IDEAL INVESTMENTS LTD v THE EARTHQUAKE COMMISSION [2022] NZCA 641

IDEAL INVESTMENTS LTD v THE EARTHQUAKE COMMISSION [2022] NZCA 641 [20 December 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA292/2022[2022] NZCA 641BETWEEN IDEAL INVESTMENTS LIMITEDApplicantAND THE EARTHQUAKE COMMISSIONRespondentCourt: Goddard and Katz JJCounsel: G D R Shand for ApplicantN L Walker and C J Curran for RespondentJudgment: 20 December 2022 at 9:00amJUDGMENT OF THE COURTA The application is declined.B The applicant must pay costs to the respondent for a standard application ona band A basis with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Katz J)Introduction[1] Ideal Investments Ltd (Ideal) seeks leave to appeal an interlocutory decision ofAssociate Judge Lester (the High Court decision) in which the Judge declined to grantIdeal leave to bring a representative proceeding against the Earthquake Commission(Commission).11 Ideal Investments Ltd v Earthquake Commission [2022] NZHC 400 [High Court decision].Background[2] Section 29(2) of the Earthquake Commission Act 1993 (the Act) relevantlyprovides that if an insured property suffers natural disaster damage, the Commissionshall settle any claim to the extent to which it is liable under the Act. Following sucha settlement, s 29(4) provides that:Subject to any regulations made under this Act and without limiting theliability of the Commission under this Act, any payments or expenditure forwhich the Commission may be liable under this section shall be made as soonas reasonably practicable, and in any event not later than 1 year after theamount of the damage has been duly determined (which determination shallbe made as soon as reasonably practicable).The High Court proceeding[3] Ideal issued proceedings in the High Court claiming that the Commission hadbreached the requirement under s 29(4) of the Act in relation to two properties Idealowned that had been damaged by the Canterbury earthquakes in 2010 and 2011.Ideal claims that as a result of delays by the Commission in paying Ideal's fullentitlement, Ideal incurred mortgage interest it would not have otherwise incurred.[4] In addition to bringing its own claim, Ideal applied for leave to representcertain other owners of residential properties damaged in the Canterbury earthquakes,pursuant to r 4.24 of the High Court Rules 2016. That rule relevantly provides that aperson may sue on behalf of, or for the benefit of, all persons with the same interest inthe subject matter of a proceeding, with leave of the court.2 To bring a representativeproceeding there must be a common issue of fact or law of significance for eachmember of the represented class.3 As the Judge observed in the High Court decision:4[13] Claims advanced in representative proceedings typically involve bothcommon and individual issues. Common issues are factual or legal issuescommon to the claims of the representative plaintiff and all class membersrepresented in the proceeding. A judicial decision obtained by therepresentative plaintiff on a common issue will bind all class members. Thus,an issue is only common if determination of that issue is able to establish a2 High Court Rules 2016, r 4.24(b).3 Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431 at [51], citing Cridge vStudorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11]. See also Credit Suisse PrivateEquity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [53] per Elias CJ and AndersonJ.4 Footnote omitted.res judicata for the class. Class members are required to prove their individualissues separately, rather than through the representative plaintiff's claim.[5] The Commission was not opposed to leave being granted to Ideal to bring arepresentative action. Rather, the Commission's concern was that the class of personsthat Ideal sought to represent did not have a sufficient common interest in thesubject matter of the proceeding. The Commission therefore proposed an alternativecommon issue and class. Ideal decided, however, to press ahead based on its preferredformulation of the common interest and class. The Commission opposed leave beinggranted on that basis.The High Court decision[6] The key difficulty the Judge identified with Ideal's application lay with thesame interest requirement. Ideal proposed that all of those homeowners whoseproperties were damaged between 4 September 2010 and 23 December 2011 wouldbe in the represented class. This reflected "Ideal's core proposition that 'come-whatmay' [the Commission] had to resolve all such claims no later than 4 June 2015."5[7] Mr Shand (counsel for Ideal) informed the Judge that Ideal did not intend toadvance its proceeding by focusing on how the Commission had actually dealt withthe claims of individual homeowners within the class. Rather, Ideal proposed toprovide a "high level" analysis aimed at showing that the Commission had had morethan enough time by 4 June 2015 to have processed and paid all claims made forearthquake damage that occurred prior to 2012, regardless of the individualcircumstances of any particular class member. A finding to this effect, Mr Shandsubmitted, would assist all members of the represented class. They would receive thebenefit of a liability finding (namely that the Commission had not paid them "as soonas reasonably practicable") without the need for any of them to prove the specificcircumstances of their claim.[8] The Commission did not accept Ideal's proposition that all claims arising fromthe Canterbury earthquakes prior to 2012 can be treated as if they were the same, andthat a general liability finding could be made in favour of all such claimants, regardless5 High Court decision, above n 1, at [20].of their individual circumstances. Rather, the Commission submitted, the wording ofs 29(4) of the Act showed the Commission's obligation under that section was inrespect of each individual claim and breach and was therefore a question that turnedon the facts of each claim. Section 29(4) did not create some form of collective duty.Rather, every claimant would have to satisfy the factual question of whether theirclaim had been dealt with as soon as reasonably practicable, which required anassessment of the circumstances of their individual case.[9] The Judge rejected Ideal's submission that the question of whether s 29(4) wassatisfied "is a high level [one] and does not turn on the facts of each case".6 He notedthat on such an approach:7 even if [the Commission's] dealings with an individual case had been"text book", that is, a model of perfection, on Mr Shand's case that would notmatter if the claim was not resolved by the deadline nominated by Ideal(15 June 2015). I am satisfied that absolute proposition cannot be correct.[10] The Judge observed that the progress of individual claims can be influencedby a wide range of factors, many of which are beyond the control of the Commission.8He expressed concern that Ideal's proposition assumes that all variables in relation totens of thousands of earthquake claims could be controlled or overcome by theCommission.9 The Judge's view was that the issue of breach is inherently specific tothe individual circumstances of each property.10 Ultimately, he concluded that:11[50] Accordingly, I am satisfied that Ideal's application, as it stands, shouldbe declined on the basis the common issue as advanced raises what are factualissues personal to each homeowner. [The Commission] does not oppose arepresentative action, has suggested an alternative common issue and class,and has invited the Court to give directions in those terms.[11] Ideal's application was accordingly dismissed. The Judge reserved leave,however, for Ideal to request to proceed on the basis of the Commission's proposed6 At [28].7 At [29].8 As set out at [30].9 At [31].10 At [32].11 Emphasis in original.class.12 Ideal elected not to do so, but instead sought leave to appeal theJudge's decision.[12] For completeness, we note that the Judge also addressed several otherobjections to the proposed representative action, which we do not need to traverse forpresent purposes.The High Court leave application[13] As the High Court decision was an interlocutory one, Ideal requires leave toappeal it.13 In the first instance Ideal was required to seek leave from the High Court.The Judge declined to grant leave. He found that Ideal's draft notice of appeal did notset out a reasonably arguable ground of appeal in relation to the key basis upon whichthe application to bring a representative proceeding was dismissed (as set out at[10] above).14 Ideal then applied to this Court for leave to appeal.15Should this Court grant leave to appeal?Relevant legal principles[14] The relevant test for leave to appeal an interlocutory decision under s 56(5) isset out in Greendrake v District Court of New Zealand as follows:16(a) a high threshold exists;(b) the applicant must identify an arguable error of law or fact;(c) the alleged error should be of general or public importance warrantingdetermination or otherwise of sufficient importance to the applicant tooutweigh the lack of general or precedential value;(d) the circumstances must warrant incurring further delay; and(e) the ultimate question is whether the interests of justice are served bygranting leave.12 At [59].13 Senior Courts Act 2016, ss 27 and 56(3).14 Ideal Investments Ltd v Earthquake Commission [2022] NZHC 1079.15 Pursuant to Senior Courts Act, s 56(5).16 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].Did the Judge make an arguable error of law or fact?[15] In order to succeed on appeal, Ideal would have to persuade the Court that theJudge erred in finding that the members of Ideal's proposed representative class do notshare a significant common issue. For present purposes, Ideal must persuade us thatit is at least arguable that the Judge made such an error. If, as the Judge found,determination of liability under s 29(4) of the Act must turn on the assessment offactual issues personal to each homeowner, then there can be no basis for arepresentative action on the basis proposed by Ideal.[16] Ideal says that the Judge failed to take a liberal and flexible approach todetermining a common interest. Specifically, the Judge is said to have wronglyrequired the common issue to be precisely specified at the time of application for arepresentative order. Ideal submitted that a more appropriate course would be for thescope of the issue to be determined by the High Court during the case managementprocess.[17] We do not accept that submission. It would not be appropriate for theHigh Court to grant leave to bring a representative action, potentially on behalf ofmore than ten thousand class members, in circumstances where the applicant has failedto adequately identify a common or shared interest between all the members of theproposed class. This is a fundamental prerequisite to obtaining leave to bring arepresentative action under r 4.24 of the High Court Rules. This is not a matter thatcan be remedied during the case management process, or during the "second stage" ofthe process, when individual issues are considered.[18] We also reject the submission that the Judge incorrectly considered that theapplication needed to provide answers to almost all issues, overlooking that arepresentative order can be made notwithstanding that it relates only to some issues ofthe claim. The Judge expressly noted that claims advanced in representativeproceedings typically involve both common and individual issues (as set out in thequote at [4] above). The difficulty here was not that the proposed common issue waslimited in scope, but that (as articulated by Ideal) the proposed class did not have acommon interest at all.[19] Mr Shand submitted that the Judge looked for impediments to therepresentative action rather than being facilitative of it. We also see no merit in thatsubmission. The Judge appropriately identified a fundamental impediment to arepresentative action on the basis proposed by Ideal. He did, however, give Ideal theoption of proceeding with a representative action on the basis of ordersthe Commission would not have opposed.[20] Ultimately, Mr Shand submits that the Judge was wrong to consider that eachclaimant would have to satisfy the factual question of whether their claim had beendealt with as soon as reasonably practicable. However, the Judge's reasons for hisconclusion on this issue (as summarised at [9] and [10] above) are compelling. In ourview it is not reasonably arguable that the Judge erred in finding that s 29(4) of theAct did not require the Commission to settle all claims arising prior to December 2011by 4 June 2015, failing which the Commission would be liable to all members of theproposed class (even if, for example, any delays in settling the claim were entirely dueto a claimant's own conduct).[21] Mr Shand also criticises the Judge's decision not to consider an amendedstatement of claim filed after the hearing, in which Ideal attempted to address some ofthe issues raised at the hearing. The Judge's view was that the appropriate course wasto determine the application on the basis of the pleadings as they were on the date ofthe hearing as "[t]o do otherwise would be to re-open the hearing".17 That was clearlya reasonable and available approach in the circumstances.[22] If Ideal's proposed amendment to the class definition was capable of curing thedefects in the original class definition, we would have considered granting leave toappeal. Arguably, the same latitude should be extended in the context of defining arepresentative class that is extended in the context of strike out applications, allowingthe applicant an opportunity to amend the class definition if it is capable of effectiverepair.18 We have therefore considered Ideal's proposed amendment, which woulddefine the class on a "two payments basis" to include homeowners who received apayment from the Commission after 4 June 2015, and then received a subsequent17 High Court decision, above n 1, at [18].18 Marshall Futures Ltd (in liq) v Marshall [1992] 1 NZLR 316 (HC) at 324.payment from the Commission. Mr Shand submitted that in those circumstances thefirst determination must have been erroneous. So an assessment of the circumstancesof each individual case would not be necessary in order to establish liability.[23] However we accept the Commission's submission that the proposedamendment would not cure the defect in the class definition. It does not follow as amatter of logic from the fact that the Commission made more than one payment to ahomeowner that the first payment was based on an erroneous determination.The Commission payments could be iterative. For example, the Commission couldmake provisional or partial payments in some circumstances, including for emergencyrepairs. In other cases, damage may initially have been undetectable even with all duecare on inspection. The mere fact of a subsequent payment does not imply fault bythe Commission in respect of the first payment.[24] In conclusion, Ideal has failed to identify an arguable error of law or fact inrelation to the critical finding that underpinned the High Court decision. Nor has Idealidentified any amendment to the class definition that would cure the defects identifiedin the High Court. This conclusion is sufficient to dispose of the leave application.None of the other matters raised by Ideal raises the prospect of a successful appeal incircumstances where there is little or no prospect of a successful challenge to theJudge's key reason for declining to grant leave to Ideal to bring a representativeproceeding.Other matters[25] We have found that there was no error, and hence there can be no error ofgeneral or public importance. We acknowledge, however, that the underlyingsubstantive proceeding has the potential to raise issues of general or publicimportance. If there had been an arguable error in the High Court decision that wasmaterial to the outcome, this factor would have weighed in favour of a grant of leave.[26] Leave to appeal is required because the decision is interlocutory in nature.As this Court observed in Dokad Trustees Ltd v Auckland Council:1919 Dokad Trustees Ltd v Auckland Council [2022] NZCA 177.[10] The scheme of s 56 [of the Senior Courts Act] is that appeals as ofright are reserved for final determinations in respect of a proceeding. A leavefilter applies to appeals from decisions on interlocutory applications in orderto avoid delay and unnecessary cost. The underlying assumption is that suchdecisions are made in the course of a proceeding, and appeal rights should beexercised when the proceeding comes to an end. If a procedural decision hasaffected the ultimate outcome, that issue can be raised in an appeal against thesubstantive High Court decision that concludes the proceeding: see s 56(6).[27] If Ideal had persuaded us that there was an arguable error in the High Courtdecision that was material to the outcome, it is likely that we would have granted leave,despite the interlocutory nature of the decision under appeal. That is because thepractical effect of the High Court decision is to bring to an end the prospect of arepresentative proceeding, at least on the basis currently proposed by Ideal.Although Ideal can continue with its own proceeding, it may not be economic to doso. Further, this is not a case where it would be possible for Ideal to appeal theHigh Court decision after trial on the basis that leave should have been granted to bringa representative proceeding, as that pre-trial decision would not affect the ultimateoutcome at trial. Any appeal would need to be brought pre-trial. But in the absenceof any arguable error in this case, there is no basis for granting leave to appeal.Result[28] The application is declined.[29] The applicant must pay costs to the respondent for a standard application on aband A basis with usual disbursements.Solicitors:Grant Shand, Christchurch for ApplicantRussell McVeagh, Wellington for Respondent