PROCLAIMS MANAGEMENT LIMITED AND SARAH JANE BATELY AND JOSEPH LEONARDO COX s
[2024] NZHC 2965
•11 October 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-000503
[2024] NZHC 2965
BETWEEN PROCLAIMS MANAGEMENT LIMITED
Appellant
AND
SARAH JANE BATELY AND JOSEPH LEONARDO COX
Respondents
Hearing:
Further Submissions:
7 May 2024
21 May, 5 & 10 June 2024
Appearances:
P F Whiteside KC and H D J Holderness for the Appellant P J Woods and L J W t’Hooft for the Respondents
Judgment:
11 October 2024
JUDGMENT OF PRESTON J
This judgment was delivered by me on 11 October 2024 at 3.00 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date……………
PROCLAIMS MANAGEMENT LIMITED v BATELY [2024] NZHC 2965 [11 October 2024]
Introduction [1]
Background [5]
District Court decision [20]
The under-cap success fee [21]
The OSP fee [23]
Quantum meruit [28]
Issues on appeal [32]
Mootness [33]
Legal principles [40]
Submissions [43]
Is the success fee payable upon the respondents’ receiving an offer? [45]
Proclaims’ alternative submission — reliance on the ‘variation’ condition [61]
Submissions [63]
Why the OSP offer was not accepted [66]
Should the variation condition be heard fresh on appeal? [72]
Whether a payment made under the OSP would be caught by the Agreement
[83]
OSP issue [85]
Xu v IAG and the OSP [86]
Legal principles [94]
Submissions [99]
Subsequent conduct [103]
Is the OSP encompassed within the express terms of the Agreement? [106] Does the OSP come within the Agreement by an implied term? [144] Implied term [144]
Quantum meruit [154]
Submissions [158]
Is the claim in quantum meruit established? [161]
What compensation is appropriate for the claim in quantum meruit? [170]
Conclusion [192]
Costs [194]
Introduction
[1] The appellant, Proclaims Management Ltd (Proclaims), is a business incorporated by directors Hoani Hipango and Chris Fleury in August 2011 following the Canterbury earthquake sequence. Proclaims is an insurance advocacy service that assists clients to recover the cost of repairing damage to their homes caused by the Canterbury earthquakes. Proclaims entered a contract with Sarah Bately and Joseph Cox (the respondents) in June 2018.
[2] Proclaims advanced two claims in the District Court: for a ‘success fee’ of 15 per cent plus GST of (1) the ‘under-cap’ amount the respondents received from the Earthquake Commission (EQC) pursuant to its statutory liability; and (2) the ‘over- cap’ amount the respondents achieved from the Government’s ex gratia On-Sold Support Package Programme (OSP). Proclaims also brought an alternative cause of action in quantum meruit if the District Court found its contract did not extend to the OSP.
[3] Judge Tuohy, in his reserved judgment dated 21 August 2023, granted the first claim for the under-cap amount, but found Proclaims was not entitled to claim an over- cap success fee in relation to the OSP nor had it established a claim in quantum meruit and further, if it had, the amount would have been no more than $500.1
[4] Proclaims appeals Judge Tuohy’s decision on the over-cap amount and, alternatively, its claim in quantum meruit.
Background
[5] In September 2016, the respondents purchased a home for full market value in Hoon Hay, Christchurch.2 Prior to purchasing, EQC had repaired the damage caused to the home by the 2010-2011 Canterbury earthquakes. The agreement for sale and purchase included a term stating the vendor had settled a claim for earthquake damage with EQC and the repairs had been completed. Still, upon purchase, the respondents took an assignment of the EQC claim.
1 Proclaims & Ors v Bately & Cox [2023] NZDC 12924.
2 The purchase was settled in October 2016.
[6] In the first half of 2018, the respondents discovered the repairs by EQC may have been “botched”. Mr Cox knew an employee of Proclaims, Geoff Henry. In May 2018, the two discussed the possibility the respondents’ home had not been repaired properly by EQC and its liability to remedy that. Proclaims was engaged to assess the property, with Mr Henry carrying out a visual inspection in early June which revealed evidence of defective and/or underscoped EQC repairs.
[7] On 10 June 2018, the respondents formally engaged Proclaims for assistance in obtaining the money needed for reinstatement of the damaged property and entered a written contract (the Agreement).
[8] Proclaims then provided its services. Mr Hipango managed the process. Proclaims notified its engagement to EQC and requested the EQC file for the property. At the respondents’ cost, expert reports were commissioned. An engineering firm, Cameron Gibson Wells (CGW), undertook geotechnical and structural investigations and produced subsequent reports. The final structural report recommended re- levelling the foundations of the house. The Independent Quantity Surveyors (IQS) provided costing reports and estimates of the repairs to the respondents by March 2019.
[9] The respondents had entered into a formal engagement agreement with each of CGW and IQS on 21 June 2018. CGW and IQS were Proclaims’ preferred engineers and quantity surveyors, respectively. It was not until later, when the District Court proceeding was issued, that the respondents became aware CGW and IQS had paid Proclaims a referral fee.
[10] Once IQS provided the costing reports, Mr Hipango liaised with EQC’s disputes resolution team and gained agreement to resolve the respondents’ dispute without litigation.
[11] In September 2019, an EQC engineer inspected the home. EQC provided the engineer’s report to Proclaims in early January 2020. That report did not agree with those of CGW. Following a meeting and a joint EQC and IQS scoping assessment, IQS produced a summary of agreed works which the respondents accepted.
[12] In November 2020, the respondents reached a settlement with EQC for the under-cap amount of reinstatement costs. EQC paid out a sum totalling $174,537.33, comprising the settlement calculation of $148,904.52 and reimbursement of the
$25,632.81 expert fees. The payment was made to the respondents’ mortgagee.
[13] In the meantime, to pursue the over-cap amount, the respondents’ claim progressed to the OSP, established by the Government in August 2019 following the Supreme Court decision, Xu v IAG New Zealand Ltd.3 Earlier, in May 2019, Proclaims had contacted the respondents’ private insurer, IAG New Zealand Ltd (IAG), to inform it of its liability for the potential over-cap amount. However, the Xu decision, issued in July 2019, precluded a successful claim by the respondents against IAG. Proclaims registered the respondents with the OSP and provided information to them about the scheme. The respondents’ claim was transferred to EQC’s on-sold team in November 2020 after the under-cap amount had been paid.
[14] When notified by EQC in November 2020 that the under-cap payment was to be made to their mortgagee, the respondents immediately raised issues about the Agreement with Proclaims. The respondents’ position was that they were not liable to pay a success fee on the under-cap settlement with EQC, but rather Proclaims had to pursue that fee from EQC itself. At the same time, the respondents queried whether Proclaims would be charging “any additional fees” for its services in relation to the OSP. Proclaims informed the respondents it was entitled to the success fee on “any money received” from the OSP.
[15] On 1 March 2021, Proclaims wrote to the respondents holding them liable for the success fee on both the under-cap amount received from EQC and the over-cap amount to be recovered from the OSP. Proclaims asserted that, during the period between the announcement of the OSP and the EQC under-cap settlement, Proclaims provided assistance and information about the OSP and communicated with the respondents, providing advice even after the respondents’ concerns about the Agreement had been raised.
3 Xu v IAG New Zealand Ltd [2019] NZSC 68, [2019] 1 NZLR 600 [Xu SC decision].
[16] On 16 March 2021, having sought legal advice, the respondents emailed Proclaims. They instructed Proclaims to stop work in relation to their OSP claim and notified their cancellation of the Agreement.
[17] In December 2022, the respondents received a settlement offer through the OSP totalling $296,135.49. Since their purported cancellation in March 2021, the respondents had handled their OSP claim themselves. The settlement offer received was based upon further reports obtained from experts other than those used by Proclaims and was significantly higher than that calculated from CGW’s reports.
[18] At trial, Proclaims sought recovery of both the success fees. The amounts claimed were $25,686.03 and $51,083.36 for the under-cap and OSP amounts, respectively.
[19] Proclaims also included a second, alternative cause of action seeking compensation on a quantum meruit basis in respect of the offer made to the respondents under the OSP.
District Court decision
[20]Judge Tuohy made four essential findings:
(a)Proclaims was entitled to the under-cap success fee of $25,686.03 under the Agreement;
(b)Proclaims was not entitled to an OSP success fee under the Agreement, either by express or implied term;
(c)Proclaims had not established a claim in quantum meruit; and
(d)if Proclaims had established a claim in quantum meruit, fair compensation would have been no more than $500.
The under-cap success fee
[21] The Judge found the cause of action relied upon by Proclaims, repudiation of contract with remedy sought in damages, was inappropriate. The Judge considered Proclaims’ contractual services had been completed and thus the only remaining contractual obligation was for the respondents to pay the success fee. His Honour considered it too late for the respondents to cancel the contract when they purported to do so in March 2021, and that termination did not prejudice the right already accrued by Proclaims to the success fee. Therefore, the Judge treated Proclaims’ cause of action for the EQC under-cap success fee as a claim in debt. His Honour concluded that, because the fee was due and had been demanded but not paid, Proclaims was entitled to judgment for it.
[22] The Judge further found, not relevant to this appeal but which I mention for completeness, the respondents’ counterclaims or alternative defences for misrepresentation under the Contract and Commercial Law Act 2017 and breach of s 9 of the Fair Trading Act 1986 were not established.
The OSP fee
[23] The Judge found the success fee on the over-cap amount was not payable pursuant to the express terms of the Agreement. The Judge rejected Proclaims’ submission that a purposive construction, whereby the underlying commercial purpose of the Agreement was for the respondents to engage Proclaims to ensure they received the full amount necessary to reinstate their house to the required standard, meant the references to EQC and the insurer were merely bywords for any available source of funding. Rather, the Judge found the Agreement specified the scope of the contemplated services, as did the success fee provision, to include only “EQC and the client’s insurer”, and services in relation to recovery from the Crown under the OSP were not mentioned in either pre-contractual negotiations nor the Agreement itself.
[24] The Judge distinguished between recovery from the Crown’s OSP and that from EQC pursuant to its statutory liability or an insurer pursuant to a contractual liability. The Judge found the ex gratia nature of the OSP did not fit within the scope of the Agreement which contemplated providing services to enforce legal entitlements from parties legally liable.
[25] In the absence of evidence of any post-contract conduct of the respondents that indicated they understood the Agreement extended to the OSP or of their liability for a success fee on any recovery from it, the Judge did not consider Proclaims had shown there was a mutual understanding common to both parties when the Agreement was made that the meaning of the contractual term entitling Proclaims to its fee extended to sources of recovery such as the OSP. To find otherwise, the Judge considered, would be to impose on the parties a contract significantly different from that which they signed.
[26] The Judge similarly found there was no basis for implying the term proposed by Proclaims, considering that term would extend the scope of the services to be provided by Proclaims and to recover repair costs on a different basis and from a different entity than that specified in the Agreement. The Judge questioned whether it would be reasonable or equitable if the success fee applied to the OSP, and found the Agreement was workable without the proposed implied term.
[27] The Judge also found there had been no variation to the Agreement. The respondents’ acquiescence to Proclaims’ action of registering them on the OSP the only evidence pointed to by Proclaims as evidence of a variation to the Agreement, the Judge found fell far short of the evidence necessary to prove such a variation. Further, the Agreement provided that a variation is effective only when it is recorded in writing and signed by the parties.
Quantum meruit
[28] Proclaims advanced the quantum meruit claim on the basis the respondents ought to pay reasonable compensation to Proclaims for its services provided in respect of the OSP claim, even if those services in relation to the OSP were not specifically detailed in the scope of the Agreement. It sought 15 per cent plus GST of the amount offered to the respondents through the OSP.
[29] The Judge was not satisfied there was any clear request from the respondents for Proclaims to provide the services it did in respect of the OSP. From email correspondence, the Judge was of the impression Proclaims was the driver of its involvement in the respondents’ OSP claim. In terms of acceptance of the services, the Judge observed the respondents, unless they withdrew their registration, could hardly do otherwise and the respondents’ ‘acceptance’ was better framed as acquiescence. Further, while the Judge acknowledged the respondents received some value from Proclaims’ services in relation to the OSP, his Honour was satisfied the respondents would have been able to do that work themselves and indeed, would have had they thought they had to pay Proclaims.
[30] Ultimately, the Judge did not find it unjust for the respondents to receive the “fairly minimal services provided” by Proclaims without paying for them.
[31] The Judge went on to indicate the amount of compensation he would have awarded if the claim had been established. His Honour considered that the services were minimal and confined to the initial stages of the process, with some provided collectively for all of Proclaims’ on-sold clients, and that there was no basis for claiming a sum equivalent to the success fee because quantum meruit is based on the concept of restitution for unjust enrichment, not the Agreement. The Judge accepted the evidence of Dean Lester, who testified a fair hourly rate for the services would be between $100-200, and estimated this would amount to a payment to Proclaims of no more than $500.
Issues on appeal
[32] In light of fresh evidence filed very shortly before the hearing and admitted by consent, the issues on appeal to be determined are:
(a)To what extent, if any, is the appeal moot? This concerns whether Proclaims is entitled to its success fee on the making of an offer to its client which is not accepted, so there is no recovery.
(b)Should a new argument, based on a condition in the Agreement not invoked in the Court below, be heard on appeal, and if so, are the respondents liable to pay the success fee pursuant to that condition?
(c)Did the Judge err in finding the Agreement did not encompass the OSP?
(d)Did the Judge err in holding Proclaims was not entitled to compensation from the respondents in respect of their OSP claim on a quantum meruit basis, and if so, how much should that amount be?
Mootness
[33] At the beginning of the hearing, I raised with counsel the issue of mootness. My reasons for doing so I explain now.
[34] On 3 May 2024, shortly before the appeal hearing, counsel for the respondents sought leave to adduce fresh evidence by way of affidavit as relevant to the determination of this appeal. Proclaims had no objection to the application for leave. Leave was granted, accordingly.
[35] At the time of the District Court trial, the respondents had received an offer under the OSP. They had not yet accepted the offer.
[36] The respondents’ entitlement under the OSP expired on 31 December 2023. The respondents did not accept the offer. The fresh evidence was an affidavit of Ms Bately, explaining why she and Mr Cox did not accept the OSP offer:
At the time of the District Court trial held in June 2023 (Trial), Joseph and I were uncertain about whether we would proceed through the OSP and accept the amount offered to us in the OSP Settlement Deed [CB.1519]. The offer required us to use the amount we had received from EQC to pay for the repairs and the OSP would pay us in tranches as the repair work was completed. That offer was open until 31 December 2023.
Since the Trial, Joseph and I have had to pay an adverse costs award of
$36,937.25, plus our liability to Proclaims for its under-cap success fee (totalling $73,004.48). We also paid our own legal fees for the District Court case and have continued to incur legal fees in respect of this appeal.
The dispute with Proclaims has been extremely stressful for us.
As we did not have the financial resources nor the energy to proceed through the process of having the property repaired through the OSP (including having to find temporary accommodation) we did not accept the OSP offer. It has expired.
We intend to sell our property and it is currently listed on the market for sale “as is where is”. We will not receive any money from the OSP and the purchaser of our property will not be eligible to participate in the OSP.
[37]Under the Agreement, the success fee is defined as:
Proclaims Success Fee 15%+GST of the money achieved from EQC
and the Insurer
Success Fee to be made within 7 days of receiving payments from EQC and the Insurer
[38] As above, the respondents did not accept the OSP offer and accordingly did not receive any payment. In those circumstances, it appeared the issues on the appeal relying on the (express or implied) terms of the Agreement were moot. The appeal could still have been determined on the remaining, live, issue: the quantum meruit argument. However, both parties submitted no issues were moot and given the issue had emerged only just prior to the hearing, I heard argument and directed further written submissions on the issue following the hearing.
[39]The first question thus arises for determination: is the appeal moot?
Legal principles
[40] The start point for mootness is that the courts will not hear an appeal “where the substratum of the present litigation between the parties has gone and there is no matter remaining in actual controversy and requiring decision”.4
[41] That test was adopted by the Supreme Court in R v Gordon-Smith, where the Court further held:5
The Court’s primary responsibility is to determine live controversies between citizens and to develop the law of New Zealand in that context. The same consideration applies to the Court of Appeal. That concern is met, however, if the question arising in a moot case is one of significant public importance which is highly likely to come before the court again at some point…
[42]The Supreme Court in Baker v Hodder stated:6
[32] … As this Court made clear in [Gordon-Smith v R], mootness is not a matter that deprives a court of jurisdiction to hear and determine an appeal; rather the court has a discretion whether to hear the appeal.7 Appellate courts do not, however, generally decide appeals where the decision will have no practical effect on the rights of the parties before the court, in relation to what has been at issue between them in lower courts.8 The Court said the policy of restraint in dealing with moot appeals was based on the following:9
(a)the importance of the adversarial nature of the appellate process;
(b)the need for economy in the use of limited resources of appellate courts; and
(c)the responsibility of the courts to show proper sensitivity to their role in the system of government; in general, advisory opinions are not appropriate.10
4 Finnigan v New Zealand Rugby Football Union Inc (No 3) [1985] 2 NZLR 190 (CA) at 199 per Richardson J.
5 Gordon-Smith v R [2008] NZSC 56, [2009] 1 NZLR 721 at [14] and [24].
6 Baker v Hodder [2018] NZSC 78, [2019] 1 NZLR 94.
7 Gordon-Smith v R, above n 5, at [16].
8 At [16].
9 At [18], citing Borowski v Canada (Attorney-General) [1989] 1 SCR 342 at 358-363.
10 The context for that observation in Borowski was that the case involved a constitutional challenge to the validity of a statutory provision in the Criminal Code dealing with abortion.
[33] … It is not possible to state a “test” governing the exercise of the discretion, or to give a comprehensive statement of the circumstances in which it might properly be exercised. All that can be said is that, in light of the considerations underlying the policy of restraint, a decision to hear a moot appeal should be made only in exceptional circumstances. These might be found in the circumstances of the particular case (for example, serious procedural unfairness at the first hearing) or the broader public interest (for example, where an important legal point is raised).
(emphasis added)
Submissions
[43] Proclaims submitted the appeal is not moot. At hearing, counsel submitted the respondents remain liable to pay the success fee on the basis the OSP offer was ‘success’. In further submissions filed post-hearing, Proclaims’ counsel stated the issues now to be decided are:
(a)Does the Agreement apply in respect of the OSP, either by express or implied term, such that a success fee is payable on any money achieved by the respondents from the OSP?
(b)If yes, does the success fee remain payable even if the respondents have not accepted the OSP offer nor received any amount under it?
[44] Counsel for the respondents submitted whether the success fee was payable upon the respondents’ receiving an offer is not a new issue as it was before the District Court Judge, but it was left unanswered because of his Honour’s finding the OSP did not come within the scope of the Agreement.
Is the success fee payable upon the respondents’ receiving an offer?
[45] Proclaims’ position that the Court should interpret the success fee term as requiring payment of the success fee where, as here, an offer was received but no settlement in fact achieved, is in essence saying the success fee may be claimed even where there has been no success. There are obvious difficulties with that argument.
[46] First, the definition of success fee as set out at [37] refers to “15%+ GST of the money achieved from EQC and the insurer”. The success fee is required to be paid “within 7 days of receiving payments from EQC and the insurer”. It is clear the definition of success is the achievement of a settlement. This is supported by other provisions in the Agreement, including:
(a)a provision that the services Proclaims provides include “engagement to ensure that EQC and the client’s insurer (if applicable) pay the correct amount required to reinstate the earthquake damaged property
…”;
(b)Proclaims has exclusive authority to act on the client’s behalf “… to resolve the botched or dodgy EQC repairs and to settle the claims …”;
(c)Proclaims will obtain the clients [sic] authority to “accept settlement offers from EQC and the client’s insurer in order to discharge the claim/s”;
(d)further, the programme for the services include Proclaims “managing the District Court case against EQC and supporting the Barrister to achieve a settlement with EQC”; and
(e)management of the “settlement of the claim with the client’s insurer (if required)”.
[47] Further, it is evident that Proclaims’ own understanding of the meaning of success was settlement when looking at how it sought the success fee when the respondents achieved the settlement from EQC for the under-cap amount. In an email on 2 August 2020, Ms Bately asked Mr Hipango to “confirm that [Proclaims’] commission is settled separately with EQC”. Mr Hipango responded the following day:
And re your query about our Success fee… no this is not settled separately with EQC as the contractual relationship is between you and Proclaims … as per the Agreement for Proclaims engagement that you signed on 10 June 2018. What will happen here is that once your claim with EQC is settled and they have paid their liability owed, we will invoice you for 15% + GST of the money achieved from EQC.
(emphasis added)
[48] In a later email on 20 November 2020 to Ms Bately, Mr Hipango said, “you’re correct insomuch that the Agreement wording requires that you pay our success fee within 7 days of receiving any settlement payment …”.
[49] On 23 November 2020, EQC paid the total settlement sum. Mr Hipango emailed the respondents the following day, saying:
EQC have advised that they’ve made the Settlement payment…
…
Once that money has been received (likely to clear in 3-5 days… I’ll also send through our Success Fee invoice for this EQC Act phase of work.
(emphasis added)
[50] On 30 November 2020, Proclaims sent an invoice to the respondents for the success fee:
DESCRIPTION
AMOUNT
Success Fee as per Agreement for Proclaims Engagement dated 10 June 2018
15%+GST for the money achieved from EQC and the Insurer
EQC Act Payment Amount $ 148,904.52
Success fee
15.0%
$ 22,335.68
GST
15.0%
$ 3,350.35
Total $ 25,686.03
[51] I do not accept, as Proclaims argued, the requirement that the success fee is to be “made” within seven days of receiving payment should be ignored as merely setting out the terms of payment. Proclaims’ conduct seeking the success fee on the under- cap amount speaks for itself. In accordance with the Agreement, Proclaims did so within seven days after the respondents received the EQC settlement. If I was to accept Proclaims’ argument that a mere offer is ‘success’, the question must be asked, why then did Proclaims not invoice the respondents the moment EQC made the offer for the under-cap amount?
[52] Nor do I accept that to receive no success fee where an offer is made but not accepted would make no commercial sense. As Mr Hipango acknowledged in evidence in the District Court, Proclaims operated on a “no win, no pay” model. I agree, as its counsel submitted, Proclaims is not a charity. That is evident from the fee under the Agreement:
ESTIMATE OF FEES & TIMING OF PAYMENTS:
Proclaims Engagement Fee $2,500 + GST
Evidential documentation Independent professional reports – these are
estimated costs and are separate to the Proclaims fees and the District Court process fee
Geotech report $5,250+GST
Structural report $6,260+GST Quantity surveyor $4,000+GST Lawyers costs $5,000+GST Expert Witness Court attendances
Time & expense based (provisionally
$3,000+GST)
[53] Proclaims’ clients pay an upfront engagement fee and cover all expert costs. The respondents entered into a term loan agreement for $30,000 with Lesmau Financial Services Ltd (LFS) to provide the funds for the professional fees. Proclaims thus took on no risk. As well, although not included in the Agreement and undeclared to the respondents, where clients engaged Proclaims’ ‘preferred’ experts CGW and
IQS, Proclaims received referral fees.11 Contrary to Proclaims’ argument, it would make no commercial sense for the respondents to sign the Agreement with an obligation to pay the success fee upon an offer being made, regardless of whether they receive payment. Mr Hipango’s “no win, no pay” model applies where success — in the form of an acceptable settlement — is achieved.
[54] Further, the “no win, no pay” model cuts both ways. While Proclaims receives no further payment for its services where a settlement is not ultimately achieved, where a settlement is achieved it collects a significant proportion — 15 per cent plus GST — from that sum. In relation to the under-cap settlement from EQC of
$148,904.52 for repair costs, that amounted to $25,686.03.12 The high percentage of Proclaims success fee reflects, and balances out, the risk that if a client’s claim is unsuccessful, it receives nothing. In that respect, the “no win, no pay” model makes complete commercial sense.
[55] As well, the OSP settlement amount of $296,135.49 offered to the respondents was based on the total repair costs quantified in expert reports the respondents independently obtained, not the total repair costs in the expert reports Proclaims had obtained on their behalf in relation to the under-cap amount from EQC, which were significantly less.13 Even accepting, for present purposes, Proclaims’ own argument that the success fee applies to amounts achieved under the OSP, that amount, had it been accepted, would not have been as a result of Proclaims’ services. This further demonstrates the unworkability of Proclaims’ argument.
11 A Memorandum of Understanding between CGW and Proclaims dated 20 December 2017 (and which was in effect when the respondents entered the Agreement with Proclaims and formally engaged CGW on 10 and 21 June 2018, respectively) shows CGW paid Proclaims five per cent excluding GST of the total value of invoices paid by referred clients.
12 The total settlement from EQC was $174,537.33. The success fee did not apply to the expert fees reimbursement of $25,632.81.
13 The total repair costing of $229,870.05 as produced by IQS engaged by Proclaims on the respondents’ behalf means the settlement offered by the OSP had it relied on Proclaims’ reports would have been $80,965.53, that figure being the IQS total repair costing minus the EQC under- cap settlement.
[56] Proclaims’ submission that its entitlement to the success fee accrued as soon as an offer was presented to the respondents, whether from the insurer or under the OSP, is inconsistent with the express terms of the agreement, Proclaims’ conduct and argument in the District Court and its written argument to this Court prior to receipt of the fresh evidence. In those arenas, Proclaims argued exclusively for payment of the success fee — on both the under-cap and the over-cap amounts — in accordance with the contract, that is 15 per cent plus GST of the money achieved, payable within seven days of receiving payment. Proclaims did not charge on a time and materials basis, but rather it was paid the $2,500 plus GST fee set out at [52] whether it did two hours work or 100 hours, and otherwise, without the client’s success, received nothing. Such is consistent with the “no win, no pay” model.
[57] The Agreement provided the respondents were liable to pay Proclaims’ 15 per cent plus GST of the “money achieved”, not the money offered. The respondents retained the ability to decline an offer. Had it been intended that even if on declining an offer nonetheless the respondents would have to pay a success fee, the clearest of wordings would have been required.
[58] By not accepting the OSP offer which has now expired, the respondents did not, have not and will not “achieve” any amount from the OSP. Accordingly, it is plain Proclaims’ argument must be moot. Even accepting the argument that liability arose as soon as an offer was received from the OSP despite no money being achieved, 15 per cent of zero is zero.
[59] I find that the Agreement does not entitle Proclaims to a fee upon an offer being made to its client which is not accepted. To hold otherwise in my view would favour the untenable and plainly unjust result that the respondents, from the moment they received an offer under the OSP, must pay Proclaims $51,083.36, when they have achieved no funds in settlement whatsoever.
[60] As a final observation, I note the comment by Proclaims’ counsel during the hearing on the reasons for the respondents declining the OSP offer. Counsel suggested it was against the respondents’ own interests to decline the offer and their intention in doing so could well have been to frustrate Proclaims’ appeal. There is no evidence of
such an intention. Further, I am satisfied the reasons Ms Bately provided in her affidavit at [36] are legitimate, reasonable and consistent with the respondents’ position at the District Court.
Proclaims’ alternative submission — reliance on the ‘variation’ condition
[61] As a second limb of its argument in response to my concern to what extent the appeal was moot given the respondents did not accept the OSP offer, Proclaims argued in oral submissions for the first time at the appeal hearing that the success fee is instead payable in reliance on a further condition in the Agreement.
[62] The Agreement contains various fees, including the success fee at [37] and the fees and expenses at [52]. It continues, recording that “[b]oth parties are to be bound by the provisions of the Conditions of Engagement, including any variations”. There follows the “Variation to the Conditions of Engagement” condition (the variation condition), upon which Proclaims now relies. That condition provides:
VARIATION TO THE CONDITIONS OF ENGAGEMENT:
If the Client terminates the engagement after the Structural report identifies the remedial scope of work required, but before receiving any money or an offer from EQC and/or the Insurer, Proclaims reserves the right to charge the success fee based on the amount EQC and/or the insurer is liable to pay to reinstate the property to the required standard. This and all fees payable by the Client under this agreement are payable without any setoff, deduction or abatement whatsoever.
Submissions
[63] Proclaims’ counsel submitted that, on a plain reading, the variation condition provides that the success fee remains payable even though the respondents did not accept the OSP offer, and this is further supported by reading the condition as a whole and in its full context. Counsel argued the parties’ mutual intention was that the client may terminate the Agreement, but if they do so after Proclaims has identified the remedial scope of works required to reinstate the house to the required standard, then Proclaims has the right to charge its success fee on the total amount required for reinstatement. Counsel, reiterating its commercial sense argument, submitted this interpretation makes business common sense. Otherwise, Proclaims would be exposed to risk of late terminations with no pathway to recoup monies owed.
[64] Counsel acknowledged the variation condition states, “the amount EQC and or the Insurer is liable to pay”, but submitted to interpret this as requiring Proclaims to establish an actual legal liability on the part of EQC and/or the insurer would be an unduly narrow construction of the condition and make the application of the Agreement unduly onerous on Proclaims.
[65] The respondents submitted the variation condition refers to liability of, here, the insurer to pay for reinstatement, and that is not present under the OSP, an ex gratia government scheme. Further, counsel submitted, the wording of the Agreement is clear that the success fee is to be charged based on the amount achieved. Counsel submitted Proclaims’ entitlement to its success fee under the OSP has yet to (and will not) accrue. Therefore, the liability of the respondents to pay the success fee does not arise under any condition of the Agreement. In that sense, the respondents claim this is not a ‘new’ issue.
Why the OSP offer was not accepted
[66]In her brief of evidence dated 22 May 2023, Ms Bately stated:
49.We have not signed the settlement deed. We are still a little confused by it and need to go through it again. We are looking to demolish the house and rebuild, but want to make sure we are doing the right thing…
50.Due to the amount of financial strain that Proclaims could potentially cause us, we feel we are unable to move forward with our home, as once we sign the deed, we will only have 12 months to complete the works on our property. This is also adding majorly to the level of stress and anxiety in our home.
(emphasis added)
[67] At trial, Ms Bately explained she and Mr Cox were looking to demolish the house and rebuild, but that this would require additional lending from their bank and the quotes provided at that stage meant, “I don’t think we’ll be able to do [it], it’s all yet to be determined”.
[68]In cross-examination, Mr Holderness questioned Ms Bately as follows:
Q. … You’ve now got to the point though am I right that you are in a position to receive the benefit of funds in the amount of $296,150 or thereabouts?
A. Our mortgagee will receive them.
Q.… what I meant to convey to you was that those funds were available and ultimately for your benefit —
A. For our benefit yes.
Q. — to deal with the property.
A. Correct.
Q. Subject to decision that it sounds like you haven’t made yet?
A. That’s right.
(emphasis added)
[69] At no point in the trial did Ms Bately or Mr Cox change their position that they had not yet accepted the offer, nor give any assurance or guarantee that they would do so. Despite this, counsel proceeded on the basis the offer would be accepted or indeed, as though it had been.
[70]As seen in his Honour’s judgment, the Judge also proceeded on this basis:14
[54] In December 2022, the clients received a settlement offer through the On-Sold Scheme totalling $296,135.49 which they have now accepted. However, no repairs had been carried out nor monies paid as at the date of the hearing.
…
[56] Proclaims’ claim was… framed to seek a success fee of 15% of the
amount ultimately achieved. (emphasis added)
[71] There were two possible pathways at trial: (1) the respondents accepted the OSP offer and received payment; or (2) the respondents did not accept the OSP offer, and the offer expired. The latter has occurred. Ms Bately’s fresh affidavit filed shortly before the hearing in this Court changed the factual playing field only insofar as that one of the two possible routes at trial is now confirmed.
14 Proclaims Management Ltd v Bately, above n 1.
Should the variation condition be heard fresh on appeal?
[72] Proclaims could have relied on the variation condition at the time of the District Court hearing. Given it is perhaps more aptly described as a ‘termination clause’, it was available for argument the moment the respondents terminated the Agreement on 16 March 2021. As Proclaims’ initial argument was a claim in damages for repudiation of contract, the variation condition could have been its first port of call, for not only the over-cap amount, but the under-cap amount as well. Indeed, Mr Hipango was aware of this himself. However, it was not pleaded or argued in the District Court. In an email on 14 December 2020 to Ms Bately, after the respondents had flagged issues and sought legal advice regarding the source of payment for the success fee on the under-cap amount and whether Proclaims would be charging “additional fees” in relation to the OSP, Mr Hipango wrote:
I’d also bring to your attention that there is a Variation to the Conditions of Engagement that covers a situation where should a client terminate before receiving any money (or an offer) from EQC, and that should this happen Proclaims reserves the right to charge the success fee on the amount EQC is liable to pay to reinstate to the required standard.
[73] Proclaims now wish to argue on appeal the success fee is payable under the variation condition as soon as an offer was received, notwithstanding that no settlement was in fact achieved. Again, this argument was not advanced in the Court below nor in written submissions prior to the hearing in this Court, despite, as explained above, both the possibility the respondents could decline the OSP offer and that Proclaims was alive to its ability to rely on the variation condition should the respondents terminate the Agreement.
[74] Nonetheless, the argument under the variation condition is new. The question is, do I hear it?
[75] I am not satisfied that I should consider the variation condition fresh on appeal. It was available to Proclaims at trial but of itself that is not determinative. In my view, however, several reasons militate against considering the new argument.
[76] First, the variation condition argument was not simply fresh on appeal but raised because the appeal would otherwise be moot in entirety, but for the issue of quantum meruit. As a matter of principle, it is undesirable for the court to determine fresh arguments on appeal on a first instance basis. This would deprive the parties — and an appellate court if leave was sought — of a proper determination, including rights of appeal, on issues which are of real significance to the parties. That the fresh argument is raised in an attempt to ‘save’ the appeal simply emphasises this principle.
[77] Secondly, it does not appear the variation condition has arisen as an issue in the other, reportedly seven, cases relating to the OSP to which Proclaims is a party. The appellant, in its further submissions filed post-hearing, stated this ‘new issue’ has not arisen in the other cases and is unlikely to. There is thus no apparent broader interest for determining whether the variation clause applies to clients of Proclaims who have terminated their contract after Proclaims provided its services that resulted in an offer, but no settlement, under the OSP.
[78] Thirdly, the variation condition itself imports the definition of the success fee in the Agreement. My findings at [45]-[59] that the success fee means money achieved equally apply here. As such, this new ground on appeal is linked to my finding above that the success fee does not become payable upon the respondents obtaining an offer. If I were to find that Proclaims “reserve[d] the right to charge the success fee” pursuant to the variation condition, 15 per cent of zero is zero. The timing in the variation condition, “before receiving any money or an offer from EQC and/or the Insurer”, relates to the timing of the client’s termination of their engagement with Proclaims. While that termination triggers the condition, Proclaims’ “reserved” right can only be effectuated once the success fee, by way of settlement, becomes “payable”. It cannot otherwise be that Proclaims can use the variation condition as a mechanism to achieve the success fee where there has been no settlement, when the success fee itself does not allow as such.
[79] Further, with regard to Proclaims’ commercial sense argument, I agree that the variation condition must give way to a commercially realistic construction that accords with business sense. For much the same reasons as set out at [52]-[54] above, that would not be so if I found in Proclaims’ favour here. The mutual intention of the
variation condition can only be interpreted as limited to situations where services are provided and a payment (‘success’) achieved, but where the client has terminated their agreement in between. That manages the risk that Proclaims would suffer a loss by not receiving the success fee where it would have been entitled to that fee but for the client terminating the contractual relationship. It is as least questionable, if not impossible, to suggest it could have been the mutual intention of the parties that, in the event no over-cap funds were in fact achieved, that is, received from the OSP, the respondents would nonetheless have to pay a success fee of more than $50,000.
[80] Finally, this construction of the variation clause is consistent with the definition of the termination clause. The termination clause provides:
16. Termination
The Client or Proclaims may terminate the Agreement by notice in writing if the Client or Proclaims fails to comply with their obligations under this Agreement because of an act, or default or omission or any representation made. Such termination must not occur unless a reasonable opportunity is given to first remedy the alleged breach or failure. Upon termination Proclaims shall immediately make arrangements to stop the Services and minimise further expenditure and the Client shall immediately make all payments due under this Agreement. Suspension or termination shall not prejudice or affect the accrued rights or claims and liabilities of the parties.
(emphasis added)
[81] The termination clause applies to termination for breach. It will be recalled that Proclaims framed its case before Judge Tuohy as a claim for damages based on repudiation of contract. Under the termination clause, the client is obliged to pay “all payments due under the Agreement”. Whether viewed at the time of alleged breach by the respondents, that is, their alleged repudiation or whether viewed at the time of the appeal, for the reasons I give in this judgment, there were no sums due under the Agreement. It would be a curious outcome if the respondents were in a better position for termination for breach under cl 16 than under the variation condition which does not refer to breach.
[82] I decline to determine the new ground accordingly. I note, however, that even had I decided to determine the merits of the variation condition fresh on appeal and found in favour of Proclaims’ interpretation, whether Proclaims would be entitled to
recover the success fee pursuant to the variation condition where the respondents had not accepted the OSP offer would be subject to an affirmative finding that the OSP did come within the scope of the Agreement. I turn to that issue now.
Whether a payment made under the OSP would be caught by the Agreement
[83] As I have found, the contractual issues on the appeal are moot: the respondents are not liable to pay a success fee because they received no money from the OSP. The only payment possible in favour of Proclaims is if it establishes a claim in quantum meruit. Whether the OSP came within the Agreement, therefore, is not a live issue requiring determination on this appeal.
[84] However, both parties’ counsel submitted it is an issue the Court should determine. On reflection, I agree with the reasons submitted by counsel as to why I should determine the OSP issue:
(a)whether the OSP comes within the Agreement is said to be relevant to seven other similar cases to which Proclaims is a party in the District Court; and
(b)a determination in this case would assist with the efficient, speedy and cost-effective resolution of these seven remaining cases.
OSP issue
[85] Proclaims contends the terms of the Agreement, correctly interpreted, would apply to money actually received by the respondents from the OSP meaning a success fee would be payable on the over-cap amount. Alternatively, Proclaims submitted a term should be implied into the Agreement to give it business efficacy in the context of an unforeseen removal of private insurer liability following Xu v IAG and the consequent creation of the OSP by the Government.15
15 Xu SC decision, above n 3.
Xu v IAG and the OSP
[86]It is necessary to provide further background to the OSP.
[87] EQC’s liability to an insured person for earthquake damage is limited to its statutory cap (the under-cap amount). Liability for amounts beyond that statutory cap falls on the private insurer (the over-cap amount). Proclaims anticipated its clients’ claims may exceed the statutory cap and so the terms of the Agreement extended to claims against both EQC and the private insurer, IAG.
[88] At the time the respondents engaged Proclaims, there was ongoing litigation as to IAG’s liability to purchasers of earthquake-damaged homes to whom the rights of the insurance policy had been assigned — known as ‘on-sold purchasers’ and ‘on- sold claims’. The respondents, having purchased the home subsequent to the Christchurch earthquakes and EQC repairs, came into that category.
[89] IAG asserted it had no liability in respect of on-sold claims. An appeal was pending in the Supreme Court when the respondents entered the Agreement on 10 June 2018, the High Court and the Court of Appeal having found in favour of IAG.16
[90] The Supreme Court issued its judgment on 3 July 2019, the effect of which was to preclude on-sold purchasers, including the respondents, from bringing a successful claim against IAG.17 Consequently, at that stage, the only options left available to on- sold purchasers were to either sell the property sooner or later on an “as-is where-is” basis (that is, unrepaired) and likely incur a significant loss, or to pursue a claim in negligence against EQC for the defective and/or under scoped repairs, with EQC maintaining its liability was capped at the statutory level. Proclaims had contacted the respondents immediately following the Supreme Court decision, advising them of the position and informing them of the potential for a group-funded action against EQC.
16 Xu v IAG New Zealand Ltd [2017] NZHC1964; and Xu v IAG New Zealand Ltd [2018] NZCA 149.
17 Xu SC decision, above n 3.
[91] In August 2019, the Government announced the OSP. The stated purpose of the OSP was:
To provide ex gratia payments to eligible owners of On-Sold properties, to cover the Over-Cap portion of the cost to repair natural disaster damage arising from the Canterbury Earthquake sequence associated with:
(a)Failed repairs: a failed, inadequate, or non-compliant repair carried out by EQC to settle Claim(s) that have not met the replacement value standard set out in section 2(1) of the Act; and/or
(b)Missed Damage: damage that is attributable to the Canterbury Earthquake Sequence, but which was not identified and assessed before the EQC settled the Claim(s).
[92]Other features of the OSP included:
(a)the ex-gratia payments were made by the Crown;
(b)EQC would administer the OSP on behalf of the Crown and would be paid a fee for that;
(c)payments above $15,000 would be made in tranches;
(d)where payment totalled more than $150,000, the homeowner was required to consent to an encumbrance being registered against the title to the property which would remain until repairs had been completed; and
(e)if the payment was more than $150,000, it must be spent on repairs.
[93] The Settlement Deed offered to the respondents by the Crown and EQC included these features. In addition, the Settlement Deed included a release of EQC from all claims of any type. The OSP was therefore an alternative to a claim in negligence against EQC for on-sold purchasers whose claims in relation to the over- cap amount against private insurers were negated by the Xu decision.
Legal principles
[94] Whether a payment received under the OSP is within the scope of the Agreement is an issue of contractual interpretation.
[95] The aim of contractual interpretation is to ascertain the meaning the disputed words would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time they entered into the contract.18 While there is no conceptual limit on what can be regarded as ‘background knowledge’ or ‘context’, it has to be background that a reasonable person would regard as relevant.19
[96] The Supreme Court has also confirmed the structure of the parties’ bargain, as perceived by the Court, could be an aid to interpretation of particular words used in the contract, citing Lord Justice Lewison in an extra-judicial text on contractual interpretation:20
In the course of the last five decades the court has increasingly sought to elucidate the commercial purpose of the contract under consideration, and as between competing interpretation to select that meaning which best serves the commercial purpose of the contract, as perceived by the court.
[97] The law in relation to implied terms was settled by the Supreme Court in Bathurst Resources Ltd v L & M Coal Holdings Ltd.21 There, the Court confirmed the test articulated by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings:22
…for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
18 Firm PI I Ltd v Zurich Australian Insurance Ltd v Anor [2014] NZSC 147, [2015] 1 NZLR 432 (SC) at [60].
19 At [60].
20 At [77], citing Sir Kim Lewison The Interpretation of Contracts (5th ed, Sweet & Maxwell, London, 2011) at 42.
21 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
22 At [107]; and BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 (PC) at 283.
[98] The Court in Bathurst added some qualifications and summarised the test as follows:23
(a)The legal test for the implication of a term is a standard of strict necessity, a high hurdle to overcome.
(b)The starting point is the words of the contract. If a contract does not provide for an eventuality, the usual inference is that no contractual provision was made for it.
(c)While the task of implication only begins when the court finds that the text of the contract does not provide for the eventuality, the implication of a term is nevertheless part of the construction of the written contract as a whole. An unexpressed term can only be implied if the court finds that the term would spell out what the contract, read against the relevant background, must be understood to mean.
(d)As with the task of interpreting a contract, the inquiry for the court when considering the implication of a term is an objective inquiry – it is the understanding of the notional reasonable person with all of the background knowledge reasonably available to the parties at the time of contract that is the focus of this assessment. The court is tasked with the role of constructing the understanding of that reasonable person.
(e)Thus, the implication of a term does not depend upon proof of the parties’ actual intentions, nor does it require the court to speculate on how the actual parties would have wanted the contract to regulate the eventuality if confronted with it prior to contracting.
(f)The BP Refinery conditions are a useful tool to test whether the proposed implied term is strictly necessary to spell out what the contract, read against the relevant background, must be understood to mean. Whilst conditions (4) and (5) must always be met before a term will be implied, conditions (1)–(3) can be viewed as analytical tools which overlap and are not cumulative. The business efficacy and the “so obvious that ‘it goes without saying’” conditions are both ways, useful in their own right, of testing whether the implication of a term is strictly necessary to give effect to what the contract, objectively interpreted by the court, must be understood to mean.
(footnotes omitted)
Submissions
[99] Proclaims submitted the parties’ mutual intention was that Proclaims would pursue all the money required to reinstate the house to the required standard. Counsel submitted the Agreement made it clear that Proclaims was engaged to ensure EQC and
23 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 21, at [116].
the client’s insurer pay the correct amount necessary for the earthquake damaged property to be reinstated to the required standard.
[100] It is common ground that the respondents were offered a settlement with EQC (under the OSP) for the sum of $296,135.49, however, as discussed above in context of the mootness issue and the new argument on appeal, ultimately the respondents did not sign the OSP deed. Counsel submitted the nature of the settlement agreement is “abundantly clear” and in terms of the Agreement, under the settlement deed, EQC paid (now, offered to pay) the correct amount of over-cap funding required to reinstate the earthquake damaged property to the required standard. Counsel submitted it was “money achieved from EQC” as a result of the services provided by Proclaims.
[101] The respondents submitted Proclaims’ primary contention is that any amounts to be paid to the respondents under the OSP are amounts being paid by EQC and are therefore covered by the express terms of the Agreement. Counsel submitted this differs from the case before the Judge as there, Proclaims contended that “references to EQC and the insurer are merely bywords for any available source of funding”. The respondent submitted Proclaims has misconstrued the terms of the OSP as the payment is made by the Crown and not EQC.
[102] Further, there is a fundamental difference between settling a claim with EQC and a private insurer for cash and the receipt of an ex gratia payment under the OSP. The former does not contain any restriction in the use of the settlement amount.
Subsequent conduct
[103] Proclaims submitted that evidence of subsequent conduct is admissible if it is relevant under an objective approach to the interpretation of the contract and, while it does not need to be mutual conduct, non-mutual conduct is more likely to be relevant to a claim of estoppel.24
24 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 21, at [89].
[104] Here, Proclaims submitted the interactions of the parties after the OSP was announced and established sheds light on the mutual contractual intentions at the time the Agreement was entered. The Agreement should be given a sensible construction that does not depend on “technical interpretations”.25
[105] The respondent submitted that Proclaims is required to establish that the subsequent conduct demonstrates a mutual understanding common to both parties of the meaning of the contractual term when it was made. There was no evidence called by Proclaims it understood, at the time the Agreement was entered, that it would get a success fee from the OSP payments or from “any available source of funding”.
Is the OSP encompassed within the express terms of the Agreement?
[106] I do not agree with Proclaims that the Agreement, when given a purposive construction, encompassed the OSP on the basis Proclaims’ role was to ensure the respondents received the full amount necessary for reinstatement of their home regardless of the source of settlement. I reach this finding for multiple reasons.
[107] First, the wording of the Agreement itself limits its scope. Throughout the Agreement, the terms refer to only “EQC” and the “insurer”. Examples include:
(a)‘Services’ is defined as Proclaims being engaged “to ensure that EQC and the client’s insurer (if applicable) pay the correct amount…” and that Proclaims has “exclusive authority to act on the Client’ behalf to represent the claim with EQC and the Client’s insurer…”.
(b)The definition of “Services” also includes Proclaims obtaining the clients authority to “accept settlement offers from EQC and the client’s insurer in order to discharge the claim/s”.
(c)The definition of the success fee: “Success Fee to be made within 7 days of receiving payments from EQC and the Insurer”.
25 Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1977] AC 749 (HL) at 771.
(d)The variation condition: “… before receiving any money or an offer from EQC and/or the Insurer, Proclaims reserves the right to charge the success fee based on the amount EQC and/or the Insurer is liable to pay…”.
(e)Under “Programme for the Services” to manage “the District Court case against EQC” and the “settlement of the claim with the Client’s insurer (if required)”.
(f)Communication with EQC and Insurer term: “the Client will not engage in any direct contact or communication with EQC or Insurers”.
[108] Proclaims contends amounts paid to on-sold purchasers under the OSP were amounts paid by EQC. While the payments were “made by” EQC, in the sense it would complete the mechanics of payment, this does not mean the OSP was, in essence, EQC and therefore Proclaims’ services achieved payment under the OSP from EQC. The Settlement Deed was between the respondents, EQC and the Crown, but the terms make clear EQC was an agent of the Crown and the payments were Crown- funded:
E. The Crown has established [the OSP], announced on 15 August 2019, the purpose of which is to provide for ex gratia payments to eligible owners of on-sold properties… The [OSP] is subject to terms and conditions. EQC is an agent for the Crown and, in that capacity, will make the Crown’s ex gratia payments under the [OSP].
EQC as agent for the Crown has determined that the Applicant is eligible for an ex gratia payment under the [OSP] to cover the over- cap cost… …
3The Crown will make the ex gratia payment specified in the Schedule, which will be paid by EQC as its agent.
(emphasis added)
[109] The Schedule to the Settlement Deed similarly states at cl 5, “the Crown, by its agent EQC, will make an ex gratia payment of up to $296,135.49…”. The term “Agency Relationship” was also defined in cl 3.2 of the OSP Agreement,26 providing
26 On-sold Canterbury Properties Services Agreement between EQC and the Crown.
that, “in respect of each Settlement Agreement that EQC enters into… the Crown shall be bound… as if the Crown had executed such agreement in lieu of EQC”. Accordingly, the payment was made by the Crown not EQC.
[110] EQC was also paid by the Crown for its role as agent. The Crown likely appointed EQC to administer the OSP because of its expertise in dealing with on-sold claims as it had done in relation to under-cap amounts. OSP applications could not progress beyond the initial stages until the under-cap had been settled, the respondents’ OSP claim only being transferred to EQC’s on-sold team after EQC paid the under- cap settlement in November 2020 — but EQC, in assessing the OSP claim, does so as agent of the Crown.
[111] Further, the OSP was dual-purpose: first, it filled the gap left by the private insurer’s exclusion from liability for the over-cap amount following the Xu decision by providing an alternative pathway to on-sold purchasers who could otherwise only pursue a claim of negligence against EQC; and secondly, it sought to release EQC from those further claims (limited to the 14-month window on-sold purchasers could opt into the OSP).
[112] Notably, the creation of the OSP did not itself replace the claim in negligence against EQC. Rather, it provided an alternative to that negligence claim which, if opted into by on-sold purchasers, only then operated to release EQC from any further potential liability. Had the respondents wished, they could have continued their claim in negligence against EQC with Proclaims’ assistance and, if successful, Proclaims would have been entitled to the success fee as this would be a recovery from EQC. The OSP in this respect is independent of EQC’s potential liability in negligence.
[113] The OSP did not make EQC liable for the over-cap amount, as would be the conclusion reached on Proclaims’ argument that payments under the OSP were by EQC. The Settlement Deed clarified EQC was still to meet the under-cap cost (implying this is what EQC’s liability was limited to) and expressly stated:
No admission of liability
6 No party admits fault or liability by entering into this deed.
[114] Under the OSP, EQC was liable only for the under-cap amount. To find otherwise would be inconsistent with both EQC’s statutory cap of liability recognised by the Agreement as it applies to recoveries from private insurers and the purpose of the OSP to release EQC from future claims as expressed in the terms of the Settlement Deed.
[115] Proclaims’ argument is that EQC “made” the OSP payments because EQC is specified in the Agreement, meaning the terms of the Agreement applied to the OSP. However, this ignores the terms of the Settlement Deed that plainly provide the Crown is the source of the payments and the Crown merely appointed EQC to act as its agent. While payments under the OSP were “made by” EQC, this again only related to the processing of claims and payment completed by EQC as agent of the Crown. The OSP was fundamentally a Crown-made scheme and as such, I do not accept the submission the OSP was EQC for the purposes of the Agreement.
[116] Proclaims further argued that the references to “EQC and the Insurer” were merely bywords and the terms of the Agreement encompassed the OSP in that Proclaims’ role was to ensure the respondents received the full amount necessary for reinstatement of their home regardless of the source of settlement. For the reasons that follow, I do not accept this submission.
[117] First, the Agreement permitted Proclaims to assist the respondents in pursuing their legal entitlements against the parties pursuant to their statutory, tortious and/or contractual liability, including, if necessary, going to court. This is shown by the wording of the Agreement:
(a)In providing its services, that Proclaims:
(i)“has exclusive authority to act on the Client’s behalf to represent the claim with EQC and the Client’s insurer … and to settle the claims”;
(ii)“will keep the Client informed of progress being made with the
contested claim/s”;
(iii)will obtain authority “to accept settlement offers… in order to
discharge the claim/s”;
(b)the variation condition states: “Proclaims reserves the right to charge the success fee based on the amount EQC and/or the insurer is liable to pay to reinstate the property…”
(c)under the timing condition, there is no guarantee of completing services within a specific timeframe “as this is determined by the Court processes, and EQC & Insurers behaviour in response to representations made and evidence submitted…”
[118] In contrast to EQC and insurers for the under-cap and over-cap amounts respectively, the Crown was not liable to pay any amount to on-sold purchasers. The OSP, in essence, filled the lacuna created for on-sold purchasers following the Supreme Court’s decision in Xu. The OSP was available for on-sold purchasers to register and make applications within the specified timeframe of 14 August 2019 to 14 October 2020.27 The OSP not only made payments on a no-liability basis but simultaneously released EQC from any current or future claims beyond its statutory cap from those who settled. These factors distinguish the OSP from settlements achieved under the Agreement with EQC and the insurer. Such claims were not time- limited (save by ordinary limitation principles), were brought on a liability basis and did not involve the release of a third party from further potential liability. Both the context in which the OSP arose and the terms of the Settlement Deed means the OSP was truly an ex gratia scheme and as such of an entirely different nature. Recovery under such a claim which did not exist when the Agreement was made could not have been mutually intended by the parties to be included in the Agreement.
[119] The OSP’s release of EQC from potential liability above the statutory cap occurred only after the on-sold purchasers opted into the OSP, therefore providing as emphasised an alternative pathway of redress for on-sold purchasers. A claim in negligence is freighted with litigation risk and involves a broader basis of recovery,
27 The OSP was initially open for applications between 14 August 2019 to 14 August 2020 but was extended by two months in response to the COVID-19 pandemic.
including exemplary damages. A recovery is a sum certain a plaintiff is entitled to apply as they think fit. This is entirely different from the nature and process of obtaining payments under the OSP. In these respects, the OSP was not a replacement of EQC’s potential liability in negligence, which the Agreement encompassed, in form or substance.
[120] Secondly, the ex gratia nature of the OSP informed the process applicants undertook to receive payments from the scheme. Mr Hipango himself recognised this distinction in an email to Ms Bately on 20 November 2020:
I’d also note that the Ex-gratia fund was not created when you engaged us…… so these “Client led” requirements (which we will continue to be involved with)….have only been recently established for Overcap Onsold owners like you who wish to access the Ex-gratia funds…..money that you would never get from the Insurer as they have no/limited liability for such Top Up payments.
(emphasis added)
[121] The OSP was designed for applicants to self-navigate and, subject to agreement on export reports, was not a payment scheme requiring lengthy negotiations. That it was “client led”, as Mr Hipango aptly put, signified Proclaims’ assistance, an advocacy-focused agency, was in large part unnecessary.28
[122] In support of this is the “Communication with EQC & Insurer” condition (the communication condition) in the Agreement that provides:
10. Communication with EQC & Insurer
The Client acknowledges that to avoid the risk of compromising Proclaims’ negotiations with EQC & Insurer the Client will not engage in any direct contact or communication with EQC or Insurers unless expressly approved by Proclaims.
(emphasis added)
[123] The unworkability of this term as applied to the “client led” OSP is demonstrated by the following correspondence between Ms Bately and Mr Hipango.
28 Proclaims, despite its attempts, was unable to pursue the success fee in relation to the under-cap amount from EQC because there was no legal basis to reimburse what was considered to be “advocacy costs”.
[124] On 14 December 2020, Ms Bately advised Mr Hipango that Debbie Horne, an employee in EQC’s on-sold team, had contacted the respondents regarding their OSP application. Part of her email states:
As such I need to advise you that any Proclaim fees and any costs associated with using Proclaims going forward will be yours, these are not refundable under the [OSP], and cannot be paid from your previous EQC payment which is put towards the repair or build.
[125]Mr Hipango responded the same day:
I also find it interesting that although I contacted Debbie Horne from the Onsold team on the 4th Dec and then again on the 11th Dec…….that she has not responded to me at all…… though instead has emailed you emphasising the fact that any Proclaims fees for the approved ex-gratia money are not refundable under the [OSP]……and by doing this she’s creating concern regarding Proclaims role in the Onsold space.
…
Feel free to forward her email through to me if you wish. (emphasis added)
[126] That EQC did not engage with Proclaims regarding the respondents’ OSP application reinforces the conclusion that the Agreement did not extend to the OSP. Otherwise, the respondents — and all of Proclaims’ clients it registered with the OSP
— would be caught in a bind. If EQC refused to engage with Proclaims and only contacted the respondents (consistent with the OSP’s “client led” approach), the respondents could not, in the absence of express approval from Proclaims pursuant to the communication condition (which Proclaims did not give), engage with EQC. The Agreement would create a stalemate — the respondents’ OSP application could not progress without breaching the Agreement. Such a scenario cannot be accepted.
[127] This direct incompatibility between the Agreement and the OSP did not arise in relation to the under-cap amount, where Proclaims did not encounter any trouble receiving responses from EQC when pursuing that claim on behalf of the respondents against EQC pursuant to its statutory liability.
[128] Further, services Proclaims were able to provide to the respondents in relation to the OSP were limited because of the “client led” approach and were also consequently less than the services provided in relation to claims against EQC and the insurer. Ms Bately recognised this fact in an email to Mr Hipango on 20 November 2020:
Due to the way that Geoff “pitched” the whole process to us, we decided to proceed with proclaims, instead of battling with EQC ourselves [for the under- cap amount], which, even though it would have been stressful and time consuming, we were quite prepared and capable to taken on. Now after reading through the ex-gratia details, it looks like we need to prepare all the information for EQC anyway, and guarantee the works will be done, and confirm builders and consent/exemptions, before receiving access to this.
(emphasis added)
[129] After Ms Bately’s 14 December 2020 email at [124], when EQC did not engage with Proclaims but contacted the respondents directly, Proclaims did not undertake any further services on behalf of the respondents in relation to the OSP.
[130] Thirdly, the nature of payments made by the OSP and those by an insurer were different. A settlement from an insurer would be a cash payment from which a success fee could be paid regardless of the amount of that payment. If made to the mortgagee, the insured could request release from their bank of the success fee. In contrast, as noted, payments from the OSP that totalled more than $150,000, as the respondents’ offer did, had to be spent on repairs. An encumbrance was also registered against the title of the property that would remain until repairs had been completed. Further, any payments above $15,000 would be made in tranches linked to repair costs. Settlement under the OSP was not capable of the same outcome for the homeowner as a settlement with a private insurer.29
29 I recognise the nature of a settlement with an insurer may depend on the particular policy wording but many insurers were prepared to settle on an “out of policy” basis, that is, to make a lump sum payment to the insured rather than meeting repair or rebuild costs as incurred. The Agreement contemplates such settlements.
[131] Ms Horne, from EQC’s on-sold team, encapsulated this distinction in an email to Ms Bately on 14 February 2022:
Of Note:
The On-Sold funds are paid to you, not your Mortgage provider. Only EQC payments are made to the bank where a mortgage exists and the agreement is in place. This is a treasury initiated program, and although EQC are acting as the agent for the Crown, the funds are ex-gratia, via the On-Sold support program.
[132] That the OSP did not provide a cash settlement able to be spent on expenses other than repairs would have been a key factor for the respondents, and likely Proclaims’ other clients. Before entering the Agreement, the respondents advised Mr Henry they were not in the most “financially flexible” position. Mr Henry suggested they arrange a loan, which they did, to cover all the costs under the Agreement. That the respondents intended the Agreement would encompass a scheme under which they would not receive a cash settlement from which they could pay the success fee owed to Proclaims is not a viable argument — the Agreement as a whole is aimed at achieving a lump sum payment in settlement of the insured’s claim.
[133] Because of this, I am also not satisfied the post-contractual conduct of the respondents suggests they understood the services extended to the OSP or to a success fee under it. Proclaims relies upon its services to the respondents in relation to the OSP. Those services comprised Proclaims registering the respondents with the OSP and providing them with information about the OSP.
[134] A mutual understanding of the meaning of the express terms when they were made is required. Proclaims provided its services, confined to the initial stages of the OSP, and the respondents did not resist. That does not demonstrate evidence of conduct on the respondents’ behalf that indicates they understood Proclaims would be entitled to claim a success fee on any amount achieved from the OSP.
[135] In the same email at [124] dated 14 December 2020, Ms Bately asked Mr Hipango, in relation to the OSP, “if there would be any additional fees from [P]roclaims if [they chose] to continue to involve Proclaims in the remainder of the process”. Mr Hipango replied the same day informing the respondents about
Proclaims’ expectation of the success fee. That was the first time the respondents were made aware Proclaims considered itself entitled to the success fee on payments received from the OSP. After that date, Proclaims did not provide any more services in relation to the OSP for the respondents. The respondents undertook the client-led process, resulting in the significantly higher offer they received under the OSP. On 1 March 2021, it appears Proclaims sent an invoice to the respondents for the success fee on the amount it expected to be offered by the OSP.30 The respondents did not pay the invoice and informed Proclaims on 16 March 2021 that they “do not consider that their contract with Proclaims included engagement in regards to the Government’s Ex- Gratia On-sold Scheme”. In my view, rather than the respondents’ conduct demonstrating a mutual intention the Agreement encompassed the OSP, this conduct indicates the opposite.
[136] Proclaims’ counsel also suggested the fact the OSP was not in existence when the parties entered the Agreement was irrelevant. That is incorrect. In assessing the relevance of subsequent conduct, the court is interpreting the contract as at the time it was made.31 It is much more difficult to claim the parties intended the Agreement to include the OSP when the OSP was not in existence at the time the contract was entered. Not only that, but the OSP was unforeseen: following the Xu decision, Proclaims contacted the respondents to discuss them joining a potential group action against EQC in negligence that was already underway, described by Mr Hipango in an email to Ms Bately on 8 July 2019 (prior to the announcement of the OSP) as “exactly what’s needed”. There was no indication or foreseen potential that a Crown-funded scheme would fill the gap otherwise created by Xu.
[137] Even once the OSP was announced in August 2019, the details of the scheme were unclear. Mr Hipango, in an email on 15 August 2019 following that announcement, wrote to Ms Bately:
30 That invoice quantified the success fee based on the figure of $80,965.53, being the difference between the total repair costing of $229,870.05 as produced by IQS engaged by Proclaims on the respondents’ behalf for the under-cap claim and the under-cap settlement from EQC of
$148,904.52. At trial and on appeal, Proclaims sought the success fee on the amount eventually offered to the respondents by the OSP in December 2022 of $296,135.49.
31 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 21, at [89].
At the moment we don’t know how this new initiative will affect your individual claims, though on the face value of the information gleaned from EQC’s website… it may very well be that the current High Court action against EQC for a Claim in Negligence … might be unnecessary….however until we know more detail around this package, we won’t exactly know so nothing at this stage will change.
(emphasis added)
[138] On 12 September 2019, Mr Hipango wrote to Proclaims’ on-sold clients, including Ms Bately:
You should also know that we’re continuing discussions with Peter Whiteside (QC) about the current High Court action against EQC for a Claim in Negligence, and we’ll maintain a watching brief on how the Ex Gratia payment scheme evolves…as notwithstanding the government’s announcement that the Ex Gratia fund will ensure Onsold owners aren’t financially disadvantaged……the reality is that at the moment cases like yours can only “register interest” and the critical pieces of clarity that we need to see around how this opportunity will work have still not been disclosed, i.e.
1. Confirmation & acceptance of our Onsold clients cases for this payment
2. Agreement that all of the over cap amount will be paid
3. Notification of how these claims will be settled (emphasis added)
[139] It is evident neither Proclaims nor the respondents understood what the OSP would entail when it was announced in August 2019. Notably, for the respondents, the nature of the OSP and its method of payment was not clarified by Proclaims, but rather remained unclear until they were contacted directly by Ms Horne from EQC’s on-sold team in December 2020. Proclaims’ claim the OSP came within the terms of the Agreement from inception is irreconcilable with these facts.
[140] During the appeal hearing, counsel for Proclaims asked why it would provide the services it did in relation to the OSP without the parties intending that the OSP fell within the Agreement and Proclaims would be entitled to the success fee. I do not dispute that Proclaims intended the Agreement to cover the OSP once the OSP was created. The Xu decision, by negating claims by on-sold purchasers against their insurers, meant Proclaims lost business as its on-sold clients could not achieve an over- cap settlement against the insurer. Proclaims had been aware of IAG’s claim through the courts and acted immediately following the Supreme Court’s decision, first by
informing its clients of the option for a group action against EQC in negligence and secondly by registering them with the OSP as soon as applications opened.
[141] However, a one-sided intention is insufficient. The OSP was first announced in August 2019, 14 months after the parties entered the Agreement in June 2018. The Agreement did not provide for that eventuality and as such, the “usual inference is that no contractual provision was made for it”.32 If Proclaims intended the Agreement to apply to the OSP, it should have ensured that was the position of the respondents as well in accordance with the terms of the Agreement:
7. Variations
The Client may request variations to the Services in writing or may request Proclaims to submit proposals for variation to the Services. Proclaims will not be obligated to accept or agree to any such variations. No variation is effective until recorded in writing, signed by the Client and Proclaims. Any variations agreed to may incur additional cost.
[142]That Proclaims did not do so is fatal to its claim.
[143] I conclude the express terms of the Agreement did not encompass the OSP. As the Judge held in the District Court:33
[121] To hold that the presumed intention of the parties expressed in the Agreement extends to include an unforeseen and, (sic) mode of recovery of repair costs from a different source with different conditions attached from those contemplated by it goes further than a purposive construction. Rather, it would impose on the parties a contract which would be significantly different from the one which they signed.
Does the OSP come within the Agreement by an implied term?34 Implied term
[144] The implied term Proclaims contends should be read into the Agreement was outlined at [53] of its submissions and is as follows:
The obligation on Proclaims to act on the client’s behalf subsists even if:
32 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 21, at [116(b)].
33 Proclaims & Ors v Bately & Cox, above n 1.
34 For legal principles relation to the implied term, see paras [97]-[98].
· for whatever reason, the private insurer is or becomes not liable to the client for the over-cap amount; and
· another source of over-cap funding is or becomes available and the client is, as a result of the work done on their behalf by Proclaims, eligible to obtain the funds they need from that source.
The success fee (plus GST) remains payable on the over-cap portion of the client’s claim, even if the over-cap funding comes from a source other than the client’s private insurer.
[145] Counsel for Proclaims noted the proposed term is capable of clear expression and does not contradict any of the express terms of the Agreement, thus meeting conditions four and five of Lord Simon’s formulation in BP Refinery.35
[146] Further, Proclaims submitted the proposed term is necessary to establish what the Agreement must be understood to mean and without the term, the contract would lack business efficacy.
[147] The respondents submitted Proclaims cannot show that the term it seeks to be implied is appropriate. It is not reasonable or equitable. Implying the term proposed extends the scope of the services provided to a different basis of recovery repair costs and from a different source to those specified in the Agreement. Further, the respondents received no funds under the OSP from which they could pay Proclaims’ success fee. The respondents submitted the agreement is workable without the inclusion of the term and there is no way which the proposed term could be considered “so obvious that it goes without saying” and implying such a term would contradict the express term of the agreement.36
[148] Proclaims argued much on the same basis that the success fee is payable pursuant to an implied term as it is by the Agreement’s express terms. For similar reasons as I explained the express terms do not apply to the OSP, I find there is no implied term in the Agreement to that effect.
[149] The OSP was not in existence at the time the Agreement was entered. The settlements offered by the OSP were of an entirely different nature to that of EQC and
35 BP Refinery (Westernport) Ltd v Shire of Hastings, above n 22, at 283.
36 Devonport Borough Council v Robbins [1979] 1 NZLR 1 (CA) at 24.
the insurer, the latter being an ex gratia scheme and the former payments pursuant to statutory and contractual liability. The OSP was a much simpler process for eligible homeowners than was pursuing a claim from EQC and/or the insurer. Proclaims is primarily an ‘advocacy’ service. Proclaims’ ‘advocacy’ role was not required under the client-led OSP. As noted, EQC was not willing to engage with Proclaims.
[150] The reasonable person could not have had knowledge when the Agreement was entered of the OSP and how it differed from EQC and the insurer. It was not suggested that at the time of the Agreement the possibility of the respondents recovering from other sources existed or, if that possibility did exist, that it would have been known by reasonable parties in the position of Proclaims and the respondents. From that objective standpoint, I am not satisfied the Agreement requires the implied term, when read against that background, to give effect to what the Agreement must have been understood to mean by the parties.37 That the OSP is distinguishable from claims against EQC and the insurer also means the implied term submitted by Proclaims could not be “so obvious that it goes without saying”.38
[151] The reality is the implied term has been drawn so as to require the respondents to engage Proclaims irrespective of what source of recovery may become available in the future and to pay the success fee irrespective of whether Proclaims’ involvement in recovery from a new source would be required or even permitted.
[152] Further, the implied term does not give effect to business efficacy. Because the OSP did not provide cash payments, in comparison to settlements otherwise under the Agreement, the respondents would upon settlement from the OSP be liable to pay Proclaims the 15 per cent plus GST success fee from their own funds. This is a key difference between what was provided in the Agreement and what Proclaims now contends should be implied. Not only would this be neither equitable nor reasonable, but it is also highly questionable whether the reasonable person would sign the Agreement if they understood the success fee would be paid from their personal funds.
37 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 21, at [116(c)-(d)].
38 At [116(f)].
[153] The implied term proposed fundamentally changes the nature of the Agreement. The reasonable person would not imply a term that so extended the Agreement, particularly when the Agreement is workable without it.
Quantum meruit
[154] Having dismissed Proclaims’ ground based on the OSP, I turn now to its alternative ground of appeal: the claim in quantum meruit for the services it provided to the respondents in relation to the OSP.
[155] The doctrine of quantum meruit is based on the principle that a party should be entitled to restitutionary relief for the reasonable value of work or services provided to the other party that falls outside the terms of their contractual relationship.39 As I concluded above, the services Proclaims provided in relation to the OSP were outside of the Agreement.
[156]The elements to establish a claim in quantum meruit are:40
(a)Proclaims provided work or services to the respondent;
(b)the respondent either requested, or freely accepted, the provision of the services; and
(c)the respondent was aware, or ought to have been aware, that Proclaims expected to be compensated for the services.
[157] The essential issue is whether it would be unjust for the recipient to retain the benefit of those services without paying for them.41
39 ACM Removals Ltd v Southern Demolition Ltd [2019] NZHC 124 at [158], citing Chillingworth v Esche [1924] 1 Ch 97.
40 Cassels v Body Corporate No 86975 (2007) 8 NZCPR 740 at [43].
41 ACM Removals Ltd v Southern Demolition Ltd, above n 39, at [158]-[159].
Submissions
[158] Proclaims submitted it is clear that a request for services and the free acceptance of the services are disjunctive elements. That is, it is necessary to show one or the other, not both, and that the obtaining of a benefit by the respondent is not a requirement.
[159] Proclaims submitted the Judge’s obiter comment that, if the elements for quantum meruit had been established, it would have been entitled to no more than
$500 in compensation, is inconsistent with evidence given by Mr Woodill at trial.42 Further, counsel submitted it fails to recognise the parties had agreed that 15 per cent plus GST of the recovery amount achieved was the appropriate price for Proclaims’ services under the Agreement.
[160] The respondents submitted Proclaims provided no real services. The expert evidence obtained was completed for the EQC claim and Proclaims has been paid for that work. The respondents’ counsel submitted Proclaims fails to meet the first limb of the test but, even if it did, it did not tell the respondents or otherwise indicate that it wished to be paid for any services provided in respect of the OSP until 14 December 2020. Further, counsel argued evidence of what another operator in the marketplace charges their own clients provides no assistance in determining the appropriate quantum, and therefore if this Court determines Proclaims is entitled to compensation on a quantum meruit basis, the Judge’s assessment of $500 is appropriate.
Is the claim in quantum meruit established?
[161] First, I accept Proclaims did provide some services to the respondents in relation to the OSP. Proclaims promptly registered the respondents with the OSP by notification of their details to EQC and provided them information about the scheme. While the respondent submitted Proclaims provided no “real” services, this submission in fact goes to the assessment of quantum when determining the value of the services.
42 Mr Woodill in evidence confirmed that his company uses an agreement which does not limit its services to recovery from EQC or a private insurer and that in two cases he has negotiated a contract with clients before they entered the OSP which expressly entitled payment for his company’s services on a ‘no win, no fee’ basis.
[162] Proclaims’ counsel is correct that request and acceptance of the services are disjunctive elements. Only one needs to be satisfied. However, I do not find the Judge erred in his application of the test as Proclaims submitted. That submission was focussed on this passage in the judgment:43
… In order for a claim to succeed it must be established that services were provided by one party to another at the latter’s request or instruction, and that the second party freely accepted those services and obtained a benefit from their provision.
(emphasis added)
[163]Two paragraphs on, the Judge stated:44
… there is dispute over whether the services were provided at the clients’ request or were freely accepted by them and whether in any event they provided any value to them and, if so, what that value was.
(emphasis added)
[164] Further, in the paragraphs immediately following, the Judge considered first that the request element was not satisfied and went on to consider whether the respondents had accepted the services. Had the Judge misinterpreted the test for quantum meruit as requiring both request and acceptance by the respondents, his Honour would not have gone on to consider the acceptance element having found Proclaims failed to satisfy the first. The Judge outlined the correct test at [132] of the judgment, immediately preceding his analysis of that test.
[165] In any event, I do not consider there was any request by the respondents. Proclaims registered them on the OSP, along with all its other eligible clients, without being asked to do so. This is evident from an email Mr Hipango sent to the respondents on 19 November 2020:
…what happens now is that we will go onto working with the Onsold Team to seek the “top up” money from the government’s ex-gratia fund.
I’ve already registered you for this and have also provided eligibility documentation…though if they ask fo[r] anything in addition to what’s already been provided then we’ll just respond accordingly.
(emphasis added)
43 Proclaims & Ors v Bately & Cox, above n 1, at [130].
44 At [132].
[166] The question then is, did the respondents accept the services? Ms Bately replied to Mr Hipango’s email the next day, on 20 November 2020:
Now after reading through the ex-gratia details, it looks like we need to prepare all the information for EQC anyway and guarantee the works will be done, and confirm builders and consents/exemptions, before receiving access to this.
[167]Mr Hipango responded the same day, by the email cited at [120] above:
I’d also note that the Ex-gratia fund was not created when you engaged us…… so these “Client led” requirements (which we will continue to be involved with)…
(emphasis added)
[168] I agree with the Judge that the emails suggest Proclaims was the party driving its involvement in the respondents’ OSP claim. Proclaims actions meant the only option available to the respondents was to withdraw their registration from the OSP (meaning that had they decided to pursue an OSP claim themselves they would have to register again). Other than withdrawing from the OSP, there was nothing else the respondents could do but accept Proclaims’ services. However, the respondents could have rejected Proclaims’ services and expressly communicated they did not want Proclaims to be involved in their OSP claim. As they did not expressly do so before
16 March 2021, in the most limited sense of the word and perhaps rather by acquiescence as the Judge found, I find the respondents did accept Proclaims’ services in relation to the OSP.
[169] Given Proclaims was, in plain terms, not a charity, the respondents at least ought to have been aware that Proclaims would expect payment for its services. While the respondents had paid the upfront fee under the Agreement, nonetheless they were dealing with a business taking steps on their behalf — they ought to have appreciated the associated charge.
What compensation is appropriate for the claim in quantum meruit?
[170] Proclaims has established its claim in quantum meruit. This leaves the issue of the amount of compensation. Proclaims seeks $51,083.36 in compensation, being the amount of the success fee of 15 per cent plus GST on the sum offered to the
respondents by the OSP. At the hearing, Proclaims’ counsel conceded the compensation could be “one or two per cent lower” than that amount.
[171] The quantum meruit claim is established on the basis Proclaims’ services provided in relation to the OSP were outside of the Agreement. I consider — to the benefit of Proclaims — that the “no win, no pay” model Mr Hipango described does not apply. Equally, however, nor does the success fee. There was no basis for Proclaims’ submission that it should be compensated the success fee in quantum meruit other than the Agreement. Having concluded that the OSP is not covered by the Agreement and Proclaims is not entitled to its fee where an offer is not accepted, it would be inconsistent with those conclusions if Proclaims could alternatively achieve the success fee in quantum meruit.
[172] In response to my provisional view of this at the hearing, Proclaims submitted the compensation sought was not through the success fee term itself based on “money achieved”, but by “assessing what the fair amount would be”, that being based on the market value of Proclaims’ services and any agreed amount for those services. That is, regardless of my finding as to the mootness of the success fee, Proclaims seeks the equivalent of that fee, $51,083.36, under quantum meruit because that is what it says is fair compensation.
[173] In respect of the market value of Proclaims’ services, Mr Lester’s brief of evidence is of assistance. He considered market value of an insurance claims consultant must be set in the context of both the consultant’s experience and the rates being charged by other experts working in the same area. He outlined the following hourly rates he was aware of in 2013:
(a)a chief claims consultant in a leading insurance broker’s claims preparation team: $400;
(b)junior insurance lawyers and partners: $200 and up to $500, respectively;
(c)chartered professional engineers: approximately $200; and
(d)architects and architectural designers: approximately $175.
[174] Mr Lester himself charged a set hourly rate of $100 from 2011 and, as of May 2023, had recently increased this to $150. He accepted an experienced consultant may have charged between $100 and $200. Mr Lester’s consultancy services fees in respect of the Canterbury earthquakes equated to, on average, 1.5 per cent of the total value of the claims.
[175] Mr Lester stated Proclaims’ 15 per cent plus GST success fee was “exorbitant”. He supported this view by explaining his OSP clients had asked for the OSP to reimburse his fees and it had done so, as was consistent with the OSP’s guidelines that it would pay reasonable costs necessary and incurred for the repair or rebuild on the damaged property. Conversely, the OSP would not reimburse a homeowner’s debt to a consultant who has charged an unreasonable or high percentage-based fee such as Proclaims had.
[176] It is clear Proclaims’ success fee was not ‘market rate’. That it was well beyond what others in the same insurance field were charging does not require consideration of the expertise of directors Mr Hipango and Mr Fleury who, prior to 2011 when they incorporated Proclaims, had no experience as insurance claims consultants. Mr Lester’s largest domestic claim saw a resolution of more than $3 million dollars, for which his fee was approximately $13,000 (or 0.42 per cent). In comparison, had Proclaims achieved that amount for one of its clients, it would have been entitled to a success fee of $450,000 plus GST.
[177] The high percentage success fee is reflective of the “no win, no pay” model Proclaims operated under that saw it receive nothing where there was no settlement, but a significant fee well above what others in the insurance field were charging at the same time where a settlement was achieved. Proclaims submitted its argument “has never been that Proclaims needs to establish that the respondents have received a benefit” and quantum meruit does not require as such. While correct, the success fee does require as such. Therefore, the comparison is neither fair nor accurate and such a fee cannot be justified (if it can be at all) outside the “no win, no pay” model.
[178] By the same token, Proclaims’ submission that the sum in quantum meruit should be based on “any agreed amount for those services” does not aid Proclaims’ case: the only agreed upon amount was the upfront fee of $2,500, which the respondents have long since paid, and the 15 per cent plus GST success fee on settlement. The success fee was not based on the value of Proclaims’ services, but rather, success. The parties thus never agreed on an amount to compensate Proclaims for its services alone; such is consistent with the OSP being outside the scope of the Agreement. Proclaims here seeks “15 per cent of what would have been obtained had the respondents chosen to continue in the [OSP]”. The offer comprised the remainder of the amount required for reinstatement of the respondents’ home; it was in no way reflective of the value of Proclaims’ services, albeit that those services may have (in part) aided the respondents in receiving that offer.45 Proclaims position that the reasonable value of its services is linked to the success fee fails to realise this distinction.
[179]For these reasons, I find awarding compensation equivalent to the success fee
— whether by applying the success fee term itself or assessing the value of Proclaims’ services in relation to the OSP to be of the value of over $50,000 — would result in unjust enrichment on Proclaims’ behalf.
[180] What services Proclaims actually provided, and the time, materials and skill required for those services, needs to be examined. This approach to calculate the quantum of compensation is consistent with the evidence the Judge heard from both Mr Lester and Mr Woodill, who confirmed that others in the marketplace delivering similar services did charge on a time and cost basis. Mr Hipango also stated in his evidence that he disagreed with Mr Lester’s evidence because the hourly rate is, “his business model and it has no relevance whatsoever to our business model”. Because, as I said above, the services in relation to the OSP were outside of the Agreement, what Proclaims’ business model was for ‘in-contract work’ does not apply here.
45 To demonstrate the inconsistency if Proclaims’ argument were accepted, Proclaims’ individual clients would receive different settlement offers (for both the under-cap and over-cap amounts) because the amounts needed to repair their homes would be different. The success fee Proclaims claims or quantum meruit would therefore also vary client-to-client, despite Proclaims having undertaken the same services in relation to each client.
[181]The services Proclaims provided in relation to the OSP were:
(a)Advised the respondents of the OSP when it was announced, consisting of three emails on 15 and 21 August and 12 September 2019.
(b)Email correspondence on 21, 22 and 30 August 2019 with IAG about IAG’s notice disclaiming its over-cap liability.
(c)Requested for all on-sold properties Proclaims represented to be registered in the OSP, including the respondents, in an email dated 5 September 2019.
(d)Sought confirmation from EQC all Proclaims’ clients were registered in the OSP via email 7 July 2020.
(e)Provided information sought by the OSP workflow coordinator via email dated 17 and 20 July 2020.
(f)Emailed its eligible OSP clients on 1 October 2020 ensuring they were registered under the OSP.
(g)Advised the respondents on 19 November 2020 that EQC had confirmed the over-cap would be passed over to the OSP and provided explanation sheet about the OSP.
[182] There were a few more email communications between Proclaims and the respondents about the OSP following the 19 November 2020 email at (g). However, the respondents had replied to that email querying the success fee on the under-cap, which began the breakdown of the relationship between the parties. The emails at (a)-
(f) were sent collectively as part of an email chain. Proclaims had approximately 49 clients eligible under the OSP. It appears some of the information Proclaims sent to the respondents about the OSP was government-provided.
[183] While counsel for Proclaims emphasised the extent of the services it provided in support of its argument on quantum meruit with reference to the “19-month period”
of the services, approximately 16 months of that period was largely if not wholly attributable to the work necessary to undertake for the successful under-cap claim, cash settlement of which was paid by EQC on 24 November 2020 to the respondents’ mortgagee. Proclaims was successful in recovering that success fee in the District Court. The respondents do not cross appeal the judgment in that respect and have long since paid the judgment sum, interest and costs amounts, totalling $73,004.48.
[184] As set out at [52] and which I repeat here for ease of reference, various fees were defined under the Agreement:
ESTIMATE OF FEES & TIMING OF PAYMENTS:
Proclaims Engagement Fee $2,500 + GST
Evidential documentation Independent professional reports – these are
estimated costs and are separate to the Proclaims fees and the District Court process fee
Geotech report $5,250+GST
Structural report $6,260+GST Quantity surveyor $4,000+GST Lawyers costs $5,000+GST Expert Witness Court attendances
Time & expense based (provisionally
$3,000+GST)
[185] As counsel for Proclaims accepted, the foundation reports, including geotechnical, engineering and surveyor’s reports and initial scope of works, obtained in preparation of the under-cap claim remained the documents integral in pursuit of the over-cap amount, subject only to the additional or further communications in relation to the OSP and subsequent work of experts such as the quantity surveyor in reviewing the IQS estimate summary which supported the over-cap claim. These were all paid for by the respondents, who obtained a loan of $30,000 from LFS to do so. Proclaims was also paid the upfront engagement fee of $2,500.
[186] It would be unjust to order the respondents to pay any substantial amount for those services in relation to the OSP, when that work was done for the EQC settlement for which the respondents paid. Proclaims would be effectively paid twice for the same work, while the respondents only received one benefit (the EQC settlement).
[187] Further, the OSP was designed for lay people to navigate themselves. From early December 2020, Proclaims did not complete any further work on the respondents’ behalf in relation to the OSP. The respondents handled their claim under the OSP themselves, including obtaining new expert reports from different experts that resulted in a substantially higher settlement offer than was originally calculated from Proclaims’ ‘preferred’ experts.
[188] That said, I accept Proclaims completed work for the respondents as set out at [181].
[189] Mr Holderness submitted the Judge erred in either ignoring the evidence of Mr Woodill or preferring the evidence of Mr Lester, who counsel contends does not undertake services comparable to Proclaims’. I consider to the contrary. Mr Lester is an insurance claims consultant, specialising in claims preparation and presentation for insured parties in Christchurch. He was appointed by EQC to the Claimants Reference Group and appointed by the Greater Christchurch Claims Resolution Service to the Christchurch Homeowners Advisory Group. In those roles, Mr Lester worked in the insurance claims area.
[190] Mr Lester’s evidence provides a clear basis for the Judge, and this Court now, to use as a comparable market indication. This is especially so considering his evidence given in respect of services on time basis on individual claims. Mr Hipango in evidence declined to quantify Proclaims’ services on a time or even estimated time basis notwithstanding the evidence of services undertaken through the email correspondence. He accepted that much of the correspondence was of a generic nature provided to all Proclaims’ client base at once.
[191] Mr Lester gave evidence that a fair hourly rate for the work Proclaims did would be between $100-200. Accordingly, I find a sum of $500 in compensation for Proclaims’ claim in quantum meruit is appropriate.
Conclusion
[192] The appeal is dismissed but for a claim in quantum meruit of $500 against the respondents.
[193] While declarations were sought as to the meaning of Proclaims’ Agreement, such are not required given the rulings I have made in this judgment. The extent to which the judgment may apply to other proceedings pending in the District Court will depend on the circumstances of each of those cases but where there is no material difference in the circumstances of those cases, counsel will readily recognise the impact of this judgment on those cases.
Costs
[194]There is no reason why costs should not follow the event.
[195] Save for the modest success in respect of the quantum meruit claim, Proclaims’ appeal has failed. The respondents are entitled to costs on a 2B basis and disbursements as fixed by the Registrar. That will be the order of the Court if no costs memoranda is filed within five working days of not more than three pages in length.
[196] The amount payable to Proclaims under the quantum meruit claim may be deducted from the costs judgment by way of set-off.
………………………………………
Preston J
Solicitors:
Shaun Cottrell Law, Christchurch Anthony Harper, Christchurch
Counsel:
P F Whiteside KC, Barrister, Christchurch P Woods Barrister, Christchurch
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