Ideal Investments Limited v Earthquake Commission [2022] NZHC 400 (9 March 2022)

Last Updated: 15 March 2022

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-009-1087 [2022] NZHC 400

BETWEEN	IDEAL INVESTMENTS LIMITED Plaintiff
AND	THE EARTHQUAKE COMMISSION Defendant

Hearing:	21 February 2022 (by AVL)
Appearances:	G Shand for Plaintiff C Curran and N Walker for Defendant
Judgment:	9 March 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

IDEAL INVESTMENTS LIMITED v THE EARTHQUAKE COMMISSION [2022] NZHC 400 [9 March 2022]

• [1] On 18 May 2021, Ideal Investments Limited (Ideal) issued this claim asserting the Earthquake Commission (EQC) breached s 29(4) of the Earthquake Commission Act 1993 (the Act) in relation to Ideal’s claim arising from the Canterbury earthquakes in 2010 and 2011.

• [2] Section 29(4) provides:

(4) Subject to any regulations made under this Act and without limiting the liability of the Commission under this Act, any payments or expenditure for which the Commission may be liable under this section shall be made as soon as reasonably practicable, and in any event not later than 1 year after the amount of the damage has been duly determined (which determination shall be made as soon as reasonably practicable).

• [3] Ideal’s claim concerns two of its investment properties. In respect of one property, EQC’s initial assessment resulted in a payment of $837.34 to Ideal on 3 August 2015. In respect of this property EQC eventually made the following additional payments set out below. A total of $105,902.45 was paid.

(i) $64,302.22 on 5 July 2016
(ii) $ 3,564.01 on 22 September 2016 (iii) $37,198.88 on 23 March 2018.

• [4] A similar pattern of an initial assessment and payment made in June 2015 followed by further substantial payments in May 2016 occurred with Ideal’s second property.

• [5] The claim in respect of each property is essentially the same; that as a result of EQC’s “erroneous” assessment of its claims, Ideal received its full entitlement in respect of each property later than would have been the case had EQC conducted a reasonable and prudent assessment in the first place.

• [6] Ideal says as a result of delays in receiving its full entitlement, it incurred mortgage interest it would not have otherwise incurred. For each property, the claim is for damages calculated at the interest rate payable by Ideal under its mortgages from the date of the initial payment through to the date of each subsequent payment. Interest is sought on such damages under the Interest on Money Claims Act 2016.
• [7] The value of Ideal’s claim in respect of one property is $10,179 together with almost $2,000 in interest. In respect of the other property, a claim of $8,590 and interest on that sum of $1,711.

• [8] As the size of those claims suggest, Ideal initially issued its proceedings in the District Court. On 3 June 2021, Ideal filed an application under r 4.24 of the District Court Rules seeking leave to sue as a representative plaintiff.

• [9] The class definition that accompanied that application has been subsequently amended, but at its most basic, Ideal sought to represent owners or former owners of residential properties damaged in the Canterbury earthquakes where EQC assessed their claims for earthquake damage “inaccurately or inadequately” and where there was a subsequent re-assessment of EQC’s liability because the original assessment was inaccurate or inadequate resulting in late payment after 14 May 2015. If there had been a binding settlement agreement between EQC and a property owner, that person would not be in the class. The proceeding was transferred to this Court by consent.

• [10] EQC does not oppose leave being granted for a representative action but, through counsel, has raised real concerns about the definition of the common issue and of the class.

Rule 4.24 of the High Court Rules 2016

• [11] Rule 4.24 of the High Court Rules 2016 (the Rules) provides:

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] Counsel referred to the same authorities in respect of the legal principles. I adopt the summary of the principles from the submissions of Mr Curran, counsel for the defendant.

• [13] Claims advanced in representative proceedings typically involve both common and individual issues. Common issues are factual or legal issues common to the claims of the representative plaintiff and all class members represented in the proceeding. A judicial decision obtained by the representative plaintiff on a common issue will bind all class members.¹ 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.

• [14] Three well-established requirements must be met before a Court will grant a plaintiff leave to commence a representative proceeding:²

(a) there must be a common issue of fact or law of significance for each member of the represented class (“same interest requirement”);

(b) a representative order cannot allow a class member to succeed where they would not have succeeded in separate proceedings, and cannot deprive a defendant of a defence they could otherwise have raised in such a separate action (“the justice principle”); and

(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”). Relatedly, it has been held that a representative plaintiff must fairly and adequately represent the

¹ 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].

² Cridge v Studorp, above n 1, at [11(d), (f) and (i)]; Saunders v Houghton, above n 1, at [13]; Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [53] per Elias CJ and Anderson J; and Ross v Southern Response Earthquake Services Ltd, above n 1, at [51].

class,³ and will not be permitted to advance claims other than those which its own claim represents;⁴

together, the “three requirements”).

• [15] EQC challenged Ideal’s application under each of the three requirements.

Ideal’s application evolves

• [16] On the Sunday afternoon before the hearing, Mr Shand, counsel for Ideal, served a synopsis of reply submissions which included an amended class and an amended order. A key qualification to be included in the amended class was that:

EQC determined the amount of natural disaster damage and/or made a payment to the owner/former owner under s 29 Earthquake Commission Act 1993 after 4 June 2015.

• [17] At mid-day on the day of the hearing, an alternative class definition was tabled by Mr Shand.

• [18] I record leave was granted to EQC to file supplementary submissions arising from the late amendment to the class and to the form of the order. Those submissions were received and are reflected in this Judgment. On the day those submissions were filed Mr Shand filed an amended statement of claim to address some of the issues raised at the hearing. I agree with Mr Curran, counsel for Ideal, that this application should be determined on the basis of the pleadings as they were on the day of the hearing. To do otherwise would be to re-open the hearing.

³ Beggs v Attorney-General [2006] NZHC 871; (2006) 18 PRNZ 214 (HC) at [16]; Harding v LDC Finance Ltd (in receivership) HC Christchurch CIV-2008-409-1140, 19 November 2009 at [33]; and Smith v Claims Resolution Service Ltd [2021] NZHC 3561 at [43]. The Law Commission has recommended that approval of a statutory class action be predicated on the condition that a representative plaintiff will fairly and adequately represent the class: Law Commission Class Actions and Litigation Funding: Supplementary Issues Paper (NZLC IP48, 2021) at [1.85] and at 47 cl 4(1)(c) of the draft legislation)

⁴ Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group

[2017] NZCA 489, 2 NZLR 312 at [32].

The significance of 4 June 2015 in the class definition

• [19] Only those homeowners whose properties were damaged between 4 September 2010 and 23 December 2011 would be in the class.

• [20] Ideal’s core proposition is that “come-what may” EQC had to resolve all such claims no later than 4 June 2015.⁵ Mr Shand submitted Ideal would advance its proceeding not by focusing on how EQC dealt with its particular claims, but rather by way of a high level analysis aimed at showing that EQC had had more than enough time by 4 June 2015 to have processed and paid all claims made for earthquake damage that occurred prior to 2012. In support of this proposition, Mr Shand relied on EQC’s Annual Report to 30 June 2015 which stated approximately 95 per cent of more than 167,000 dwellings with building damage had either been fully cash settled to the extent of EQC’s liability or had been repaired through the Managed Home Repair Programme. Mr Shand submitted that on EQC’s numbers, that left four per cent of the damaged properties or some 6,680 homes not fully cash settled or repaired.

• [21] I note here that homes repaired under the Managed Home Repair Programme will not form part of the class as they would not have received any cash payment that could have been applied to mortgage payments or otherwise invested. This issue is also relevant to homeowners whose initial managed repair was inadequate and who later received a cash payment. EQC say in that case, had the original repair been undertaken properly or, properly scoped, then there would not have been any later cash payment as the homeowner’s entitlement would have been fully satisfied by a proper repair, hence they would never have received cash to pay down their mortgage and so cannot be in the class.

• [22] As part of Ideal’s preparation for this application, it sought information from EQC about the number of claims and properties settled between 14 May 2015 and 27 August 2021. EQC, through its counsel advised there were 78,443 claims of which 69,773 claims were settled. EQC note, however, that the 69,773 properties include

⁵ The erroneous payment by EQC followed by a later corrective payment needs to have been made after 4 June 2015 for class members not to be barred by the Limitation Act 2010.

claims settled by repair as well as a number of other cases that may not fall within the class Ideal seeks to represent.

• [23] The submission for Ideal seems to be that given EQC claimed to have settled virtually all claims by 30 June 2015, it was somehow conceding that 30 June 2015 was a reasonable cut-off date for it to have dealt with all claims arising prior to December 2011.

• [24] Mr Shand submitted, as Ideal’s proceedings asserted, EQC should have settled claims arising from the Canterbury Earthquakes that occurred prior to 2012 by 4 June 2015, a finding to that effect would assist all members of the class as they would start with the benefit of a liability finding. The next question to be determined would be whether a breach of s 29(4) of the Act could be compensated for by damages. Mr Shand submitted a finding on that issue would also benefit the class.

• [25] EQC accepts the second issue is a suitable question (subject to it being properly framed) for a representative action. However, EQC does not accept the proposition all claims arising from the Canterbury earthquakes prior to 2012 can be treated as if they were the same.

• [26] Mr Curran submitted, using the concept of breach as the common issue was the flaw with Ideal’s application. He submitted the wording of s 29(4) of the Act showed EQC’s obligation under that section was in respect of each individual claim and breach, was therefore a question that turned on the facts of each claim. He submitted s 29(4) did not create a collective duty. Therefore when an individual’s EQC claim should have been determined irrespective of the issues it gave rise to, could not be subsumed in the global question proposed by the plaintiff.

• [27] Mr Curran submitted that every claimant would have to satisfy the factual question of whether their claim had been dealt with as soon as reasonably practicable. While this was an element common to every claim, that did not mean that issue was a common issue suitable for a representative action. A ruling on that issue involves an assessment of the circumstances of the individual case. I agree.
• [28] Even allowing for the claims EQC says do not fall within the nearly 70,000 properties settled after June 2015, there are still likely to be some tens of thousands of claims within the proposed class. The plaintiff’s case amounts to there having been a systematic failure at EQC. That is, no matter how diligently and/or promptly EQC dealt with individual cases, and no matter how complex the cases or how difficult the claimants, such is irrelevant if the claims had not been resolved by 4 June 2015. Mr Shand’s submission is the question of whether s 29(4) was satisfied is a high level and does not turn on the facts of each case.

• [29] Accordingly, even if EQC’s dealings with an individual case had been “text book”, that is, a model of perfection, on Mr Shand’s case that would not matter if the claim was not resolved by the deadline nominated by Ideal (15 June 2015). I am satisfied that absolute proposition cannot be correct.

• [30] The progress of individual claims was influenced by many factors including:

(i) whether there were multiple claims from multiple events in respect of a home (the number of Canterbury earthquakes between 4 September 2010 and 20 December 2011 in some cases caused multiple instances of damage or exacerbated existing damage);

(ii) the availability of experts to both EQC and homeowners;

(iii) whether a claim related to a multi-unit block of properties each with different circumstances, for example, some units over-cap and some under cap;

(iv) whether homeowners contributed to delay;

(v) whether a claim was subject to proceedings – Mr Shand submitted that even if a claim was subject to proceedings it still had to be resolved by the deadline; and

(vi) whether there were differences between EQC and insurers as to whether a property was over-cap or not.

• [31] In short, Ideal’s proposition assumes all variables in relation to tens of thousands of earthquake claims could be controlled or overcome by EQC.

• [32] I accept Mr Curran’s submission that the issue of breach is inherently specific to the individual circumstances of each property. Mr Curran relied on the Court of Appeal’s decision in Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group where the Court said:⁶
  • [32] We do not accept that a representative plaintiff can advance claims other than those which its own claim ‘represents’. The representative plaintiff may, as Mr Cooke argues, have the same interest as the other claimants, in the sense that he has the same insurance policy for earthquake damage and alleges that Southern Response has breached that insurance policy, but that common interest does not give rise to a common issue the resolution of which will advance the disposal of the claim. Individual claimants will still need to prove the alleged breaches of the contractual obligations apply to them personally and that damages have flowed from those alleged breaches.

• [33] In the Southern Response Unresolved Claims Group case, the Court noted the claimants’ alleged breaches of the same obligations. A limited number of representative plaintiffs were entitled to bring claims to determine the nature of Southern Response’s obligations under the contracts of insurance and whether its conduct in those cases was in compliance with those obligations. The Court noted that those claims would resolve critical issues of fact and law for each of the claimants. The Court also noted:⁷

It may be necessary for individual claimants to prove that conduct which breached Southern Response’s contractual obligations, or that was encompassed by the strategy was applied to them, and also to prove individual loss.

• [34] Here, all claimants would be asserting a breach of s 29(4) of the Act. The representative plaintiff (Ideal) would determine the nature of EQC’s obligations under s 29(4) and in particular whether a breach would sound in damages. However, just as in Southern Response Unresolved Claims Group, here, each member of the class will have to prove that EQC’s handling of their claim breached s 29(4) of the Act. Accordingly, I do not accept Ideal’s description of the class is appropriate.

⁶ Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 4, at [32].

⁷ At [56].

Other challenges to formulation of common issue

• [35] In addition to the challenge that the common issue, as advanced by Ideal, encompasses questions of fact unique to each homeowner, Mr Curran submitted prior formulations of the common issue ran together questions of breach and loss. His submission was whether an individual homeowner suffered loss is also a question particular to them. Whether a homeowner has suffered loss due to the delays asserted turns on the facts of each homeowner’s case and whether they would have used the EQC payment to pay down their mortgage or to repair their property. The potential consequences of early repayment, including whether such would have invoked early repayment fees, would also have to be considered.

• [36] As the passage from Southern Response Unresolved Claims Group set out at

[32] above shows, if liability is established, individual claimants still need to prove damages flowing from the breach.

• [37] I do not see the proposed class of claimants here being any different in that regard from the class of claimants in the Southern Response Unresolved Claims Group case.

• [38] In fairness to Mr Shand, his revised classes moved away from including the element of loss in the common issue. Mr Shand acknowledged that proof of loss would be for subsequent stages of the litigation by class members.

Investment loss in the alternative to mortgage interest?

• [39] Another issue is whether members of the class should be limited to homeowners who would have reduced their mortgage if they had received (on Ideal’s case) their entitlements in cash when they should have, or whether the class should be extended to those who had “an ability to invest the EQC payment(s) for economic return”.

• [40] EQC criticises Ideal’s intended class as it includes those who have suffered a loss of investment opportunity as well as those who had incurred unnecessary interest. EQC notes Ideal does not, in its statement of claim, assert a loss of investment

opportunity. The statement of claim makes no reference to loss of investment opportunities which would need to be specifically pleaded and properly particularised. In essence, Ideal’s claim would be that it was going to invest the EQC money in some way but was thwarted by doing so by the funds being received late. Mr Curran notes that under r 5.33 of the Rules, full particulars of such a claim would be required. In addition to such a claim not being pleaded, Mr Curran submitted there is not even the assertion of such loss of investment opportunities in the evidence filed on behalf of Ideal. Unless Ideal can plead such a claim, then it cannot represent homeowners who would have invested their EQC payment.

• [41] Having the ability to invest and intending to invest are two different things. Unless a homeowner would have invested their EQC payment as opposed to simply putting it the bank or spending it on a depreciating asset, they suffered no investment loss through payment being delayed that would not be compensated for in interest.

• [42] In respect of one of its properties, Ideal received the payment from EQC directly and was free to invest the money. It did not do so, paying the money into a revolving credit account– in doing so it reduced its interest costs in respect of future draw-downs (the facility being in credit all the time of the deposit). On this property, Ideal’s position is no different from where an earlier payment would have resulted in a saving of interest. Ideal’s claim will not establish a res judicata that the plaintiffs who would have invested are entitled to damages subject to foreseeability, quantification, et cetera. Ideal is not able to represent homeowners who would have invested their cash payments as that is not what they did with the cash they received.

Assignees of EQC claims – subsequent owners

• [43] Potential investors are not the only category of claimant EQC says Ideal is ill-qualified to represent. The second group covered in Mr Curran’s written submissions was not carried over into the revised class received the day before the hearing, and so I do not address it.

• [44] The next group is homeowners relying on assignments from EQC. Whether the cause of action asserted by Ideal under s 29 was assignable or not was submitted

by EQC to be a question on which the original homeowners (the assignors) and the current homeowners (the assignees) have opposing interests.

• [45] Mr Curran relied on Emerald Supplies Ltd v British Airways Plc, as authority for the proposition that inherent conflict between proposed class members can be fatal to representative proceedings.⁸

• [46] I am not convinced that Mr Curran’s submission on this is correct. Whoever owns the alleged cause of action, each have a common interest in seeing the claim advanced and its value maximised. Mr Curran foreshadowed the possibility that there may be an issue between the assignor and assignee as to whether the assignment was apt to capture the cause of action subject to the representative action and thus this would create a conflict between class members. Again, I am not persuaded of this. The conflict, once resolved, would determine who was within the class. I accept there could be a conflict between potential class members, but both would not be members of the class once that issue was resolved. Their conflict would not be in respect of the merits of the claim against EQC but as to who owned that claim.

• [47] Mr Curran also relied on Emerald Supplies for the proposition the class must be sufficiently certain so that throughout the proceeding it is possible to know who a class member is.⁹

• [48] The class in Emerald Supplies was defined by way of broad categories. Here, the only potential dispute will be between a named assignor and assignee as to who owned the claim. If during the life of the representative action such an issue arose, it would not frustrate the progress of the representative action. There would be one claim in respect of that particular property with the only issue being who would ultimately have the benefit of that claim. The assignor and the assignee would have to resolve that matter through negotiations or proceedings outside of the class action but I do not consider this issue would create such uncertainty or cause such prejudice to EQC that it is a barrier to the class including those who have taken assignments of claims.

⁸ Emerald Supplies Ltd v British Airways Plc [2011] Ch 345 at [28]-[29] and [64].

⁹ Emerald Supplies, above n 8, at [62].

• [49] This issue, however, arises in respect of EQC’s submissions on what it has called “the justice principle” as set out at [14] above and I will turn to it in that context.

• [50] Accordingly, I am satisfied that Ideal’s application, as it stands, should be declined on the basis the common issue as advanced raises what are factual issues personal to each homeowner. EQC does not oppose a representative action, has suggested an alternative common issue and class, and has invited the Court to give directions in those terms. I will deal with that at the conclusion of the Judgment.

• [51] While the above conclusions are sufficient to deal with the plaintiff’s application, given the detailed submissions by counsel, I now deal with the other objections raised by EQC and Mr Shand’s response, albeit more briefly.

• [52] The alternative challenge to the inclusion of assignees in the class referred to earlier was advanced by Mr Walker, second counsel for EQC, under the justice principles set out at [14] above. The submission was to include assignees in the class would be to confer upon them an ability to claim they could not establish in a separate proceeding. The argument was if a property had been on-sold with an assignment of EQC claims and the new owner claimed for unremediated earthquake damage, the new owner could not receive payment for that further claim which would have been costed at the time of the original settlement and the vendor’s interest claim on the basis that the vendor should have received earlier the very money received by the new owner under their own claim.

• [53] On Ideal’s case, EQC submits the vendor will have suffered loss from not having received their full entitlement from EQC but the new owner has not suffered loss, having been paid the value of the further repairs as at the time the assignee’s claim was settled.

• [54] I do not agree with EQC’s objection. The ability to sue on an assigned cause of action does not depend on the assignee being able to show any personal loss in respect of that cause of action. The assignee seeks to recover a loss suffered by another person, their assignor. What other benefit the assignee may receive from the subject matter of the assigned rights does not matter as it is not relevant to the claim being

advanced by the assignee. As a result of an assignment, the assignee owns the vendor’s cause of action for late payment (if such exists) along with the right to have their property assessed properly. The assignee’s claim to interest depends upon the rights that were held by their assignee. EQC’s submission amounts to saying the assignee may get a windfall, therefore they should not be included in the class. Even if that is the case, including assignees in the class is not the step that confers upon them the claim they would not otherwise have. That occurs by virtue of the assignment. An assignee can sue on their assigned claim whether they are included in the class or not as, again, the claim they advance is based on the cause of action that was held by their assignor. I do not accept this is a ground for excluding assignees from the class.

• [55] Nor do I accept that the issue identified by EQC presents a causation problem for assignees. Mr Walker submitted:

... any assignee claiming for the assignor’s loss will seek damages for the entitlements that “should” have been paid to (and used by) the assignor, while seeking to retain those very entitlements for itself. Claims founded on such contradictory grounds cannot succeed. Allowing such claimants in the class would violate the justice principle.

• [56] While issues of causation are for later stages in the litigation and as such I do not express any concluding view on the point, EQC’s causation submission to me ignores that an assignee is, for all intents and purposes, suing as if they were the original owner. They could have no better claim than the original owner. So long as the original owner’s cause of action is intact, what rights a subsequent owner may exercise against the assigned cause of action does not cease to exist because the assignor continues to have rights against EQC, is beside the point. However, the original owner’s claim would necessarily come to an end when they sold the property and discharged their mortgage.

• [57] I am not saying quantification of an assigned claim will not be without difficulties, but quantification and saying the claim will fail on causation are two different matters and, in any event, this is not the context in which to hold a mini trial on the merits of causation.
• [58] Nor do I accept that the fact Ideal is not an assignee is relevant to whether assignees should be in the class.

• [59] This is Ideal’s application, which I have dismissed. I do not intend to impose on Ideal the class proposed by EQC. If Ideal is prepared to proceed with EQC’s proposed class, which would need to reflect the matters in this Judgment relating to assignees, then leave is reserved for it to so request within 10 working days.

Costs

• [60] I see no reason why costs should not follow the event on a 2B basis in favour of EQC plus disbursements as fixed by the Registrar. If submissions on costs are not filed within five working days, such will be the costs order.

Associate Judge Lester

Solicitors:

Grant Shand, Auckland (for Plaintiff)

Russell McVeagh, Wellington (for Defendant)