Ressels v Southern Response Earthquake Services Limited
[2023] NZHC 3344
•23 November 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-009-975
[2023] NZHC 3344
BETWEEN TREVOR STUART RESSELS
Plaintiff
AND
SOUTHERN RESPONSE EARTHQUAKE SERVICES LIMITED
Defendant
Hearing: 10 November 2023 Appearances:
G D R Shand for Plaintiff
T C Weston KC, K M Paterson and L C Elliott for Defendant
Judgment:
23 November 2023
JUDGMENT OF ASSOCIATE JUDGE LESTER
RESSELS v SOUTHERN RESPONSE EARTHQUAKE SERVICES LIMITED [2023] NZHC 3344
[23 November 2023]
[1] Mr Ressels and his late wife’s house was damaged in the Canterbury earthquakes. They lodged a claim with the Earthquake Commission (EQC) which assessed the damage to their house and necessary repairs. EQC does not repair damage to driveways, fences, patios, pavings and swimming pools. Damage to such items is known as “Out of Scope” items (OOS).
[2] Mr and Mrs Ressels had cover for OOS items with their insurer, AMI Insurance Limited (AMI), now Southern Response Earthquake Services Limited (Southern Response).
[3] AMI accepted the Ressels’ OOS claim and instructed Arrow International (NZ) Limited (now in liquidation) (Arrow) to assess the cost of repairing those items. Arrow visited the Ressels’ home in June 2014 and at the end of August 2014 it completed a written scope of the works required to remediate OOS items.
[4] At the end of August 2014, Southern Response wrote to the Ressels with the email including:
Attached is your scope of works including the area of damage and the estimated cost to reinstate the areas damaged by earthquake. This payment will be a full and final settlement of your out of scope earthquake damage.
[5]The amount to pay was recorded as $16,875.68.
[6] The email was accompanied by Arrow’s “Scope of Works” which lists items such as shared asphalt drive, asphalt drive and paved path along with descriptions of the damage and the areas of damaged paths and driveways et cetera, with rates for the individual items to arrive at the total. Mr Ressels and his late wife accepted the offered amount.
[7] In this proceeding, Mr Ressels claims that the amount offered by Southern Response did not include allowances for Preliminary and General (P&G), contingency and professional design fees (together “the allowances”).
[8] Mr Ressels claims that the offer made to him by Southern Response, represented the Ressels’ total entitlement under the policy for OOS items. Mr Ressels
alleges that because the breakdown of costs prepared by Arrow did not expressly include the allowances, and that such are payable, Southern Response’s offer was a misrepresentation it being implicit that the sum offered by Southern Response was the Ressels’ full entitlement. Mr Ressels says Southern Response’s misrepresentation is actionable under the Fair Trading Act 1986 and was a breach of obligation owed by Southern Response.
[9] Mr Ressels says he is not the only Southern Response policyholder to have been underpaid for OOS items as a result of the allowances not being included in OOS offers. Mr Ressels seeks leave to sue as a representative plaintiff on behalf of all Southern Response policyholders who are in the same position as him. After 1 October 2014, Southern Response made express provision for the allowances in its costings which it considered applicable and therefore 1 October 2014 is the cut-off date for the group Mr Ressels wishes to represent. There are between 7,500 and 9,500 policyholders potentially affected.
Earlier attempt to commence representative action
[10] It is necessary to briefly mention a proceeding commenced by a Mr Sneesby who was essentially in the same position as Mr Ressels as regards OOS items. Mr Sneesby brought an application to sue as a representative plaintiff which was dismissed because Mr Sneesby had entered into a full and final settlement with Southern Response, Mr Sneesby having issued proceedings earlier against Southern Response.1 Mr Sneesby was also represented by counsel, Mr Shand, who also represented Mr Ressels in this application. Mr Shand was declined leave to appeal in this Court2 and by the Court of Appeal.3 Mr Shand relies on an observation made by the Court of Appeal in its judgment declining leave to appeal.
What Mr Ressels must show to sue as a representative
[11] Mr Ressels brings his application in reliance on r 4.24 of the High Court Rules 2016 (the Rules) which provides:
1 Sneesby v Southern Response Earthquake Services Ltd [2022] NZHC 262.
2 Sneesby v Southern Response Earthquake Services Ltd [2022] NZHC 2100.
3 Sneesby v Southern Response Earthquake Services Ltd [2023] NZCA 206.
4.24 Persons having same interest
One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding—
(a)with the consent of the other persons who have the same interest; or
(b)as directed by the court on an application made by a party or intending party to the proceeding.
[12] The claims advanced in representative proceedings typically involve both common and individual issues. Common issues are factual or legal issues common to the claims of the representative plaintiff and all class members represented in the proceeding. A judicial decision obtained by the representative plaintiff on a common issue will bind all class members.4 Thus, an issue is only common if determination of that issue is able to establish a res judicata for the class. Class members are required to prove their individual issues separately, rather than through the representative plaintiff’s claim. The claims brought by separate class members to prove their individual claims are commonly known as “Stage 2 claims”.
[13] There are three established requirements that must be met before a court will grant a plaintiff leave to commence a representative proceeding.5 The three requirements are:
(a)there must be a common issue of fact or law of significance for each member of the representative class (same interest requirement);
(b)a representative order cannot allow a class member to succeed where they would not have succeeded in private proceedings, cannot deprive a defendant of a defence they could otherwise have raised in such a separate action (the justice principle); and
4 Cridge v Studorp Ltd [2017] NZCA 376 (2017) 23 PRNZ 582 at [6]; Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431 (2019) 25 PRNZ 33 at [30]; and Saunders v Houghton [2009] NZCA 610 [2010] 3 NZLR 331 at [14].
5 Cridge v Studorp Ltd, above n 4, at [11](d), (f) and (i); Saunders v Houghton, above n 4, at [13]; Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37 [2014] 1 NZLR 541 at [53]; and Ross v Southern Response Earthquake Services Ltd, above n 4, at [51].
(c)it must be for the benefit of the other members of the class that the plaintiff is able to sue in a representative capacity (adequate representation requirement) and the representative will not be permitted to advance claims other than those which its own claim represents.6
[14] While Southern Response challenged Mr Ressels’ ability to meet each of these three requirements, I am satisfied he is unable to meet the first and second requirements. That conclusion is determinative of his application which I dismiss.
Why Mr Ressels cannot meet the same interest requirement
[15] As already noted, the point of a representative action is to create a res judicata in relation to a common issue of fact or law. Mr Ressels seeks, in this proceeding, a determination that Southern Response was obliged to pay the allowances in every OOS claim. Mr Ressels alleges that prior to 1 October 2014, Southern Response failed to do so and that this proceeding could establish that Southern Response had an obligation to pay the allowances in every OOS claim.
The importance of defining the common issue
[16]The Court of Appeal has said:7
It would not be appropriate for the High Court to grant leave to bring a representative action, potentially on behalf of more than ten thousand class members, in circumstances where the applicant has failed to adequately identify a common or shared interest between all the members of the proposed class. This is a fundamental prerequisite to obtaining leave to bring a representative action under r 4.24 of the High Court Rules. This is not a matter that can be remedied during the case management process, or during the “second stage” of the process, when individual issues are considered.
[17] This reinforces an earlier comment of the Court of Appeal that the identification of a common issue is:8 “essential to the decision as to the practicability of a representative order and identification of whether, and, if so, what res adjudicata arises.”
6 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group
[2017] NZCA 489, [2018] 2 NZLR 312 at [32].
7 Ideal Investments Ltd v The Earthquake Commission [2022] NZCA 641 at [17].
8 Saunders v Houghton, above n 4, at [20].
[18] Mr Shand relied on an observation in Ross v Southern Response, that the precise scope of the common issue:9 “… will need to be determined by the High Court in the course of managing these proceedings.”
[19]That comment was made in respect of the common issue in that case set out at
[28] below. As will be seen from the detail of the common issue in Ross v Southern Response, the Court’s comment was aimed at fine tuning rather than a fundamental rewriting of the proposed common issue.
[20] The application to bring a representative proceeding asserts: “The current statement of claim raises issues of fact and law that are common to all class members who have the same interest.”
[21] The application continues that: “The common issues and merits of this claim were recognised by the Court of Appeal in Sneesby v Southern Response Earthquake Services Ltd [2023] NZCA 206 at [30]-[31].”
[22]The application does not attempt to define the common issue.
[23] The notice of opposition put in issue whether there are issues of fact and law common to all class members as asserted in the application.
[24] Mr Shand, counsel for Mr Ressels, in his written submissions in support of the r 4.24 application and in particular in respect of the common issue said:
66.Mr Ressels says the common issue(s) is whether [Southern Response’s] representations(s) about the cost/entitlement for “out of scope” under the policy and subsequent payment/settlement for that amount comprised:
(1)Misleading and deceptive conduct under the Fair Trading Act 1986;
(2)A breach of its obligations.
67.That is sufficiently common to all group members based on Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431 and Simons at para [98].
9 Ross v Southern Response, above n 4, at [32].
68.The common issues here are essentially the same common issues in Ross at para [31]. There is no practical difference. The Court cannot reach a different position. The common issues and merits of this claim were recognised by the Court of Appeal in Sneesby v Southern Response Earthquake Services Ltd [2023] NZCA 206 at paras [30]-[31].
[25] This is in effect the same approach to the definition of a common issue of which I was critical in Sneesby v Southern Response Earthquake Services Ltd, where I said:10
[54] Mr Shand, in oral reply, referred to the common issues identified in the Court of Appeal judgment in Ross v Southern Response.11 He submitted the common issues in this case could be arrived at by, in effect, substituting the facts of this case into the description of “common issues” set out in the Ross judgment with some consequential changes. This was too little too late. It is not for the defendant or the Court to carry out the exercise suggested by Mr Shand.
[26] Despite this clear statement, Mr Shand again asks the Court and Southern Response to work out for themselves what the common issue is in this case by reference to Ross.
[27] The obvious rejoinder to Mr Shand’s approach is that if it is a simple exercise of doing little more than editing the Ross common issue to reflect the facts and circumstances of this case, then why has Mr Shand not undertaken that exercise?
[28]While lengthy, I set out the common issues as recorded in Ross:
(a)Was Southern Response (SR) obliged by the policies to pay the additional costs in the “AMI Office section”?
(b)Did SR owe a duty of good faith to its policyholders, and if so did that duty oblige it to disclose the “office copy” DRA to policyholders?
(c)Where SR provided a DRA to a policyholder without disclosing the existence or contents of the “office copy”, did that amount to:
(i)A breach of SR’s duty of good faith (if such a duty existed);
(ii)Misleading or deceptive conduct; and/or
(iii)Making any of the representations pleaded at paragraph 53 of the Statement of Claim; if so, were those representations false and/or misleading or deceptive;
10 Sneesby v Southern Response Earthquake Services Ltd, above n 1 at [54].
11 Ross v Southern Response Earthquake Services Ltd, above n 4 at [31].
(d)Where SR told a policyholder that the estimated total cost to repair or rebuild their home was $x (where $x was SR’s interpretation of the amount it was obliged to pay under the “Buy another house” option, excluding the additional costs in the “AMI Office section”, did that amount to:
(i)A breach of SR’s duty of good faith (if such a duty existed);
(ii)Misleading or deceptive conduct; and/or
(iii)Making any of the representations pleaded at paragraph 53 of the Statement of Claim; if so, were those representations false and/or misleading or deceptive;
(e)When SR offered to settle with a policyholder in the circumstances referred to at (c) and/or (d) above, at the sum recorded in the disclosed DRA, and the policyholder accepted the offer:
(i)Did that amount to breach of SR’s duty of good faith (if such a duty existed)?
(ii)Did it amount to misleading or deceptive conduct?
(iii)Does the policyholder’s acceptance give rise to a presumption (rebuttable or otherwise) that they relied upon or were misled or induced to settle by SR’s conduct and/or representations?
(iv)Did the policyholder suffer loss as a result of SR’s conduct?
(f)Does clause 11 of the settlement agreements SR entered into with Class Members provide a defence to any of the causes of action pleaded?
[29] Comparing the common issue in Ross with Mr Shand’s formulation of the common issue set out at [24] above, demonstrates Mr Shand’s formulation of the claimed common issue is inadequate. At the risk of labouring the point, it is not for the Court to draft the alleged common issue.
Mr Shand’s reliance on the Sneesby decision
[30] Mr Shand relies on paragraphs [30] and [31] from the Court of Appeal decision. Paragraph [31] states:12
[31] We accept that, in principle, the provision of a written scope of works, even without Southern Response holding an inconsistent internal version, could arguably amount to a representation as to the true cost of remediation. As noted, Southern Response asserts that virtually all OOS claims did not require allowances for professional fees and margin. However, that is
12 Sneesby v Southern Response Earthquake Services Ltd, above n 3.
a question of fact and not amenable to resolution at this stage. For present purposes we proceed on the basis that it is arguable that a scope of works and accompanying correspondence could amount to a representation as to the cost of remediation.
[31]This paragraph is the high point for Mr Shand’s application.
[32] Mr Shand submits this shows that the Court of Appeal accepts there is an arguable case there was a representation by Southern Response that the amount offered was the Ressels’ full entitlement. However, Mr Shand’s formulation of the common issue, reproduced at [24] above, glosses over a number of vital subsidiary issues including:
(a)what is the representation that is alleged?;
(b)was the representation a misrepresentation?; and
(c)what are the specific obligations owed and is their source contractual or otherwise?
[33] The proposition underlying the present application is that: “P&G, margin, professional fees and contingency” are an essential part of a true remedial costing.
[34] Mr Shand’s position is that these items had to be included in the costings Southern Response sent to each OOS claimant regardless of the type of OOS damage claimed for.
[35] I do not accept that proposition is a tenable common issue as each policyholder’s entitlement in respect of OOS items turns on its own facts.
[36] At one point, Mr Shand in response to a question from me said whether there should be an allowance for a professional cost could only be determined once there was evidence from witnesses with expertise on those particular topics. I agree with that proposition but the point is it undermines Mr Shand’s position that the default position for each and every OOS claimant is that they are entitled to an allowance for professional fees.
[37] Mr Shand’s response to the above was that Southern Response must be obliged to pay OOS claimants each allowance, as when Southern Response makes a payment in respect of a house rebuild where there are also OOS items, it pay P&G, contingency and professional fees on the entire cost, including OOS items. However, how that practice might create a right enforceable by Mr Ressels is not explained – nor is that the way the statement of claim is framed.
[38] Mr Ressels’ policy in the case of a cash settlement required Southern Response to pay “the cash equivalent of the cost of repairs”. Whether the cash equivalent of the cost to repair a policyholder’s damage required the input of professionals, such as engineers or architects, depends on the nature of the damage in each case.
[39] The other way of looking at that issue is that the costings provided to Mr Ressels can only be a misrepresentation of the true cost to rectify his property if the repairs to his OOS items in fact required the involvement of professionals. I accept the submission of Mr Weston KC, counsel for Southern Response, that:
It cannot be a misrepresentation not to include an allowance for professional fees when such fees would never have been payable (such as for the repair of a fence or a path).
[40] If the circumstances of an OOS claim were complicated requiring the assistance of professionals, then the question in that case will be whether such an allowance was in fact made in the costings.
[41] There is no suggestion in Mr Ressels’ statement of claim that repairing the damage to his property, the scope of which is not disputed nor the proposed repairs required the involvement of professionals. Mr Ressels’ claim proceeds on the assumption that professional fees should have been automatically added to Mr Ressels payment, whether the damage required the involvement of professionals or not. Mr Ressels is not entitled to be paid by Southern Response money that would not be required to repair the OOS damage to his property.
[42] Mr Ressels is therefore not a suitable representative plaintiff in respect of whether professional fees should be payable as there is no suggestion repair of his damage actually required the involvement of professionals as the ultimate issue is
whether the payment met Southern Response’s policy obligation set out at [38]. The alternative way of looking at that issue is whether Mr Ressels’ damage in fact required the involvement of professionals is just that, a question of fact and therefore cannot found a useful res judicata for the proposed class.
[43] That Mr Ressels’ claim does not raise a common issue in respect of professional fees can be demonstrated through the following propositions. Mr Ressels says Southern Response’s offer to policyholders was a representation that the amount offered was the policyholder’s full entitlement. Mr Ressels says that for an offer to represent a policyholder’s full entitlement, it must include the allowances.
[44] On what basis is Mr Ressels entitled to the three allowances? Mr Ressels’ policy entitlement was to receive “cash equivalent of the cost of repairs” to the damage at his property. What aspect of Mr Ressels’ claim required an allowance for professional fees to have been included for in the amount calculated by Arrow and offered to him by Southern Response? Nothing is identified in Mr Ressels’ pleading or evidence about the damage to his property that meant professional fees had to be incurred in rectifying his OOS damage. Mr Ressels did not dispute the accuracy of the Scope of Works prepared by Arrow.
[45] In other words, Mr Ressels does not claim the money he was paid was insufficient to satisfy Southern Response’s obligation to pay the cost of repairs because of the absence of an allowance for professional fees.
[46] Mr Ressels’ statement of claim relies on Avonside v Southern Response,13 as setting allowances for margin, professional fees and contingency at 10 per cent. That case, however, is not authority for the proposition that an insurer must always pay the allowances whenever an insured has a claim for damage to their property. If the Avonside decision was authority for that proposition, there would be no need for this representative action application.
13 Avonside Holdings Ltd v Southern Response Earthquake Services Ltd [2014] NZCA 483.
[47] The flaw in Mr Ressels’ application is that it adopts a one size fits all approach to what is an inherently factual issue in respect of each insured, that is, the amount required to meet the individual insured’s cost of repairs.
[48] The common issue as advanced raises what are factual issues personal to each insured’s in relation to professional fees. That is the basis upon which this application is declined. This is the same basis as the application for a representative action was declined in Ideal Investments Ltd v Earthquake Commission.14 The core proposition underlying Mr Ressels’ claim is that all OOS claims can be treated as if they were the same, that is, all such claimants were entitled to the professional fees allowance and therefore a general liability finding can be made in favour of all such claimants regardless of their individual circumstances.15
[49] We come back to the proposition that the extent of Southern Response’s obligation to each of its insureds was spelt out in its policy. The policy obligation is not in dispute, that is, in respect of OOS items to pay the “cash equivalent of the cost of repairs”. That is an inherently fact specific issue. For some claimants, professional/design fees would be essential and for others, professional fees were simply not required. Why Southern Response should pay an amount not required to repair damage when it is not required by its policy to do so, was not explained.
[50] It is clear from Mr Shands’ submissions that his formulation of the common issues is intended to capture all three allowances regardless of an insured’s circumstances and is therefore not a suitable common issue.
Is there a common issue in respect of contingency and P&G?
[51] Southern Response accepts that its OOS payments were required to include an allowance for P&G and contingency. Its position is that P&G was in fact included in the figures that it paid (disputed by Mr Ressels) and that it acknowledges liability for contingencies.
14 Ideal Investments Ltd v Earthquake Commission [2022] NZHC 400.
15 Ideal Investments Ltd v Earthquake Commission, above n 7, at [16] and [18].
[52] Mr Weston, having formally acknowledged on behalf of Southern Response that it is liable for P&G and contingency, a proceeding to establish Southern Response’s liability on those issues is not required. Southern Response having resisted this application on the basis of a formal acknowledgment to the Court that it is liable for these matters, is not be able to retract that concession.
[53] Southern Response has waived limitation in respect of contingency, professional fees and interest. Again, Southern Response has always accepted that professional fees would be payable in appropriate cases.
[54]Southern Response has raised a limitation defence in relation to P&G.
[55] Mr Ressels may seek to rely on the late notice provisions of the Limitation Act 2010 to avoid being statute barred in respect of his claim for P&G. Mr and Mrs Ressels received their OOS payment in late 2014. This proceeding was commenced in March 2023. That Mr Ressels may establish a late notice extension would not, in my view, extend late notice protection to an OOS claimant who, on the facts of their case, could not satisfy the requirements of late notice. Whether a late notice extension is available depends on the circumstances of each insured. Some OOS claimants may have had actual knowledge of the issues raised by Mr Ressels at a time that means they cannot now rely on late notice. Mr Ressels’ application will not be granted if it would not permit the class action to defeat a defence presently available to Southern Response (the justice principle at [13](b)).
[56] The granting of an application to sue as a representative, if the claim is brought within time, stops time running for the class. However, Mr Ressels’ claim is out of time unless he can establish late notice.16 Mr Ressels establishing late notice is something personal to him – he cannot confer a late notice extension on all OOS claimants.
[57] Under the Fair Trading Act 1986, limitation is also dependent on Mr Ressels’ knowledge.
16 A plaintiff wanting to rely on late notice must first prove that at the close of the start date of a claim’s primary period, they neither knew nor ought reasonably to have known of the facts in s 14 of the Limitation Act 2010.
[58] Each OOS claimant would have to address limitation at stage two as limitation will depend on that claimant’s knowledge. Therefore, there is no res judicata benefit to the class in Mr Ressels being successful in his claim in respect of P&G, assuming he can establish late notice at trial and leaving to one side Southern Response’s position that P&G was included in OOS payments and is therefore a factual issue to be addressed in respect of each claim.
[59] Accordingly, any Southern Response policyholder who received an OOS payment prior to 1 October 2014, is free to pursue a claim against Southern Response for contingency and professional fees as limitation is waived in respect of those matters and Southern Response accepts a contingency allowance was payable in all cases and professional fees where appropriate. Each policyholder would be jumping to a stage two process because of the liability acknowledgment made by Southern Response.
[60] In respect of P&G, each policyholder will have to address limitation based on their own circumstances, just as Mr Ressels has to do. Mr Ressels cannot, through establishing a late knowledge extension dependent on his own personal circumstances, confer a late notice extension on all OOS claimants irrespective of their circumstances. Were it otherwise, a class member with actual knowledge of their right to claim, would avoid a defence otherwise available to Southern Response.
[61] Accordingly, no representative action is necessary in respect of contingency and professional fees for the reasons explained, nor is there any precedent value in respect of limitation in permitting Mr Ressels to be a representative plaintiff on the P&G aspect of the claim because the starting position is his claim is statute barred and Mr Ressels has to rely on circumstances personal to him to obtain a late notice extension. In short, Mr Ressels is not a suitable representative plaintiff.
Costs
[62]There is no reason why costs should not follow the event. Unless counsel file
a memorandum in respect of costs within five working days, there is an order that Southern Response is entitled to costs on a 2B basis plus disbursements as fixed by the Registrar.
Associate Judge Lester
Solicitors:
Grant Shand, Auckland (for Plaintiff)
Buddle Findlay, Christchurch (for Defendant)
Copy to counsel,
T C Weston KC, Christchurch (for Defendant)
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