd (in liq) v Marshall [1992] 1 NZLR 316 (HC) at 324.
[23] However we accept the Commission’s submission that the proposed amendment would not cure the defect in the class definition. It does not follow as a matter of logic from the fact that the Commission made more than one payment to a homeowner that the first payment was based on an erroneous determination. The Commission payments could be iterative. For example, the Commission could make provisional or partial payments in some circumstances, including for emergency repairs. In other cases, damage may initially have been undetectable even with all due care on inspection. The mere fact of a subsequent payment does not imply fault by the Commission in respect of the first payment.
[24] In conclusion, Ideal has failed to identify an arguable error of law or fact in relation to the critical finding that underpinned the High Court decision. Nor has Ideal identified any amendment to the class definition that would cure the defects identified in the High Court. This conclusion is sufficient to dispose of the leave application. None of the other matters raised by Ideal raises the prospect of a successful appeal in circumstances where there is little or no prospect of a successful challenge to the Judge’s key reason for declining to grant leave to Ideal to bring a representative proceeding.
Other matters
[25] We have found that there was no error, and hence there can be no error of general or public importance. We acknowledge, however, that the underlying substantive proceeding has the potential to raise issues of general or public importance. If there had been an arguable error in the High Court decision that was material to the outcome, this factor would have weighed in favour of a grant of leave.
[26] Leave to appeal is required because the decision is interlocutory in nature. As this Court observed in Dokad Trustees Ltd v Auckland Council:[19]
[10] The scheme of s 56 [of the Senior Courts Act] is that appeals as of right are reserved for final determinations in respect of a proceeding. A leave filter applies to appeals from decisions on interlocutory applications in order to avoid delay and unnecessary cost. The underlying assumption is that such decisions are made in the course of a proceeding, and appeal rights should be exercised when the proceeding comes to an end. If a procedural decision has affected the ultimate outcome, that issue can be raised in an appeal against the substantive High Court decision that concludes the proceeding: see s 56(6).
[19]Dokad Trustees Ltd v Auckland Council [2022] NZCA 177.
[27] If Ideal had persuaded us that there was an arguable error in the High Court decision that was material to the outcome, it is likely that we would have granted leave, despite the interlocutory nature of the decision under appeal. That is because the practical effect of the High Court decision is to bring to an end the prospect of a representative proceeding, at least on the basis currently proposed by Ideal. Although Ideal can continue with its own proceeding, it may not be economic to do so. Further, this is not a case where it would be possible for Ideal to appeal the High Court decision after trial on the basis that leave should have been granted to bring a representative proceeding, as that pre-trial decision would not affect the ultimate outcome at trial. Any appeal would need to be brought pre-trial. But in the absence of any arguable error in this case, there is no basis for granting leave to appeal.
Result
[28] The application is declined.
[29] The applicant must pay costs to the respondent for a standard application on a band A basis with usual disbursements.
Solicitors:
Grant Shand, Christchurch for Applicant
Russell McVeagh, Wellington for Respondent
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