Mathias v Earthquake Commission

[2022] NZHC 3105

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-009-2441

[2022] NZHC 3105

BETWEEN

CAROL ANN MATHIAS

Plaintiff

AND

THE EARTHQUAKE COMMISSION

Defendant

Hearing:

14 November 2022 (By VMR)

Counsel:

G D R Shand for Plaintiff

N L Walker and C J Curran for Defendant

Judgment:

25 November 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

MATHIAS v THE EARTHQUAKE COMMISSION [2022] NZHC 3105 [25 November 2022]

[1]    In 2015, Ms Mathias purchased a home that had been damaged in the Canterbury Earthquakes and repaired  by  The  Earthquake  Commission  (EQC).  Ms Mathias claims her home was poorly repaired by EQC and the cost to rectify that poor work exceeds any amount she would be entitled to under her statutory rights against EQC, leaving her with a substantial shortfall in respect of the repair costs. In this proceeding Ms Mathias asserts EQC owed a duty of care to subsequent owners of properties it repaired to have properly assessed and repaired earthquake damage.

[2]    In August 2022, Ms Mathias  was  granted  leave  to  continue  her  claim  as a representative on behalf of:1

The owner of a residential building insured by s 18 of the Earthquake Commission Act 1993 … during the Canterbury Earthquake Sequence that commenced on 4 September 2010 and ended on 23 September 2011.

[3]    Subsequently, counsel have been working on the next steps in this representative action which are:

(1)the terms of the class member Notice to make the public aware of their right to opt-in;

(2)the process for giving that notification, that is, the types of advertisement and/or direct mail out; and

(3)the terms of the Opt-in Form to be used by someone wishing to join the class action.

[4]    Each of the above issues raises sub-issues, not all of which have been agreed, hence this application.

[5] In addition, Ms Mathias has applied to vary the class set out at [2] above, to change the opening words from “The owner” to “An owner” to permit intermediate property owners who retained the right to claim against EQC, as opposed to only the final owner of a property, to join the class. That variation is opposed.

1      Mathias v The Earthquake Commission  [2022] NZHC 2097 where the full class definition is set out.

[6]    As whether the class is to be varied will have a flow-on effect to the wording of the Notice to be given to the public, I deal with that matter first, then the terms of the Notice, followed by what might be called the mechanics and process of giving notice.

Amendment to the class

[7]    Mr Shand, counsel for Ms Mathias, advances the application to amend the class pursuant to leave reserved in the judgment granting  Ms Mathias leave to sue as       a representative. That judgment provided:2 “Leave is reserved to the parties to apply to rescind and/or vary the rule 4.24 order”. Mr Shand relies on the apparent breadth of that reservation of leave. EQC, as a threshold point, submits the leave reserved should be construed narrowly.

The breadth of the leave

[8]    EQC submits the representative orders were made essentially on an agreed basis.  It submits the application to amend the class is contrary to that agreement.   Mr Shand suggests he made a mistake in agreeing to the class being limited to current owners.    I note  here  that  in  the  original  application  by  Ms Mathias  to  sue  as  a representative, the order sought was that Ms Mathias be granted leave to sue on behalf of “a current owner”. A reference to “current owner” appearing twice in the class definition when proposed.

[9]    In arguing that the leave should be narrowly construed, Mr Curran, counsel for EQC, submitted that permitting the reservation of leave to be used to make significant changes to a class would act as a disincentive to defendants to reach agreement in respect of representative orders. Given the processes that must be put in train following the making of representative orders, it is important for the efficient running of the proceeding and the efficient use of courtroom resources that the class not be tinkered with given the flow-on effects of such alteration.

2      Mathias v The Earthquake Commission, above n 1, at [26].

[10]   To some extent, Mr Curran’s submission that the leave reserved was intended only for fine tuning is undermined by the fact that the leave expressly permits an application to cancel the representative action.

[11]   Mr Curran referred to two decisions where Osborne J had reserved leave to parties to apply to alter, amend or add to, approved communications to a class where his Honour said:3

This leave does not constitute a licence to any party to attempt to relitigate matters which have been determined by this judgment or which could have appropriately been the subject of submissions at the hearing of this application. It is a precautionary leave to ensure that the process ahead does not break down due to some changed circumstance.

[12]   While here the leave was not expressly so qualified, Mr Curran submitted, in effect, that Osborne J was only making express what was implicit in the reservation of leave, that is, it is not a means to substantially rewrite or relitigate matters. I agree.

[13]   The reservation of leave here was not  a  licence  to  have the Court graft  on a change to an agreed position. The situation might be different if Mr Shand could point to the form of the agreed orders not reflecting what had in fact had been agreed, in effect, an application to rectify the orders, but that is not the case here.

[14]   I note here that Mr Shand advanced the application for a variation to the class with reference to homeowners who were, they say, forced to sell their home because of the way EQC dealt with the poor earthquake repairs to a house they had bought after the repairs had been carried out. As I said to Mr Shand in Court, I did not need to be persuaded of the difficulties faced by those homeowners and indeed they are deserving of the Court’s understanding. However, even if I was satisfied the leave reserved permitted the variations sought, I would have declined to make that order for the following reasons. Because Mr Shand submitted even without leave the Court had power to vary the class, I now turn to consider the other reasons advanced by EQC as to why the variation should not be permitted.

1. Ross v Southern Response Earthquake Services Ltd [2021] NZHC 2452 at [195] and

Ross v Southern Response Earthquake Services Ltd [2021] NZHC 2453 at [91].

The amendment creates potential conflict between class members

[15]   If intermediate as well as final owners of a property were able to join the action then there could potentially be more than one claimant per property. Both claimants would be claiming for inadequate repairs or scoping by EQC. That raises the question of which of the owners suffered the loss or, if they have both suffered loss, how loss is to be apportioned. A current owner of a property would have no way of knowing at the time they opt into the class whether a previous owner of the property had already opted-in or might do so in the future. That subsequent owner would therefore have to make a decision whether to opt-in without knowing whether doing so had the potential to expose them to being in conflict with a prior owner.

[16]Mr Shand meets this by submitting:

There will only ever be one claim for each property as the person either bought with knowledge of the defects, or bought at full value which means that the previous owner may have suffered no loss.

[17]   At first appearance this seems right. However, where there have been a string of owners, they may not agree when loss crystalised. Further, unrepaired damage or poor workmanship may have been discovered by each subsequent purchaser. What was disclosed at each sale and how that was reflected in the purchase price would have to be addressed.

[18]   There is merit in Mr Shand’s submission that such issues could be worked through at stage two, that is, once the existence of the duty of care is determined one way or another, those owners potentially in conflict could then be diverted to a separate process. However, that does not address the issue discussed at [15] that a current owner opting to join the class will not know if in doing so they are putting themselves into a potential conflict situation.

[19]   The amendment of the class also has the potential to create an injustice or at least considerable delay to a current owner who does not opt-in but where a previous owner has. EQC would then face a claim from a previous owner through the class action but also potentially a direct approach from the current owner to resolve the unrepaired loss through negotiations with EQC. That would see EQC facing two

claimants resulting in the current owner having the processing of their direct approach to EQC deferred until the class action was resolved.

[20]   Finally on this issue, the class has the potential to be very large. It is in the interests of the efficient management of the class that the type of complications I have just discussed are avoided.

[21]Accordingly, the application to vary the class is declined.

Approval of Notice of Opt-in Rights

[22]   The class Notice agreed by the parties, along with the areas of disagreement shown as marked-up changes, accompanies this judgment.

[23]   On the marked-up document I have shown the changes that are accepted and those which are not. In respect of some changes, I make the following brief comments. EQC objected to the notice referring to the cost of repairs being “likely” to exceed EQC’s statutory cap.

[24]   While EQC is correct that the cost of repairs must exceed the cap in order to qualify for the class, a homeowner may not be able to determine that accurately at the time of the notice. Using the term “likely” permits potential class members to consider their position. As there is room for debate as to the cost of remedial work, the use of “likely” is appropriate here.

[25]   EQC had objected to the Notice including reference to websites where EQC considered there were misleading statements. Counsel, following the hearing, resolved two of those issues leaving one for me to determine.

Website statements

[26]   The agreed changes to the websites referred to in the Opt-in Notice are as follows. These changes will be carried out wherever the text appears on those websites.

(a)The contested text referred to at 3.18(a) will be amended to read: “requires affected homeowners to complete repairs that are paid to homeowners in tranches with up to the final 10% not paid until the repairs are complete”;

and

(b)The contested text referred to at 3.18(b) will be amended by deleting the last sentence of the frequently asked question “What are the benefits of a class action”.

[27]   The parties were not agreed on the content of one change. That change relates to EQC’s complaints that the websites referred to in the Opt-in Notice suggest settling with EQC under the now closed Government On-Sold Policy will be time consuming and involve homeowners in the stress and extended time of completing repairs as opposed to the class action providing access to a cash payment. Similarly, the process of homeowners not approaching EQC on a case-by-case basis will also be time consuming.

[28]   EQC says this creates the impression that a cash payment may be made available more promptly than the time involved in negotiating with EQC and undertaking repairs. Mr Shand points to the fact that nowhere on the websites is it stated that the class action would enable a “prompt cash payment” and that balance is already provided when in the frequently asked questions in response to the question “What are the chances of success …”, the answer is:

Our team is reasonably confident the case has merit, however, litigation is, by its very nature, inherently risky and it is not possible to predict the outcome, or how long the case may take to be finally resolved.

[29]   Members of the public, particularly homeowners in Christchurch who consider their homes are still subject to unresolved earthquake damage, will be under no illusions as to the length of time litigation takes. Further, it is not inaccurate to say that participation in either the Government On-Sold Policy or direct negotiations resulting in a homeowner’s property being repaired, are involved and lengthy processes. Applications to the Government’s On-Sold Policy programme closed on 14 October 2020. Some two years later, a number of applications which have been accepted are still in the process of finalisation.

[30]   In my view, EQC’s submissions do not give the public sufficient credit. The public know litigation is uncertain and takes time. I do not direct the changes sought by EQC.

Funding

[31]   There is also more than  one reference to  access to the Funding Agreement.   I have declined to order Ms Mathias produce the Funding Agreement . At the hearing, Mr Shand again confirmed the accuracy of the description of the funding. During the hearing, Mr Walker, counsel for EQC, sought clarification about the funding of stage two steps. Mr Shand confirmed that at stage two there would be full funding for all class members including solicitor and counsel fees, expert fees and disbursements. These points are reflected in the agreed changes to the Notice. He also confirmed that any adverse costs would be met by the Funder.

[32]   Accordingly, the Notice accompanying this judgment is approved with the additions and deletions shown.

The process of notification

[33]   I start with determining what the opt-in period should be as it has some implications for the timing of advertisements. Ms Mathias seeks an opt-in period of six months. EQC submits three months is appropriate.

[34]   Running alongside the present action is EQC’s  willingness to  consider, on   a case-by-case basis, claims for compensation by homeowners who would also fall within the class. I was concerned that a three month time period risked homeowners who were yet to approach EQC seeking compensation being left at the end of the three months in a situation where they faced the loss of the option to join the class action and had not received confirmation from EQC that it was prepared to accept their claim.

[35]   Mr Walker who handled this part of the application on behalf of EQC, submitted that a shorter timeframe would focus the minds of both homeowners and EQC and he submitted EQC had an incentive to deal promptly with homeowners who approached   it   to   achieve   settlement.     During   his   submissions,   he proposed

a compromise of four and a half months. Mr Walker was concerned that if the opt-in period was too long it would mean homeowners would lose sight of the need to make a decision about the opt-in.

[36]   I adopt Mr Walker’s suggestion of an opt-in period of four and a half months. I do so not purely as a compromise between the parties’ two positions but to ensure that a homeowner who is prompted to confront the issue of unrepaired earthquake damage to their home for the first time has a reasonable time to address their claim directly with EQC, take legal and possibly expert advice about their home and to consider whether to opt-in.

[37]   I do not have a sense of the number of homeowners that may approach EQC directly to settle their claims outside of this proceeding. EQC will need to ensure that it has  the  resources  available  to  deal  with  those  claims,  at  least  to  the  extent  a homeowner will know whether their claim has in substance been accepted subject to scoping and costing issues or whether their claim has been declined and  they need  to consider whether to opt-in to the proceedings.

[38]   If it becomes clear that the number of homeowners approaching EQC to settle with them directly is such that EQC cannot give each homeowner that indication within the opt-in period, EQC is to file a memorandum to that effect and the issue of whether the opt-in period should be extended will then be addressed.

[39]   Counsel for EQC emphasised what they called: “alternative settlement pathways” with EQC. Entry to the “on-sold over cap” scheme has closed albeit there are applications still being worked through by EQC. The other pathway is for homeowners to negotiate with EQC on a case-by-case basis. For homeowners to have a true opt-in choice, that is, to decide whether to opt-in, finalise their claim under the old sold programme or negotiate directly with EQC, there must be sufficient time for the homeowner to know if EQC’s “pathways” offer a real solution or not.

Form

[40]   The advertisement approved by the Court also accompanies this judgment showing the approved additions and deletions.

Frequency of advertisements

[41]   Ms Mathias seeks an order that the proposed advertisement of the proceeding be run in the Public Notice section of The Press, the New Zealand Herald, the Dominion and  the Otago Daily Times.    EQC does not oppose this but submits     the advertisement should appear only once.

[42]   There is an order that the advertisement is to appear in the listed newspapers twice in the first month and once after three and a half months.

Advertisement on EQC’s social media and website

[43]   An order is sought that a Notice in terms of Annexure B to the application (which is the Notice of Opt-in Rights) appear on:

(a)EQC’s Facebook page to be republished weekly;

(b)EQC’s Twitter page to be republished weekly;

(c)on EQC’s LinkedIn page (no frequency proposed);

(d)on EQC’s website under the “Latest News” section, under the “Canterbury Earthquake” section, under the “On-sold overcap properties” page, and on the “News” page of EQC’s website.

Ms Mathias seeks that these notices on the website remain until the opt-in date, with active links to the website being established by the plaintiff for the class action.

[44]   EQC opposes the weekly frequency of the Notice on Facebook and Twitter and suggests it be monthly.

[45]   I direct that the Notice on EQC’s Facebook and Twitter pages be weekly for the first month and thereafter monthly. I do so as the intention is to provide “saturation” coverage of the class action early on to reach the largest number of class members.

[46]   I do not direct that the Notice appear on LinkedIn. LinkedIn is a professional networking site and I agree it is inapt for public communications of a general nature.

[47]   As to EQC’s webpage, EQC submits that the Notice should only appear on one location,  that  is,  its  “On-sold  overcap  properties”  page.   During  the  hearing,    a compromise was reached whereby on EQC’s homepage a banner or headline will be created referring to the class action with a hyperlink to EQC’s “On-sold overcap properties” page. The Notice will appear only on the “On-sold overcap properties” page albeit there will be a clear link to that page on EQC’s homepage.

[48]   As to the EQC page providing a link to the website to be created for the class action, that is not opposed now the claimed misleading content has been resolved.

Advertisements on Funder and Ms Mathias’ counsel’s website

[49]   This is not opposed now that concern about claimed misleading statements has been addressed or ruled on.

Ms Mathias’ advertising on social media

[50]   EQC does not oppose Ms Mathias’ advertising on social media. EQC sought a direction that Ms Mathias specify the pages on which she would publish the Notice. The  order  sought  refers  to  Facebook,  Twitter  and  Instragram.  It  was  agreed Ms Mathias’ counsel would give EQC’s counsel notice of any posting of the Notice on Facebook, Twitter and Instagram prior to publication. I so direct.  Such notice is to be given at least 48 hours prior to the Notice appearing.

Is advertising enough or is some form of personal notification called for?

[51]   The order originally sought by Ms Mathias was that EQC “by mail or courier, by tracked delivery,…” deliver to homeowners of properties sold in the Canterbury region since 2011, excluding properties that had not been the subject of any EQC claim or which were determined to be over cap before the date of any sale by the original claimant.

[52]At the hearing Mr Shand submitted ordinary post would be sufficient.

[53]   Mr Shand justified the use of personal notification by ordinary post as he says that is exactly what EQC did when it introduced its on-sold policy. Mr Shand submits there is no reason that notice of the opt-in claim should be any different to the Notice provided by EQC about its own on-sold policy. At that time, EQC wrote to approximately 44,000 property owners in Canterbury.

[54]   Mr Shand submits the focus should be on ensuring the Notice reaches as many possible class members as possible and, given EQC has already identified the bulk of those to be contacted, that is, the 44,000 property owners it has already written to, all that would be required is updating that list to the present day. Not all of the 44,000 will be eligible for the class.

[55]   Mr Shand submits that the potentially large amounts at issue for each homeowner favours personal service to all possible eligible class members. Mr Shand also submitted personal service by post is common place in Australia, albeit as noted by Mr Walker, some of the cases relied on by Mr Shand pre-date the rise of social media. However, I note from Mr Shand’s schedule of cases that the Federal Court of Australia directed service by email or ordinary post in a number of cases in 2020.

[56]   While Mr Shand’s application as originally framed sought that EQC meet the costs of personal service, during the hearing he confirmed that Ms Mathias would meet the cost of personal service.

[57]   The offer to meet the cost of personal service was only raised at the hearing. As a result, EQC’s references to cost effectiveness in its written submissions, were overtaken. Notwithstanding the cost issue, EQC maintains that personal service is neither necessary nor desirable.

[58]   First, EQC submits that the class action will be brought to the attention of homeowners through the saturation of advertising already referred to. It submits that given the breadth of advertising and online notifications there is no need to further buttress those efforts with personal service.

[59]   In addition, EQC submits that here potential class members, that is, owners of on-sold and over-cap properties in Canterbury, are already well informed of the issues giving rise to Ms Mathias’ claim. Many will already have had personal notification of the on-sold over-cap proposal.

[60]   As I will discuss below, of the 44,000 given notice by post of EQC’s on-sold over-cap programme, just over 5,500 applied to join the programme.

[61]   EQC also notes that a significant number of the proposed recipients will not qualify for the class. It submits there is no point in ineligible recipients receiving the class Notice and sending them the Notice would only cause confusion.

[62]   I agree that the blanket mail out proposed by Ms Mathias is too wide and unnecessary. That is in part why the frequency of advertising, referred to above, is greater than sought by EQC.

Is tailored personal service required?

[63]   This part of EQC’s submissions focused on the 5,583 applicants to the Government’s on-sold policy. Of the 5,583 applicants, 1,353 claims have been resolved or are nearing resolution. Those applicants still in the process of resolving their claims will be notified of the existence of opt-in proceeding in any event.

[64]   682 applications were withdrawn for various reasons which would mean that those people would not qualify for membership of the class or in fact had settled their claims.

[65]   1,376 applicants were excluded because they provided insufficient information. EQC says it unsuccessfully sought to obtain that information by contacting those applicants. EQC asserts that the failure of those homeowners to communicate with EQC meant that they had no credible claim. I am not convinced such a conclusion is so clear cut and I will come back to these applicants.

[66]   895 applicants were ineligible. EQC advises that if they were ineligible for the Government’s on-sold policy then they would also be ineligible for the representative

action. There were 122 applicants who became ineligible because they made their offer to purchase their property after 15 August 2019. When the 122 applicants are taken into account, that leaves a tailored distribution list of 1,277. To that, I add the 1,376 applicants who, it seems, might have qualified but failed to advance their claim. For those homeowners, the opportunity to join the class action may be quite attractive given the initial carriage of the proceeding will be dealt with by the class action lawyers.

[67]   I consider that the sending of Notice by ordinary post to the 1,277 applicants identified by EQC together with the 1,376 applicants who did not pursue their claims is appropriate targeted personal service.

[68]   For privacy reasons, that service is to be completed by New Zealand Post acting as agent of EQC. All reasonable costs associated with that mail-out are to be met by Ms Mathias as per Mr Shand’s commitment during the hearing. EQC is to provide an estimate of those costs within 10 working days of the date of this Judgment and Mr Shand is to have paid into his trust account the value of that estimate within 10 working days thereafter and confirmed that to EQC. While Ms Mathias’ application sought that personal service be completed within three weeks of the Court’s orders, such was optimistic to say the least given the large number of homeowners to whom Ms Mathias sought be contacted personally. I am going to propose that the Notice be sent out within 30 working days of this Judgment. EQC is to advise if that is not practical and leave is reserved in respect of that issue, given counsel have not had a chance to address the timing of that more limited mail-out.

EQC’s reporting on the sending of the class Notice

[69]   EQC accepts some form of reporting to the Court and Ms Mathias is appropriate but it objects to providing a list of names of the persons to whom the Notice is sent, details of the mode of communication and the result of that communication.

[70]   I agree that an anonymised report, providing overall distribution statistics, detailing the number of Notices sent and any that were returned, is adequate. At the end of the day, those to whom the Notice is being sent will also be exposed to

the online and newspaper advertising. This report is to be provided within a further

20 working days of the mail out.

Reservation of leave to seek further directions

[71] I have already referred to the reservation of leave on various issues. That should not be taken as meaning leave to apply further is limited. General leave is reserved but I adopt the express caveat expressed by Justice Osborne as set out at [11] above in respect of the reservation of leave.

[72]   Ms Mathias seeks an order that the costs and disbursements that are incurred in giving effect to the above orders be costs in the cause. That is not opposed and I so direct. Similarly, any costs incurred by EQC in giving effect to the above orders are to be costs in the cause in respect of its costs, though they are now significantly reduced through Mr Shand’s commitment to meet the costs of the targeted mail-out.

[73]   That leaves the approval of the Opt-in Form to be completed by homeowners who wish to join the class action. The Opt-in Form proposed by Mr Shand is not opposed by EQC – that being the final document accompanying this Judgment.

Associate Judge Lester

Solicitors:

Grant Shand, Auckland (for Plaintiff) Russell (for Defendant)