EAST v MEDICAL ASSURANCE SOCIETY NEW ZEALAND LIMITED [2014] NZHC 3399

EAST v MEDICAL ASSURANCE SOCIETY NEW ZEALAND LIMITED [2014] NZHC 3399 [22 December 2014]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV 2013-409-001360[2014] NZHC 3399BETWEEN MICHAEL CHARLES EAST, JANELOUISE EAST and INGRID ROBYNTAYLORPlaintiffsAND MEDICAL ASSURANCE SOCIETYNEW ZEALAND LIMITEDDefendantHearing: 10, 11, 12, 13 & 17 November 2014Counsel: S P Rennie and AGM Whalan for PlaintiffsA J Horne and N Frith for DefendantJudgment: 22 December 2014JUDGMENT OF WHATA JTable of ContentsFacts [2]The policy [4]The issues [10]Issue 1: Timing of paymentThe plaintiffs' case [12]Defendant's case [13]Assessment Interpretation [14]The words used [16]The wider insurance context/efficacy [25]Fraud and bad faith [27]Resolution [31]Issue 2: The proper measureThe plaintiffs' case [32]Defendant's case [35]Assessment [36]MBIE Guidelines [38]Reports [40]Riley 2011 [41]Beca 2012 [44]HFC 2011 [49]Weidlinger [50]Second Beca report [52]TM Consultants 2014 [53]Geoscience Reports [54]Davis Ogilvie report [61]Report to the Court [77]Evidence [83]Mr Elliot Duke [85]Mr Charters [90]Mr Hewitt [92]Dr Jain and Mr Blythe [93]Messrs McMorran, Gallagher and Lieshout [94]Analysis As new? [101]Is underpinning necessary? [108]Quantum [115]Residual issues [116]Supplementary submissions [118]Outcome [119]Costs [120][1] Dr Michael East and Jane East beneficially own on trust, a house located at 9 Allister Avenue, Merivale. It was damaged by the Christchurch earthquakes. Medical Assurance Society New Zealand Limited (MAS) indemnified the property against earthquake damage under a policy of insurance. The Easts have indicated that they wish to restore their home. This triggers compensation on a replacement value basis under the policy. They seek payment in advance of works, but MAS will not pay until the costs are incurred or about to be incurred. There is also a disputeabout what is needed to restore the home to an "as new" condition. The expertadvisers for the Easts consider that re-levelling could be considered, subject to appropriate underpinning of the strip footing and load bearing elements. By contrast, the experts for MAS recommend re-levelling through grout injection. The latter option is considerably less expensive than the former. I am tasked with the responsibility of resolving their differences.Facts[2] The East's home is a residential two storey dwelling with a timber framestructure, a rockcote finish on the upper storey and a concrete block veneer on the concrete slab lower level. It is located on flat land. As a consequence of the various earthquake events striking Christchurch in late 2010 and early 2011 the property suffered structural damage. A helpful summary of that damage was provided by Mr Blythe which I adopt, namely:(a) The dwelling or framing has been displaced out of plumb along the height of the house towards the north;(b) The floors are out of level on both the ground floor and upper level of the house;(c) Cracking to the concrete slab between the garage/laundry section of the house and the main house floor slab;(d) Cracking in the Gib board linings throughout the house;(e) Cracking to the 70 mm brick veneer cladding at the mortar joints where this has reflected through the Resene Rockcote plaster finish. These cracks typically "staircase" through the mortar joints in thebrick veneer in a number of locations to all elevations of the house;(f) Water penetration around the skylight window frame;(g) Misalignments to internal and external doors throughout the dwelling. In some cases these were causing the doors to stick or no longer shut properly;(h) Cracks and gaps in conjunctions between skirting boards, scotias, jams and interior joinery; and(i) The heater system in the ground floor slab is no longer working.[3] Various reports have been produced addressing the repair requirements for this damage. I address those reports in detail at [41 ]-[83].The policy[4] Unfortunately there is a dispute about what version of the MAS policy applies. Dr East was sent a 2006 version of the policy (MGLD003 06/06) by Mr Fisher of MAS in response to a request following the September earthquake event. Mr Parker, also of MAS, gave evidence that in fact the right policy, a 2008 version (MGLD003 11/08), was sent to Mr East in September 2009. He produced a copy of a letter purporting to enclose the 2008 policy and an invoice for the premium to be paid. It is not an exact copy of the letter because the date on the letter coincides with the date it was printed, not the date it was allegedly sent. Complicating matters still further, Mr East was cross examined on yet another version (MGLD003 06/10).[5] Be that as it may, I have no reason to doubt Mr Parker's veracity. He says thatthe letter is an accurate copy of what was sent to Mr East as shown in his computer records. I also have no reason to doubt that the letter attached the 2008 policy MGLD003 11/08. It is also tolerably clear to me that the version sent by Mr Fisherwas not the correct version. I therefore proceed on the basis that the 2008 policy is the relevant policy. It is short.[6] It provides the following undertaking and types of cover:Our Undertaking The Society undertakes that if, during any period for which the premium has been paid, any unintended and unforeseen physical loss or damage occurs or costs or losses arise which have been provided for by the Policy, its Schedule or any Renewal Advice, then the Society will compensate you in the manner and to the extent described.A Dwelling1) Dwelling – Replacement Value – applies to permanently owner/occupied dwellings (ie, not tenanted or holiday homes) and, when selected, means that the society will cover the cost of rebuilding or restoring the dwelling to a condition substantially the same as new, so far as modern materials allow, and including any additional costs which may be necessary to comply with any statutory requirements or Territorial Authority by-laws. There is no maximum sum insured but the liability of the Society shall not be greater than the reasonable cost to rebuild or restore the dwelling based on a floor area no greater than that declared in the proposal and specified in the Schedule.2) Dwelling – Agreed Value – applies to permanently owner/occupied dwellings (ie, not tenanted or holiday homes) and, when selected, means that the Society will cover the cost of rebuilding or restoring the dwelling as in 1 above but subject to the maximum sum insured stated in the schedule. This sum will be increased each year in accordance with building cost changes.3) Holiday Home – when selected is subject to Agreed Value conditions as in 2 above.In any case, if you elect not to rebuild or restore the building we will make a cash settlement not exceeding the indemnity value as assessed by a qualified valuer.[7] The schedule attached to the Policy refers toSchedule to Domestic Insurance Policy Sum Insured.Cover: Dwelling Replacement size 351 sqm[8] Other provisions include contents and motor vehicle insurance. Contents cover is expressed as follows:B. ContentsContents – the Society will pay the cost of replacing or restoring any items of Contents following damage or destruction within the boundaries of the property. If the Society replaces your Contents we pay only for an item with the equivalent functionality. If its functionality is increased you must pay a fair contribution towards this increase.[9] Motor vehicle cover is provided on the following basis:D. Motor VehicleIf your vehicle listed in the Schedule suffers loss or damage we will, at our option, have it repaired or replaced or we will settle the claim by cash payment up to the reasonable market value as determined by independent valuers or the Agreed Value if you have chosen that option. We will, subject to your agreement and to local availability, replace any vehicle that is assessed as a total loss following an accident within 12 months of its registration as a new vehicle, with a new vehicle of like make and model.The issues[10] As foreshadowed the central issues are:(a) Whether MAS is only required to pay as costs are incurred; and(b) Whether appropriate underpinning is needed to restore the home to an"as new" condition.[11] I will deal with each issue in turn.Issue 1: Timing of paymentThe plaintiffs' case[12] Mr Rennie submits (in summary);(a) MAS's "pay to be paid" approach is contrary to both common law andthe policy wording:(i) At common law, the obligation to indemnify arises when the loss is suffered.1(ii) The policy expressly provides that it will "compensate" theinsured for their loss.(b) The reference to "cover the cost" in the policy is simply a measure ofreplacement value, not a pointer to when payment is made.(c) Any ambiguity about what is meant by "cover the cost" should beread contra proferentum – that is in favour of the insured.(d) It is not logical for the policy to expose the insured to significant liability (including for the works and any borrowing if needed) when the obligation to pay replacement value is not disputed.(e) MAS's approach (as evidenced by an email from a Mr Lieshout) amounts to a wait and see approach – that is wait and see whether or not the low mobility grout (LMG) approach works and is acceptable to the Council and if it is then incur the costs with payment to follow.Defendant's case[13] Mr Horne submits:(a) MAS must either cover the costs of replacement or restoration or if the Easts do not elect to replace or restore the building, to pay indemnity value assessed by a valuer.(b) The phrase "cover the cost" expressly ties payment to costs actuallyincurred, i.e. the obligation does not arise until the costs are incurred.21 QBE Insurance (International) Ltd v Wild South Holdings Ltd [2014] NZCA 447, [2015] 2 NZLR 24 at [55].2 Citing General Newspapers Pty Limited v Cigna Insurance & Ors (1991) 6 ANZ Insurance Cases 61-086 (NSWSC).(c) It does not say cover the "estimated" costs.(d) The right of election is also significant, because the entitlement to elect, not to reinstate and accept indemnity value would be otiose if they were entitled to demand cost of replacement without having incurred any obligation to replace.(e) A cash payment could result in an unintended windfall if costs are not later incurred.(f) Citing the Court of Appeal decision in Ridgecrest,3 the quantification of the liability depends on the repairs actually being made and the liability equates to the actual cost of those repairs.AssessmentInterpretation[14] As the Court of Appeal recently stated in QBE Insurance:4"no special rules apply to the interpretation of insurance contracts; the court's ultimate objective, as in any other case, is to decide what meaning theparties intended their words to bear. Analysis begins with the words of the contract, but an apparently plain meaning can be displaced if the context shows that the parties intended their words to mean something else. So for example, words which bear a special meaning in the insurance context maybe interpreted in that sense."[15] The Court also noted:5"the court may employ the contra proferentum rule to resolve an ambiguity against the insurer, whose policy it is."The words used[16] Turning to the policy, the objective of the policy is expressed in clear terms. MAS undertakes that:3 Ridgecrest New Zealand Ltd v IAG New Zealand [2013] NZCA 291, [2013] 3 NZLR 618 at [49].4 QBE Insurance (International) Ltd v Wild South Holdings Ltd, above n 1, at [18]. [18].5 At [18]...if unintended and unforeseen physical loss or damage occurs or costs or losses arise which have been provided by the Policy [MAS] willcompensate you in the manner and to the extent described.[17] For present purposes, the manner and extent is described in terms of the types of cover, namely Dwelling - Replacement Value, Dwelling – Agreed Value, and if the Easts elect not to build, in terms of indemnity value as assessed by a qualified valuer.[18] Under both "Replacement Value" cover and "Agreed Value" cover, MAS:"will cover the cost of rebuilding or restoring the dwelling to a conditionsubstantially the same as new, so far as modern materials allow, and including any additional costs which may be necessary to comply with any statutory requirements or Territorial Authority by-laws."[19] Replacement value is not subject to a maximum sum, but MAS's liabilityunder this cover is no greater than:"the reasonable cost to rebuild or restore the dwelling based on a floor areano greater than that declared in the proposal and specified in the Schedule."[20] Agreed value is subject to a maximum sum insured stated in the schedule, to be increased each year in accordance with building cost changes. No sum is stated, but there is a reference to the size of the building.[21] There is then provision for a cash settlement. It states:In any case, if you elect not to rebuild or restore the building we will make a cash settlement not exceeding the indemnity value as assessed by a qualified Valuer.[22] A tolerably clear picture emerges from the words of the policy, namely thatthe commitment to "cover the cost" to a maximum liability "no greater than the reasonable cost to rebuild" is the measure of the replacement value compensation. In the language of common law damages, it is a cost of cure measure,6 based on the"reasonable cost" to replace or restore the damaged property. Similarly, the commitment to "cover the cost" is a measure for agreed value compensation.6 Marlborough District Council v Altimarloch [2013] NZSC 11, [2012] 2 NZLR 726 at [22]-[48] Stephen Todd (ed) The Law of Torts in New Zealand (6th ed, Thomson Reuters, Wellington, 2013) at 1240.Indemnity value is then the measure of cover if the Easts "elect not to rebuild or restore" their building.[23] I agree with Mr Horne that by so defining replacement and agreed value, the policy draws a clear distinction between cash settlement based on assessed indemnity value and compensation for unforeseen physical loss or costs based on the reasonable cost of rebuild or restoration. I also accept that a condition of replacement value compensation is that the Easts must elect to rebuild or restore their home. That is a strict pre-condition of replacement value compensation.[24] Nevertheless, the reference to "will cover the cost" does not obviously mean that MAS's obligation to pay is only triggered when the costs are actually incurred orjust about to be incurred and subject to an incremental approval basis. Different words are needed to place such a strict and cumbersome fetter on the prima facie right to replacement value compensation.7 First, the objective of the policy is to compensate the Easts for their loss or costs; that is to hold them free from harm including the cost of repair. Second, the liability to compensate arises on the occurrence of a qualifying damaging event. 8 Third, quantum of replacement value is not based on the incurred costs of the rebuild or restoration. Rather, the replacement value is to be objectively assessed. The claimed costs must be reasonable and they are based on the size of the home. Fourth, there is no mechanism in the policy providing for the incremental assessment and approval of costs by MAS. Fifth, and overall, there is nothing in the policy to alert the Easts that they will have their compensation fettered in that way.The wider insurance context/efficacy[25] Mr Horne's argument is more persuasive when considered in light oforthodox insurance principles. The ordinary measure of indemnity is the depreciated (actual) value of the damaged property. Replacement value policies were developed7 For example the words used in relation to motor vehicle claims: "we will at our option have it repaired or replaced". This in turn may be compared to the contents provision, namely MAS "will pay the cost" of replacing the item. This might be said to be more explicit about the need to incurthe cost first.8 See QBE Insurance , above n 1, at [55].Like the policy in QBE, the amount of insurance reinstates following partial loss or damage.in response to the obvious shortcoming of indemnity value policies in that they may not fully enable an insured to in fact replace damaged property.9 By definition, replacement value policies are premised on the actual rebuild occurring in contrast to a cash only settlement based on the depreciated value of the property.10 But I do not think that this underlying premise justifies an expanded the meaning of "cover the cost" to require:(a) An insured to actually incur the costs before the obligation to pay is triggered; and(b) MAS approve every invoice.[26] For the reasons already listed, I do not accept that the Easts could reasonably have expected to be burdened with an invoice by invoice approval procedure notprovided for in the policy. The more obvious meaning of "cover the cost" in contextis that MAS will pay the reasonable cost of the rebuild or restoration. This may present problems where there is disagreement (as here) about what is required to restore the building to an as new condition. I address one problem at [116]. But that does not mean the parties default to a invoice by invoice approval system. Indeed such a system could lead to the situation where MAS refuses to approve a cost item leaving the Easts to either pay and or sue mid construction. As I say, express words were needed to alert the Easts to this potential outcome. Conversely, the Easts must reasonably have expected that they will in a position to pay for the cost of a rebuild before it takes place.Fraud and Bad faith[27] Replacement value insurance creates heightened moral hazard, with the potential for fraudulent claims, because the insured is incentivised to inflate claims based on the undepreciated value of the property.11 As the Supreme Court recently noted in Tower Insurance Ltd v Skyward Aviation 2008 Ltd that the associated risks9 Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185 at [24].10 Brkich & Brkich Enterprises Ltd v American Home Assurance Co Ltd (1995) 127 DLR (4th) 115 (BCCA)at [14]-[16].11 Tower, above n 9, at [26].can be mitigated in various ways, including by limiting replacement value recovery to reimbursement of expenditure incurred by the insured.12 Examples of this type of policy can be found in various authorities.13 Significantly in my view, unlike the policy in Tower for example, the MAS policy does not state that MAS will not pay"until the cost of replacement or repair is actually incurred." It would have been asimple enough matter for MAS to include this clause or similar fetter.[28] Mr Horne also expressed concern that the Easts might not spend the money on the rebuild. This outcome he says would represent an unintended windfall to them. I am not convinced about this, because the agreement is to compensate for loss and replacement value is the measure of the compensation.14 A premium commensurate with the replacement value nature of the policy would (I assume) have been paid. The Easts are in no net better position in money terms until the rebuild or restoration has occurred.[29] In any event, if MAS wanted to guard against bad faith by way of approval of actual costs it could have done so in clear terms rather than by way of an obliquereference to "cover the cost". Moreover, the policy includes a provision recording that "[i]f any claim is found to be fraudulent all benefits shall be forfeited."This is the extent to which the policy overtly deals with the issue of fraud. Liability to make payment is of course still subject to an honest election by the Easts to rebuild or restore their home. That election is an enforceable commitment and actionable for breach. But once the election is made, liability to pay logically follows on being satisfied that the costs claimed are reasonable.[30] For completeness, Mr Horne highlighted an Australian authority15 in support of his contention that the replacement cover requires that costs be incurred in advance. The decision is, with respect, largely impenetrable, but it is reasonably12 At [26]. Contrary to Mr Horne's further submission (19 December 2014) I do not consider that "cover the cost" is similar to the provisions referenced in the Tower decision.13 At [26].14 Plainly however, if the Easts do not take steps to restore their home, they may be required to disgorge any replacement value payment made in reliance on their election to restore. But even this will depend on the facts. For example, if the Easts were to sell the land subject to an undertaking by the purchaser that it will restore the building, it may have a defence to any claim to disgorge because it sold the property on that basis. Cf Ruter v Northwestern Fire and Marine Insurance Company 178 A2d 640 (1962) referred to in Brkich, above n 10, at 16-17.15 General Newspapers, above n 2.clear that the policy terms in that case are markedly different from the present case. The overall scheme of the policy required that the insured must incur the liability for the replacement costs before the insurer was obliged to pay16. The Court also relevantly observed that the costs did not have to be incurred before the insurer hadto pay. Rather it held that the insurer's liability to pay coincided with the insured'sliability so that the insured was always free from the replacement cost.17Resolution[31] Accordingly, if the Easts elect replacement value cover, MAS is obliged to pay compensation provided the amount claimed is necessary to cover the reasonable cost to rebuild or restore the dwelling based on a floor area no greater than that declared in the proposal and specified in the Schedule. Liability to make payment is not conditional on the costs actually having been incurred.Issue 2: The proper measureThe plaintiffs' case[32] In a nutshell, the plaintiffs submit that the physical site information, including extensive geotechnical investigations by three different sets of experts – Beca, HFC Civil and Structural Limited (HFC), and Davis Ogilvie (DO) show that the property is subject to variable ground conditions resulting in vulnerability to liquefaction and thus requiring a conservative response to ground repair. Agreement was reached by the then respective expert teams on 30 January 2014 supporting a recommendation that grout injection was not a suitable method of ground repair.[33] The plaintiffs further submit that this agreed position was only changed on the introduction of further expert advice from Geoscience Consulting (New Zealand) Limited (Geoscience) in late February 2014. Geoscience recommends grout injection via the LMG18 method on the basis (in short) that there is a uniform layer16 At 77318-77319.17 At 77319.18 Low mobility grout (LMG) involves the injection of grout bulbs into the loose soil around the foundations to stabilise the surrounding soil and reduce mobility and slumping of the surrounding soil.of non liquefiable soils which means that the land is not as vulnerable to liquefaction as first assumed.[34] The plaintiffs' experts challenge the underlying assumptions of theGeoscience analysis and in particular do not accept that:(a) there is a thick crust of non liquefiable material;(b) the ground is dry;(c) the presence of clay soils mitigate risk;(d) there is a uniform layer of clay – on the contrary there is only limited evidence of clay being present;(e) there is a consistent load bearing capacity when in fact the geotechnical information indicates liquefiable soils at depth; and(f) Given the above, that LMG re-levelling is suitable.Defendant's case[35] The defendant's case is essentially that:(a) The indemnity obligation is to return or restore the house to its as new condition as at 2007 – that is in accordance with the standards that existed as at 2007.(b) The Building Act 2004 enables and allows restoration of the building to its pre-damage condition either without consent (in terms of the first schedule) or with consent pursuant to s 112.(c) The site geology has never been "good ground" but the foundationdesign and the house as a whole achieved code compliance in 2007and this represents the proper standard to be achieved for any restoration.(d) The site did not perform poorly, as evidenced by the relatively moderate damage done to the house.(e) The re-levelling or LMG process can safely restore the house ground conditions to its pre-earthquake condition in accordance with the Ministry of Business, Innovation and Employment (MBIE)19guidelines because the site geology is sufficiently uniform (in terms of its surficial crust) such that its load bearing capacity can accommodate the house in accordance with Serviceability Limit State (SLS) threshold standards.(f) The plaintiffs' experts have adopted a super conservative approachbased on a theoretical assessment which does not marry or reflect the actual performance of the ground and of the house under significant earthquake stress.(g) None of the reports, except the DO report categorically state that the ground cannot be re-levelled and therefore must be improved. All relevant reports merely suggested that that might be a possibility but without being definitive on it.Assessment[36] The policy provides replacement to an "as new" standard. The key issue iswhether underpinning or similar engineering response is necessary to restore the building to an as new standard. This is turn requires resolution of two questions:(a) What does "as new" mean?(b) What is required to achieve an "as new" rebuild or restoration?19 Ministry of Business, Innovation and Employment "Repairing and Rebuilding Houses affected by the Canterbury Earthquakes" (December 20120) available online atwww.dbh.govt.nz/guidance-on-repairs-after-earthquake.[37] In order to properly understand the respective merits of the parties' cases onboth issues it is first helpful to explain the MBIE guidelines for new buildings (as both key experts referred to them) and to summarise the background reports and the evidence of the key experts on the issue of site geology.MBIE Guidelines[38] MBIE publishes guidelines for the assessment of ground suitability for building new or restoring existing homes. Mr Charters provides a helpful summary of them for present purposes which I largely adopt. The current guidelines include a five step framework for the assessment, namely:(a) Assess the damage to the foundations in accordance with section 2.2 of Part A of the guidelines. The level of damage is measured by reference to displacement values for 3 types of buildings: A, B and C. 50mm displacement is indicative of the need for re-levelling for the building which is type C (timber framed dwelling on concrete floor). The maximum displacement for the site was 44mm so this indicates that re-levelling or another form of ground stabilisation may not be required. But floor slope is noted as being in excess of 1 in 200 in 5 locations. This indicates that a foundation re-level may be required.(b) Identify the technical categorisation (TC) of the property. The purpose of the TC categorisation is to identify the potential for site liquefaction.20 TC3 indicates that the land may be suffering moderate to severe liquefaction damage. The present site is categorised as TC 3 under the guidelines.(c) Consider the foundation repair guidelines for TC 3 land. This is dealt with at Part C of the MBIE guidelines. Two key factors are relevant, namely the likelihood of (a) lateral spreading and other lateral ground20 Technical Categories describe how land is expected to perform in future earthquakes. TC1 means future land damage from liquefaction is unlikely. TC2 means minor to moderate damage from liquefaction is possible in future significant earthquakes. TC3 means that moderate to significant land damage from liquefaction is possible in future large earthquakes.movement21 and (b) vertical settlement.22 Figure 13.1 provides guidance in terms of the assessment steps needed.23(d) Assessing liquefaction24 susceptibility. The site must be assessed in terms of the liquefaction susceptibility in future SLS and ULS seismic events. SLS is serviceability limit state, which is defined as an event with an annual probability occurrence of 1 in 25. ULS is ultimate limit state, with an annual probability of 1 in 500. The relevant ground motion values for an SLS event is 0.13 g and ULS 0.35 g. The February 2011 event caused a peak ground acceleration (PGA) of 0.34 g. Based on cone penetrometer tests25 (CPTs) liquefaction induced settlements in future events have been calculated on a theoretical basis as between 60-170mm at SLS and 230 at ULS. This SLS value exceeds an acceptable threshold, indicating susceptibility to liquefaction.(e) Determine appropriate repair strategy. Figure 14.2 provides a pathway for assessing repair of foundations.26 It is primarily concerned with the bearing capacity27 of the soil to accommodate the proposed structure. The experts agree that as the site did not perform poorly, figure 14.2 envisages re-levelling as an option. But Figure 14.2 also contemplates that where soil analysis has been undertaken, then a21 Lateral spreading is the sideways movement of land, typically towards watercourses. Blocks ofthe earth's crust move sideways over liquefied soils towards a lower area. Surface damage caninclude minor or major cracks in the land and tilting of ground crust blocks.22 Vertical settlement is when the building and its foundations "sink" into the ground followingliquefaction of soils during earthquake events.23 Figure 13.1 is attached as appendix 1.24 During the liquefaction process, the soil behaves more like a liquid than a soil. The soil particles are rearranged and compacted, resulting in decreased volume.25 A Cone Penetrometer Test (CPT) is a method for testing the resistance of the soil and enables an assessment of the susceptibility of the soils to liquefaction. The CPT probe gathers raw data including cone tip resistance, friction sleeve resistance and bore water pressure at 2cm intervals.26 Figure 14.2 is attached as appendix 2.27 Bearing capacity concerns the capacity or strength of the soils to carry a structure. There are two types of bearing capacity measures, ultimate bearing capacity and allowable bearing capacity. The former is self explanatory. Allowable bearing capacity is derived by multiplying the ultimate bearing capacity by a strength reduction factor to calculate allowable bearing capacity. It is expressed in terms of kPa. To assess whether the ground conditions can accommodate a structure the allowable bearing kPa capacity must exceed the kPa load of the structure. The expert assessment of these values is noted at [ 74]-[ 75].more conservative assessment may be required depending on the outcome of that analysis.[39] Several of the key points of debate between the experts relate to the significance of the outputs from each of the MBIE evaluations.Reports[40] The site has been subject to several investigations as reflected in the number of reports, including geotechnical investigations and structural assessments. The reports were included in the common bundle. They provide the core basis for the evidence. Given their significance, I briefly summarise them.Riley 2011[41] Rileys Consultants Ltd in a report dated 15 November 2011 observed that on the basis of Scala penetrometer tests28, materials encountered down to 3.2 metres depth did not meet the minimum bearing capacity requirements of NZS 3604:2011 for the foundations of timber framed residential structures and cannot provide a geotechnical ultimate bearing capacity of 300 kPa. The report also notes the definition of good ground in NZS 3604:2011 has changed to exclude ground subject to liquefaction and/or lateral spread. The reports notes that ejected material which occurred due to liquefaction during the February and June 2011 earthquakes indicatethat the site is not considered to be on "good ground" in accordance with NZS 3604:2011.[42] The report observes that if existing foundations are to be repaired, then it is recommended to relevel the concrete slab. Systems such as used in RELEVEL or URETEK methods could be one solution for the site. The report goes on to observe:It is important to note that these remedial measures will not reduce or mitigate the likelihood of liquefaction or consolidation occurring in future earthquakes. Ground improvement at depth by way of compaction grouting28 A Scala or Dynamic Cone Penetrometer test (DCP) is a method for assessing the bearing capacity of soils. In simple terms it involves a weight on a rod with a cone. The weight is dropped on to the soil. The number of blows it takes to go down into the soil is an indicator of soil strength. For present purposes less than 2 blows per 100 mm is below the guideline standard.can potentially reduce the liquefaction risk. However, its effectiveness within near surface soils is typically limited due to the limited vertical soil confinement.[43] It is also recommended in the report that two CPTs are undertaken at the site in order to complete a liquefaction assessment of the soil profile and depth.Beca 2012[44] Beca Carter Holding and Ferner Limited (Beca) completed an interpretive geotechnic report in August 2012. It reports on various testing, including CPT, manhole, aesthetic ground water and soil assessment. Its broad recommendation is that:29Ground improvement needed for any rebuilt surface footings.Enhance near surface footings needed to address residual settlement effects.[45] It observes:30Based on liquefaction analysis undertaken significant liquefaction can be expected to reoccur under the designed seismic event and a TC3 technical category is appropriate for foundation design purposes.Note that s 3.3 of DBH guidelines states that if damage to land or foundation is greater than implied by the 2C categorisation (ie greater than 100 mm settlement or lateral spread in excess of 100 mm) then apply the approach outlined for TC3.[46] The report then makes the following recommendations in relation to foundation design:Due to the TC classification with SLS settlements in excess of 100 mm shallow foundations are not considered suitable for this site unless ground improvements are undertaken to address the static settlements and seismic ground displacements described above.[47] The report also observes:31Without ground improvement, load bearing inclusions would need to be founded within the very dense sands and gravels of the Riccarton Group below about 19m depth29 Common Bundle at 788.30 At 800.31 At 801.[48] Various recommendations are then made as to the type of foundations required. The conclusions of the report include:32Liquefaction was observed on or in close proximity to this property in aerial photographs taken immediately following the 22 February 2011 earthquake and without remedial work this property is considered to be at moderate to high risk of liquefaction during future large seismic events.Analysis indicates that potential liquefiable soils extend from the ground water table at 1.5 metres to 3 metres depth, 4 metres to 8 metres and from 12 metres to 14 metres depth. Estimates of settlement due to liquefaction under a SLS event (0.13 G range from 0 to 170 mm). Estimates of settlement due to liquefaction under ULS event (0.35 G range from 60 to 230 mm).HFC 2011[49] HFC Civil and Structural (South) Limited also undertook a post-earthquake assessment of the property. An initial recommendation was that the dwelling was"repairable" subject to investigating ground injection techniques being successful.The report notes that since their initial view, the Department of Building andHousing (DBH) has rezoned the green (rebuild) zone "into various technical categories and the dwelling has since been classified as TC3". It is noted thatUeretek grout injection technique is not allowed for re-levelling of the slab. Thereport, however, also draws the reader's attention to another re-levelling technique called RELEVEL and observes if both techniques fail a rebuild will be required.33Weidlinger[50] Weidlinger Associates Inc (Weidlinger) provided an engineering evaluation of earthquake damage on 31 August 2012. The report provides a comprehensive analysis of context, physical damage, including a photo essay of the damage. For present purposes the report relevantly observed:34The updated post earthquake assessment report prepared by HFC Civil and Structural Limited indicate that the earthquake damage to the building required repairs including re-levelling of the foundation. The HFC report concluded that the re-levelling of the foundation is not practical and not economic because foundation jackup or grout injection techniques would not work. The report indicates that rebuilding the foundation would be required32 At 804.33 At 4058-4059.34 At 932.which would also be not practical with the house in place. Thus, the HFC report implies that the house should be deconstructed and rebuilt.[51] The report concludes:Because the site is classified as TC3, any future design and reconstruction work at the property requires a site specification geotechnical investigation and specific engineering foundation design. Any foundation design work that needs to be implemented will also be dependent on the results of the geotechnical investigation and recommended site remediation measures.Second Beca report[52] A further Beca report dated 6 September 2012 observed that static ground water level was measured on 10 July 2012 in MB241/1 at 2.7 m depth. The CPT testing put indicative ground water levels at approximately 1.5 metres and 0 metres.TM Consultants 2014[53] TM Consultants were engaged by MAS to review the recommendations in previous reports. They completed two additional CPTs. The report observed that the floor levels on the property have been determined to be out of level up to 44 mm. Floor slopes to the kitchen and dining area of the building have been found to exceed 1 in 200. From Table 2.3 of the MBIE guidance document, for a Type C timber framed dwelling on a concrete floor, a foundation re-level is indicated for variations and floor slope greater than 1 in 200. The report also observes that based on reporting by Geoscience Consulting (NZ) Limited the floor slab may be repaired and re-levelled as necessary without improving the ground.Geoscience Reports[54] MAS requested that Geoscience review the existing ground investigation and geotechnical reports. It produced an initial report which observed that most of the silt in the Beca borehole is logged as high plasticity;35 that Beca CPT3 has significant thickness of soil close to the cut off value for liquefaction and that the CPT is over predicting the liquefaction. It concluded that as the site had not35 Plasticity refers to the composition of soil and the capacity of those soils to liquefy.performed poorly, a re-level without ground improvement was recommended as sufficient, applying MBIE guidelines.[55] After this initial review, an additional borehole sample was undertaken. It was located close to the Beca CPT borehole said to have indicated high liquefaction settlement.[56] Based on their assessment of Beca's and TMCO's ground investigations,together with their own borehole analysis, the outcomes of their assessment for the site were summarised in the table below:Depth (m) Material Strength Liquefiable?0-0.4 Gravel (FILL) Loose No0.4-14.0 Silt and silty clay withisolated sand layersLoose/Firm Potentially*14.0-17.0 Sand Very Dense No17.0-18.0 Sand and Silt (RiccartonAquitard)Loose to Medium Dense Yes18.0-20.0 Sand and Gravel(Riccarton Gravel)Very Dense No[57] The report includes a liquefaction analysis. It observes that most of the siltbetween approximately 2 and 10 metres is logged as high plasticity in Beca'sborehole and therefore unlikely to liquefy. It also notes that Geoscience's boreholeindicated plastic clayey soil at a depth of 3.5 metres that is unlikely to liquefy. Moderate plasticity soil at a depth of 6.8 metres has some potential to liquefy and low plasticity soil at a depth of 9.3 metres also has a potential to liquefy. In light of the above, the report concludes:The presence of a relatively thick crust of non liquefiable material (the material above 1.5 metres is dry and therefore does not liquefy) and the fact that the majority of the soil between 1.5 m and 4.0 m is clay and therefore does not liquefy creates a relatively thick surficial crust which reduces the effects if the deeper soil liquefies in a similar manner to that which ground improvement works would.[58] The report then turns to foundation repair options. The report observes:For this property, in our opinion, a minor relevel is indicated due to the differential settlement being less than 50 mm, and only 5 of thousands of possible floor level slopes exceeding 1:200.[59] Applying the guidelines set out at Figure 14.2 a case 1 local repair and re- level is recommended. It goes on to note that if it is judged that a foundation re-level is indicated by case 2 of Figure 14.2 then the alternate path through Figure 14.2 is recommended. It is noted in this regard that the site did not perform poorly.[60] The overall conclusion is that:the floor slab may be repaired and relevelled as necessary withoutimproving the ground. It should be noted that the grout injection methods used for the relevelling of the slabs do improve the ground somewhat due to the compaction that occurs during the lift. It is likely to be the most suitable repair methodologies are either shallow resin or grout injection to lift the structure. Voids under the floor slab may then be filled with resin or grout.Davis Ogilvie report[61] Davis Ogilvie was then retained to review the previous reports and directly assess site suitability for re-levelling or other ground conditioning works.[62] The analysis undertaken by Davis Ogilvie (and in particular Mr Duke) focus on two main areas, namely:(a) Site geology;(b) Foundation type and capacity.[63] The geological assessment comprised reviews of multiple data sources including the following: Boreholes and CPTs in the surrounding area, ground penetrating radar, dynamic cone penetrometer (DCP) tests, and borehole and CPT onsite investigations. The report provides an assessment of seismic performance concluding that the February 2011 earthquake sufficiently tested the site for a serviceability limit state (SLS) event (namely 0.34 g).[64] The report then presents a liquefaction assessment. SLS event exceedance estimated vertical settlement of 170 mm. The results of that assessment are presented in Table 8 below:Table 8: Estimated liquefaction-induced settlements and lateral movements*DesigneventTest TotaldepthVerticalSettlement(10 m Profile)VerticalSettlement(Full Profile)EstimatedGlobalLateralMovementEstimatedLateralStretchSLSBECA 241-2 5.6 m 10 MM(<50 MM-TC2)10 mmMinor toModerate(0-300 mm)Minor toModerate(0-200 mm)BECA 241-3 15.0 m 170 mm(>50 mm – TC3)230 mmTMCCPT00114.4 m 110 mm(>50 mm – TC3)140 mmTMCCPT00215.0 m† 40 mm(<50 mm – TC2)70 mmULSBECA 241-2 5.6 m 40 mm(<100 mm – TC2)40 mmBECA 241-3 15.0 m 190 mm(>100 mm – TC3)250 mmTMCCPT00114.4 m 150 mm(>100 mm – TC3)190 mmTMCCPT00215.0 m† 80 mm(<100 mm – TC2)130 mm*Liquefaction assessment methods defined in MBIE (2012) Section 13.5.† TMC CPT002, at the western end of the site, was pushed to 15.0 m after predrilling the dense gravel section between 3.2 and 7.2 mbelow EGL[65] These results are said to confirm a TC3 categorisation for the site.[66] The report then observes:In the eastern part of the site, the potentially liquefiable layers are much thicker than the overlying non-liquefiable crust, and therefore some surface evidence of liquefaction may be expected in both SLS and ultimate limit state (ULS) events. However, relatively less surface evidence of liquefaction can be expected at the western end of the site where the thickness of liquefiable settlements in the upper ten metres is reduced by the presence of the shallow gravels.[67] The report turns to the plasticity of the underlying silts and clays.Geoscience's test results are noted. The report then assesses the Geoscience resultsby reference to a Casagrande A line plot.[68] The plot is said to shows that the sample at 3.5 and 6.5 metres plot in an area of low plasticity (liquid limit less than 50) on the A-line boundary between silt and clay. The sample taken at 9.3 m plots as low plasticity.[69] The report observes:Samples at 3.5 metres and 6.5 metres have plasticity indexes of 14 and 8respectively and can be expected to exhibit "clay like" behaviour duringseismic shaking (Idriss and Boulanger) (2008). The sample at 9.3 metres has a plasticity index of 3, and would be expected to be susceptible to liquefaction. All samples are expected to have reduction in strength during seismic excitation; however the samples from 3.5 and 6.5 metres are unlikely to liquefy.[70] The report responds to the Geoscience observations that the settlements calculated from the CPTs in the eastern part of the site are likely to be over-estimated and that the higher plasticity layers will form a non-liquefiable crust. The report notes that Geoscience have not assessed the potential for cyclic strain softening36 to occur within the cohesive materials which causes a decrease in soil strength. This can lead to settlement and distortion of foundations, due to the reduction in bearing capacity under seismic loading. It also observes that previous investigations revealed loose sands in the east end of the site, down to 1.2 to .22 metre in the upper two meters of the Beca borehole. These sands were logged as low plasticity, fine sandy silt and one metre of the core was not recovered, potentially due to non-plastic soils or loose sands. The report then concludes:The soil strategraphy of the site is consistent with the general sense of the measured subsidence. Measured floor levels show the house to be tilting by 44 millimetres towards low points on the northern side of the dwelling. The Southern corner of the dwelling extending east approximately six metres is underlain by the shallowest measured gravel surface, and is the most elevated part of the house as the depth of potentially liquefiable material increases to the north and east, the measured settlement of the house correspondingly increases.[71] The report moves to address foundation capacity. It notes that the original foundation appears to have been designed on an allowable bearing capacity of 60 kilopascals (kPas). But during shallow investigation work undertaken by Davis Ogilvie and Wylie Consultants, 60 kPa allowable capacity was not consistently found on site until 0.8-2.2 metres depth. At 400mm depth the allowable static bearing capacity ranged from 20-60 kPas.36 Cyclic strain softening is the strength loss resulting from large cyclic strains of sensitive silts and clays during earthquakes.[72] Significantly softer soils were identified on the northwest corner of the site. In this area allowable bearing capacities based on Scala penetrometer investigation were as low as 30 kPa allowable down to 1.1 metres.[73] The report concludes:The results of bearing capacity show a range of values. Under seismic loading the soils in the north east of the section have an allowable bearing capacity approximately half of the south west of the section. During seismic loading there is a potential for bearing failure, which could lead to differential settlement of the foundations during future earthquake events.[74] The allowable bearing capacity results are presented in Table 10 which is replicated below:Table 10: Allowable Bearing Capacity SummaryMethod ofCalculationBearing CapacityInputsAllowableBearing Capacity(kPa)Additional NotesFront and RearStatic ConditionsScala PenetrometerTest Data (0.5-2 blowsper 100 mm)20-60 kPa Static bearing forDCP using Stockwell(1977)Front of SectionStatic BearingSandy SILT(Ф = 23.5°)40 kPa Sandy SILT DrainedBearing (C=O)Rear of SectionStatic BearingSILT(Su = 70 kPa)170 kPa Static UndrainedBearingFront of SectionSeismic CaseSeismic(Su = 1-3 kPa at 1.0 m)[75] Current foundation loads are then assessed. Based on a 310 mm wide foundation the building will impose loads in the range of 58-77 kPas. This is considered to be in excess of the bearing capacity of the underlying soils under design static or seismic load conditions.[76] The report then concludes:The assessment of the underlying soils has revealed that current 200-310 mm wide foundations have inadequate capacity to manage design static or seismic loads. 60 kPa allowable bearing capacity was not found consistently on site at the depth of the current foundation system.The investigation has revealed silts and sand which could be subject to liquefaction or cyclic softening during future seismic events. During these events we are not confident the current foundation system will manage differential settlement to within acceptable limits as specified by the New Zealand Building code and Structural Design loading standard.Report to the Court[77] Mr Duke for Davis Ogilvie and Mr Charters for Geoscience conferred. They were able to reach agreement on the following matters:Areas of Agreement8. As experts, we agree the following:(a) We agree that the site did not perform poorly (as defined by MBIE, 2012).(b) We agree that the site is sufficiently distant from the Avon River; thus the potential for global lateral movement and stretch is considered minor to moderate following MBIE guidelines.(c) We agree that the CPTs indicate the possibility of significant amounts of liquefaction at some depths during future seismic events.(d) We agree that the amounts predicted by the analysis and modelling conducted are likely to be over-estimates of the actual settlements to be expected.(e) We agree that the ground does not meet the NZS3604 definition of good ground.(f) We agree that the geology in the area of the site is variable, and that this has potentially led to the differential settlement of the dwelling during the recent seismic events.(g) We agree with Davis Ogilvie's Table 7 presenting the PeakGround accelerations experienced at site.(h) We agree a range of soil properties and calculation methods could be used to assess the capacity of the existing foundations. This is due to the varied geology, and range of published documents relating to assessing foundation capacity.(i) We agree that any re-levelling must comply with the New Zealand Building Code.(j) We agree that the New Zealand Building Code B1/VM4 was cited at the time the dwelling was built. This standard statesthat 'foundation design should limit the maximum probabledifferential settlement over a horizontal distance of 6 m to no more than 25 mm under serviceability limit state loadcombinations'.(k) We agree that AS/NZS1170 Structural Design Actions'General Principles' Table C1 states that under ServiceabilityLimit State loading, allowable deflection should be less than1 in 300 where floors support plaster lined walls, and 1 in 500 where floors support masonry walls.(l) We agree that under s 112 of the Building Act, the LMG method would likely receive building consent.[78] The experts were unable to agree on the following matters:(a) The repair methodology;(b) The soil properties used to assess the capacity of the existing foundation system and bearing capacity.[79] The key point of difference appears to that Geoscience have assessed the geotechnical ultimate bearing capacity of the ground as in the 180-200 kPa range giving an allowable bearing capacity of 60-65 kPa. This is based on a friction angle of 30 degrees or a lower friction angle with some cohesion as would be expected for silty/clayey sand.[80] By contrast Davis Ogilvie believes the allowable bearing capacity is less than assessed by Geoscience. This is based on the shallow augers, Scala and bore log results which reveal very loose sandy silt sands and soft silts underlying the existing foundation. Davis Ogilvie considers a more conservative bearing capacity (20-60 kPa and generally less than 45 kPa). This is said to be supported by the Riley'sconsultant report (15 November 2011) which recommended 27-33 kPa as the allowable bearing capacity (80-100 kPa ultimate).[81] Based on those findings Davis Ogilvie believe the existing foundations will need to be underpinned and/or piled during any re-levelling process to ensure the New Zealand Building Code and AS/NZS 1170 standards can be met.[82] By contrast:(f) Geoscience consider that the relevelling with LMG may be undertaken in compliance with s 112 of the Building Code. Before a consent may be granted under s 112, a local authority must be"satisfied that, after the alteration, the building will continue tocomply with other provisions of the building code to at least thesame extent as before the alteration". It is not, therefore, necessarythat the relevelling work results in non-compliances in the foundation being rectified, should they exist.Evidence[83] The key experts on the central evaluative issue concerning site geology are Mr Elliot Duke and Mr Charters. Expert evidence was also given by:(a) Mr Hewitt on the LMG re-levelling process;(b) Dr Jain and Mr Blythe on structural engineering issues; and(c) Messrs McMorran, Gallagher and Lieshout on quantification of costs.[84] I will not dwell on non-geology specific evidence as it does not materially add to the resolution of the key issue.Mr Elliot Duke[85] Mr Elliot Duke is an engineer with 12 years' experience. He is a charteredprofessional engineer and an international professional engineer. He has undertaken 1,200 geotechnical investigations in Christchurch. He produced the DO report. By way of overview, he confirms that the site is predominantly silty with loose to medium dense type sand. He also confirms that in his view the Geoscience analysiscontains a number of errors including that the site is a "heavily reinforced rigid rift slab" and that the foundations are stiffer than required. He opposes LMG andrecommends re-levelling subject to strip footing37 and load bearing elements. He opines that there may be a need to remove the ground floor slab in order to properly re-level the dwelling.[86] In his supplementary evidence he confirms that he considers that MrCharter's analysis on behalf of Geoscience contains a number of erroneous assumptions including:(a) There is a consistent geology;37 Strip footing is a continuous strip of concrete that serves to spread the weight of a load-bearing wall across an area of soil.(b) The ground is dry;(c) There are uniform clay soils across the site – noting that this is only based on a limited number of samples;(d) There is a consistent load bearing capacity – he considers that it is not conservative enough; and(e) LMG is suitable. He says that there are no specified standards and then when there is a high liquefaction potential it may not ultimately comply with MBIE standards.[87] He rejects Mr Charter's opinion that there have been large events affecting the site. In his view the events have been moderate.[88] Mr Duke was extensively cross-examined on the conservatism of his assessment. It was put to him (among other things) that:(a) The site did not perform poorly in conditions exceeding SLS event criteria.(b) The greatest level of displacement was only 44mm, indicating in terms of the MBIE guidelines that re-levelling was not needed;(c) The DCP analysis overall showed that the land meets a 200 kPa load bearing capacity;(d) Modelled predictions did not match actual performance of the site;(e) His analysis of strength reduction factor to assess bearing capacity is based on the most conservative friction angle of 23.5 per cent; and(f) More sophisticated methods for assessing foundation capacity were available to him, including computer modelling.[89] Mr Duke nevertheless was steadfast that his assessment was not unduly conservative. He emphasised that when a number of the theoretical indicators all point in the same direction, geological engineers needed to proceed cautiously. He also highlighted that his conclusions were based on a large data set and employed orthodox assessment technique, including adopting a friction angle employed by a leading text. He did not resile at any point from his conclusions.Mr Charters[90] Mr Charters is an expert geotechnical engineer with some ten or so years experience. He accepts that there is some ground variability but his overall assessment is that there is a sufficiently uniform geology capable of load bearing capacity that meets MBIE guidelines. He says that he applied the 5 step MBIE framework of assessment based on all available information about the building and ground performance under the earthquake conditions and in terms of geological information. That is he:(a) Assessed the damage to the foundations. He noted that the floor level displacement is out by a maximum of 44 mm and therefore under the point at which are-level is required by the MBIE guidelines.(b) Identified the TC category. Mr Charters says that the property in fact exhibits TC2 characteristics.(c) Considered foundation repair guidelines for TC3 land. Mr Charters notes that on the assumption a re-level is needed and the foundation is type C, then as the site did not perform poorly, no specific investigation was required. He says that only five out of 95 floor slope measurements exceed 1 in 200. The maximum ground floor settlement was 44 mm and the maximum first floor was 28 mm. He concludes there is very little evidence of lateral extension or stretch.(d) Assessing liquefaction susceptibility. Mr Charters opines that the actual performance of the site in these conditions is an important factor in determining susceptibility. He says that there is evidence of asurficial crust. He prepared a ground model. Based on CPTs, liquefaction induced settlements in a future event may be calculated on a theoretical basis as between 60-170 mm at SLS and 230 at ULS. But Mr Charters does not accept that these tests accurately reflect likely performance, given what in fact occurred. He also says further analysis of the bore samples showed that the silty clay soils between 2-10 m have a high plasticity and are therefore unlikely to liquefy. The material above 1 m is dry and does not liquefy. Together this provides a surficial crust that is unlikely to liquefy.(e) Determine appropriate repair strategy. Mr Charters calculates his ultimate bearing capacity at between 180 – 200 kPa. Applying a strength reducing factor of .33, he derives an allowable bearing capacity of 60-65 kPa. He used a friction angle of 30 degrees. He understands from Mr Blyth that the dwelling exerts static bearing pressure of 20-60 kPa. With all of this in mind, Mr Charters follows the Case 2 pathway at Figure 14.2 and given that the site did not perform poorly, he concludes that a shallow foundation re-level in accordance with Part A and local foundation repairs are necessary. He then recommends the re-level method of LMG.[91] Mr Charters did not accept under cross-examination that all previous reports recommended ground improvement. Nor did he resile from his primary contention that the bore data as a whole, and plasticity results in particular, support the conclusion that there is a surficial crust of low liquefiable soils. He remained adamant (in short) that the actual performance of the site offset theoretical concerns.Mr Hewitt[92] Mr Hewitt is a civil engineer with Relevels. He described at some length the LMG process used by his company for re-levelling. His evidence was largely unhelpful as it did not address the central issue of whether ground improvement was necessary. I simply observe that the LMG process appears to be an acceptablemethod for re-levelling land with existing structures, but is not an acceptable method for the purpose of new buildings or for ground improvement.Dr Jain and Mr Blythe[93] Dr Jain and Mr Blythe are structural engineers of considerable experience. They provided a summary of key structural and other damage to the house. They do not agree on the scale and significance of the damage. Dr Jain was also doubtful that LMG could re-level the property sufficiently to enable the requisite structural repairs. By contrast Mr Blythe was more confident that LMG injection could correct the building to plumb. In any event, I also found their evidence largely unhelpful on the central issue of site geology, as it was not an area on which they could express an expert opinion.Messrs McMorran, Gallagher and Lieshout[94] Messrs McMorran, Gallagher and Lieshout gave evidence about the cost of repairs.[95] Mr Gallagher is very experienced in construction project management and estimating. He has produced three scoping reports, one for a rebuild, one for a deep pile solution, and one for an underpiling solution. Those scoping reports were then used by Mr McMorran to provide a cost estimate for the repairs[96] Mr McMorran is an experienced quantity surveyor. His quantity survey estimates the following prices for:(a) Rebuild (1403) $3,096,687.40;(b) Repile (1480) $3,431,978.67;(c) Underpin (1556) $3,571,696.05.[97] Mr Lieshout is a director of Beca and in particular has 20 years experience with project management, cost management and risk management. He works full time on the MAS costing process. He has provided cost estimates based on:(a) The Prebble scope - $737,002.73;(b) His own/TMC assessment - $622,888.29;(c) Demolish/rebuild - $1,713,953.07.[98] He notes the major differences between him and Mr McMorran, namely:(a) Mr McMorran claims a 10 per cent per annum increase in cost whereas he anticipates a 12-15 per cent increase since 2012;(b) He anticipates a 6-7 per cent increase per annum;(c) He does not accept that deconstruction and reconstruction is necessary;(d) He considers that painting costs are around $25 per square metre whereas Mr McMorran anticipates or claims that painting costs are about $45 per square metre;(e) Mr McMorran allows 20 per cent for P and G and margin whereas he allows 18 per cent;(f) Mr McMorran allows for 33 per cent for professional services whereas he allows 15 per cent.[99] In any event, Mr McMorran conceded that his figures contained significant errors. For example, he provided for payment to a structural engineer of $158,000 and for QS of $158,000 when the right figure was in the order of $10,000-$15,000 and he conceded that the figures needed to be reviewed in order to have confidence in them. I also consider that Mr McMorran misused Statistics New Zealand information. He treated the year to year quarterly comparisons as if they could be approached on a cumulative basis, that is each quarterly difference from the previous quarter could be added up to arrive at a total change per annum. But the properapproach has been to take the quarterly movement within each annual period and add those together to arrive at an annual increase.38[100] Given this, it was conceded by Mr Rennie that the cost estimates needed to be reconsidered by Mr McMorran and in the event that I resolved the base assessmentin the East's favour, the issue of quantum would need to be revisited.AnalysisAs new?[101] The first question to resolve is:What is the standard of rebuild or restoration as required by the policy?[102] The policy requires that the home be restored to "a condition substantially the same as new so far as modern materials allow and including any additional costs which may be necessary to comply with any statutory requirements".[103] Contrary to Mr Horne's opening submission, the standard is not "when as new in 2007". It may be that Mr Horne was relying on the 2006 version of the policy which used the words "when new". But that policy wording changed to "as new" inthe now 2008 version. The clear implication of the change is that the policy contemplates a restoration to a condition as new at the time of the rebuild orrestoration, not "when new" in 2007. Moreover, "as new" naturally implies rebuildor restoration of the home in accordance with contemporary standards. This is reinforced by the obligation to meet current statutory requirements.[104] I accept that "a condition substantially the same as new" does not meancompletely new. It is an approximate standard. Nevertheless the policy plainly envisages and the parties could reasonably expect, that contemporary standards for building works, applying modern materials and meeting minimum building requirements, will be adopted.38 Refer exhibits A, B and C in terms of Statistics New Zealand data.[105] The experts agree that any re-levelling and repair must comply with the New Zealand Building Code. They also agree that B1/VM4 of the Code states that"foundation design should limit the maximum probable differential settlement over ahorizontal distance of 6 m to no more than 25 mm under serviceability limit stateload combinations". In addition, AS/NZS1170 Structural Design Actions "General Principles" Table C1 states that under SLS loading, allowable deflection should beless than 1 in 300 where floors support plaster lined walls, and 1 in 500 where floors support masonry walls. Mr Duke considers that underpinning is required to meet these standards. Mr Charters does not and recommends LMG re-levelling.[106] Mr Horne contends that these standards are guides only. But in my view they are strong guides and an objective reference point for the purposes of assessing what is required to achieve the substantially the same as new standard. Owners arestatutorily required to ensure that "building work carried out by the owner complieswith the building consent or if there is no building consent with the building code".39Furthermore I reject the submission that substantially the same as new means the standard actually achieved in 2007. Whatever the outcome in 2007, the policy envisages compliance with current minimum standards.[107] Accordingly I consider that "substantially the same as new" means I must besatisfied on the balance of probabilities that the foundation works proposed by Mr Duke are necessary to restore the building to meet the Building Code standards, including B1/VM4 maximum probable differential standard and AS/NZS1170 Structural Design Actions deflection less than 1 in 300.Is underpinning necessary?[108] It transpires that I am satisfied on the balance of probabilities that underpinning or a similar engineering response is necessary. My reasons follow.39 Section 14B(b) Building Act 2004.[109] First, I find:(a) Differential settlement of 44 mm was experienced at the northern face of the house.(b) The floor slope exceeded 1 in 200 at 5 points indicating that re- levelling may be required in accordance with the MBIE guidelines.40(c) The ground does not meet the NZS3604 definition of good ground.(d) The site is properly classified as TC3:(i) The potential for liquefaction has been assessed in accordance with MBIE guidelines. Induced settlement is estimated at between 60-170 mm at SLS.41 This indicates that the site is susceptible to liquefaction.(ii) The site or immediate surrounds experienced minor to moderate liquefaction ejecta at below SLS design conditions, further indicating susceptibility to future liquefaction.(iii) The locality experienced settlement in the order of .5m, corroborating CPT analysis as to the susceptibility of the site to liquefaction.(iv) All reports acknowledge the "potential" for liquefaction.(e) The soil conditions at the site are variable, as the Messrs Duke andCharters agreed. Though Mr Duke's cross sections were coarse, they40 I accept that only five out of 95 floor slope measurements exceed 1 in 200. I also acknowledge that the Beca floor level survey included thousands of possible pairs of slope measurements. But it is nevertheless a factor that must be taken into account in accordance with Table 2.3 of the MBIE guidelines. A similar conclusion was reached by TMC in their report – see [52]. Mr Charters also accepted that a more conservative approach was warranted given these exceedances.41 See Charters' Brief of Evidence at [62]; Beca Report at 799; and see Table 8 of the DO report at[4.7].helpfully illustrated the potential variability of the soils across the site.42(f) The soils are affected by ground water to at least 1m as reported by Beca, contrary to the initial assumptions made in the Geoscience report.43[110] The logical implication of this information is that while the site did not perform poorly in terms of figure 14.2, the appropriate repair strategy needs to carefully assess the load bearing capacity of the soils in accordance with the MBIE guidelines.44 I also consider that there is evidence that the building did not perform as expected in terms of B1/VM4 or the AS/NZS1170 Structural Design Actions. While it is not clear that the differential settlement occurred over a 6m horizontal plane, the differential settlement (44mm), the CPT values and the slope exceedances, are pointers to non compliance with SLS standards and a reason for caution.[111] Second, I prefer Mr Duke's conclusions about the load bearing capacity ofthe soils, namely that the building's existing foundation will impose loads in therange of 58-77 kPa and in excess of the bearing capacity of the underlying soils under design or seismic load conditions. They are assessed at 20-60 kPa, and generally 45 kPa. This implies that an engineering response is required. Notably:(a) The load bearing assessment is based on comprehensive review of all available data, including as Mr Duke noted in cross-examination, by combining the various bore log data (soil types), DCP (strength) and CPT (resistance) assessments, to form a view about the load bearing capacity of the soils.(b) The assessment is supported by previous independent assessments (eg the Riley and Beca reports).42 Cross examination did not show that the cross sections were flawed. As Mr Duke explained, they were based on the best available data.43 See above at [53].44 Figure 14.2 includes the following prompt for case 2: SLS settlements < 100 mm in upper 10m of soil profile. The Beca CPT values derive from about 15m so this prompt is not literally triggered. But see also Beca recommendation at [45]-[47].(c) The analysis was transparent and plausible. Mr Horne was able to testMr Duke's assessment by reference to all relevant inputs, as notedabove at [107(e)].[112] Third, Mr Duke's methodology came through cross-examination largely unscathed:(a) While it appears only one of the 7 Beca DCP tests revealed non compliant bearing capacity below about 1m, Mr Duke cogently responded that these were static bearing tests and do not take into account the susceptibility to liquefaction illustrated by the CPT assessments. Examination of the DCP information also confirmed the soil variability of the site.(b) Mr Duke's concern about the effects of cyclic strain on the soils,including the soils with high plasticity was supported by the Beca report. The comments in that report, read into the transcript by Mr Duke are worth repeating:A. "In addition to liquefaction and densification, cycle strain softening can occur under earthquake loading within cohesive materials. Cyclic strain softening is the strength loss resulting from large cyclic strains of sensitive silts and clays during earthquakes. Though cyclic strain softening does not contribute to settlementdirectly, cyclic action causes the soil's shear strength to reduceconsiderably with each successive sequence. This reduction in thesoil's shear strength can affect the stability of foundations or slopes".(c) Mr Duke responded persuasively to the proposition that the CPT results were unreliable predictors as they do not correlate to actual performance of the site (maximum displacement of 44mm). He said:A. You do realise that the numbers you're quoting 170 millimetres isthe estimated consolidation settlement of the soil profile-Q. Yes.A. – not with the load imparted on it or any other factors. That's theestimated soil consolidation or settlement due to liquefaction of the soil. The CPT analysis isn't telling us how it's going to behave with a load applied to it. The analysis that's been done, the MBI mandated method, doesn't factor in applied loads at all and certainlydoesn't factor in, for example, a corner of a house which is propped in both directions which could cantilever out and span a much greater distance than a free spanning section such as in the middlethere where you see greater sag, and it also doesn't take into account load pass, design or anything. It's a, it's a soil property that we'relooking at, the 170 millimetres.Q. Yes. What that means is that there's even less correlation between the CPT results and the likely actual settlement of the house, isn'tthere?A. I, I completely disagree, sir. We're talking about a neighbourhoodthat's settled cumulatively nearly half a metre. All the sciencesupports that. The, the amount that the site has settled is huge, itreally is, and there's evidence in the Canterbury geotechnical database and other sources to confirm that. I'm happy to provide that to you. I can do that, I think, pretty much right now if I go-Q. But-A.-through my pile of information..Q. All I'm asking you is whether you agree with me that it hasproven to be a very poor predictor of actual performance for this house because on one side of the house it correlates closely and on the other side of the house where the settlement is almost identical it is way out.A. I think if you look at the lidar surveys and the surface settlementthat's occurred in the area we have a half a metre of cumulative settlement. The CPT analysis is therefore quite accurate to show how much the neighbourhood has settled cumulatively during these events.(d) Mr Duke was cross-examined extensively on his 23.5 degree friction value, including by reference to published materials. It will be recalled that this is a significant determinant of the strength of the soils. Mr Duke robustly defended his selection of the friction value and I was satisfied by his explanation that the text relied upon by him was authoritative.45 Furthermore, the value relates to unconsolidated- undrained materials. This fits the potential for the saturation of the soils at the site. By contrast there was nothing in the evidence to suggest that the other published methodologies were superior or apposite to the particular site conditions under examination.46 In short,45 Joseph Bowles Foundation Analysis and Design (5th ed, McGraw Hill, New York, 2001.to prefer them would be to simply speculate on my part as to their suitability.(e) Mr Duke made appropriate concessions, further enhancing the plausibility of his assessment. For example he readily accepted that the CPT produced an over estimate.(f) Mr Duke's analysis is supported by the Riley and Beca assessments.The latter in particular is informative47 and supports the conclusionthat Mr Duke's assessment is not unduly conservative. MAS elected not to call the relevant Riley or Beca experts. It cannot complainabout the corroborative support they provide for Mr Duke'sassessment.[113] Fourth, Mr Charters' response to the empirical data and the load bearingassessment is less convincing:(a) Mr Charters relies on high plasticity values to show that the risk of liquefaction is small. But his plasticity assessment is drawn essentially from two bore holes48 to postulate that the site benefits from a surficial crust that is unlikely to liquefy. This extrapolation is unjustifiably optimistic, especially as he appears to accept that the soils are variable across the site. The notion of a uniform surficial crust is also not consistent with the full data set, including as detailedin Mr Duke's reply evidence.4946 Mr Charters only referred to one text and the relevance of any of the texts to the particular siteconditions was not demonstrated. While the experts agree that other methods may be used, aprobative basis for their relevance to the present conditions needed to be provided.47 Beca Report see discussion at [43]-[47] above.48 Mr Charters' Brief of Evidence at [65]-[67].49 As Mr Duke noted:10 This is not supported by the various investigations:a Our hand auger results found saturated potentially liquefiable sand at sites DCP 1, 2, 4 and 5.b These extended to 1.6-2.7 m below ground level.c Riley Consultants also found saturated sand at sites HA1 and HA3.d Beca also found saturated sand at sites CPT241-02 from 2.0 – 5.5 m.e TM Consulting identified saturated silty sand at CPT02 and sand silt from 1.8 –3.5 m underlain by gravel.(b) I do not think that Mr Charters has robustly responded to the issue of cyclic strain referred to at [70] and [112]. In fact Mr Charters agreed under cross-examination that liquefaction can occur with cyclic strained softening. The potential for cyclic strain, supports the need to pay heed to the mandated CPT assessment.(c) Mr Charters has placed too much weight on the actual displacement (44mm), rather than the mandated CPT assessments (170mm). As Mr Duke noted in cross-examination, the CPT outputs are mandated index values against which engineers should design a foundation system. Engineers ignore them at their own peril.(d) Mr Charters proffers his own assessment of load bearing capacity. But his full methodology is not sufficiently explained in his reports or in his evidence. It was incapable of serious testing so I am less confidentabout it than Mr Duke's assessment. For example the provenance ofhis friction value (30 degrees)50 was not made clear to me and the basis for his calculations for an ultimate bearing capacity of 180-200 kPa were not explained. Furthermore I could not find evidence to support an assumed load of 20-60 kPa for the structure. Mr Charters assumes Mr Blythe will produce evidence about this but he does not. It may be that this derives from the original architectural and engineering assessments for the house.(e) Similarly, Mr Charters refers to a concept of "the cohesion" asproviding further justification for his assessment of the performance of the soils. Apparently the lower the friction value for the soils under scrutiny, the greater the cohesion. But this concept is not explained in any detail in his evidence or elsewhere. By contrast, it is coherently50 By way of illustration, a copy of the text Burt Look Handbook of Geotechnical Investigation andDesign Tables (1st ed, CRC Press, Boca Rota, 2007) relied upon by Mr Charters was includedin the bundle. While the specific part relied upon was not identified, Table 5.9 lists peak frictionangle for very loose sands as 30. There is no explanation in the text as to whether this relates to adrained or undrained state. This is to be compared with Bowles which specifically differentiatesbetween these conditions. Interestingly, the consolidated- drained values (27-30 / 30-35) broadlyalign with the value relied upon by Mr Charters. The undrained values form the basis forMr Duke's assessment.rebutted by Mr Duke under cross-examination. He observes that cohesion is not ordinarily relied upon for load bearing assessment especially in circumstances where saturation may occur. Further Mr Charters accepted that he had not assessed the effect of water on clay and the soils losing their cohesion because of shaking.51(f) I also consider that Mr Charters' approach proceeds on thequestionable assumption that s 112 of the Building Act provides the requisite standard. In response to a question about Beca's conclusionthat ground improvement be undertaken, Mr Charters observed:Q. Looking across the page at 801 BECA say, "The lead consultant's foundation designer must take account of both the staticbearing capacity and settlement due to gravity loads and the settlements due to liquefaction and lateral spread where these are anticipated. The underlying sands and gravelly soils up to depths of about 15 metres have potential to liquefy during an earthquake as described in section 73 above. It is recommended that ground improvement be undertaken to reduce potential effects of liquefaction and lateral spreading prior to use of shallowfoundations". Do you agree with that?A. I do agree with that but I come back to my statement and the key word in there is "prior, prior to the use of shallow foundations". Ifwe were to do a new foundation on this site we may have to considersuch things. However as we've, as, as I answered in my last answerwhere we were talking about section 112 of the Building Act and itsrelevance to repairs versus new foundations..Q. He disa- he disagrees with you fundamentally about the liquefiability of the soil. Do you think-A. I don't know if he does –Q. – he has demonstrated a reasonable basis for that view?A. I don't know if he does disagree with me fundamentally. I thinkwe, we have agreed that the CPTs indicate the possibility of significant amounts of liquefaction at some depths during future seismic events. I think the biggest, if we go to the joint areas of disagreement I think that the, the biggest disagreement is, towards the end where Davis Ogilvie believe the foundations need to meet the AS, NZS1170 which is the one in 300 rotation performance whereas we believe the repair can be completed under section 112 of the Building Act –Q. Okay.51 Notes of evidence at 269.A. – and Mr Duke himself we, we have agreed that under section 112 of the Building Act the LMG would likely rec- receive building consent.But s 112 confers a limited dispensation on building consent authorities to grant building consent to alterations to existing buildings that "continue to comply [with the building code] to the extent as it did comply" immediately before the building work began.The consent authority therefore must be satisfied that the work is an alteration and that the building will continue to comply to the same extent with the code before the alteration work began. Plainly the focus of this provision is the effect of the alteration works and the extent to which the works affect the code compliant status of the building as a whole. It will be a matter for the consent authority, but when the works will determine whether the building is fit for purpose per se, it cannot be assumed that s 112 will apply, bearing in mind also that that the alteration works themselves must still be compliant.[114] Overall I conclude that Mr Duke's assessment is appropriately conservative. Iam therefore satisfied on the balance of probabilities that a specific engineering response, for example underpinning, is necessary in order to restore the house to a"substantially the same as new" condition in accordance with B1/VM4 for maximumsettlement or the AS/NZS1170 Structural Design Actions for allowable deflection.Quantum[115] As noted, Mr Rennie conceded that Mr McMorran's assessment was flawed and could not be relied upon for quantification. Mr Lieshout has endeavoured to provide an estimate based on the assumption that ground improvement works are needed but there was no opportunity for this to be agreed with Mr McMorran. Mr Rennie accepted that the issue of quantum would have to be deferred until the key engineering issue is resolved. I do not understand that Mr Horne opposed this course. The issue of quantum will need to be reserved for consideration at a later date. For reasons I will shortly explain, resolution of quantum may be premature in any event.Residual issue[116] At an early stage in the hearing I raised with the parties the prospect that the Christchurch City Council (as building consent authority) will need to approve the building works under the Building Act. I considered then that the resolution of the foundational repair issue by me will not be the final word on the matter. It may be that the Council would be prepared to grant consent under s 112 to restore ground conditions using the LMG method. The parties nevertheless wanted to pursue the hearing to a conclusion, leaving unresolved the implication of the consenting process, though Mr Horne submitted that I could not pre-empt the decision of the Council. I acceded to the parties' wishes as I considered that the parties are entitledto know what the policy requires and to resolve as between them what is required in terms of repair based on the available evidence.[117] On reflection my decision does not impinge on the jurisdiction of the Council. The Council remains free to grant whatever consent it thinks appropriate. Furthermore, as I have preferred the more conservative option, there is no prospectof my decision derogating from the Council's discretion. Nevertheless, an issueremains in terms of a reasonable cost for the works. If ultimately the Council approved the LMG process for the affected site, the plaintiffs may have received more than they are entitled to under the policy if the payment made to them is premised on underpinning as recommended by Mr Duke. This aspect was notthoroughly explored at the hearing insofar as the timing of MAS's liability to payunder the policy. I therefore reserve leave to the parties to seek to have this aspect resolved if agreement cannot be reached, as part of the hearing on quantum. My preliminary view is that in order to properly finalise the reasonable costs of the restoration, the Council must first consider whether it is prepared to grant consent to an LMG relevelling notwithstanding my judgment.Supplementary submissions[118] The Supreme Court decision Tower Insurance Limited v Skyward Aviation 2008 Limited52 was delivered after the conclusion of the hearing. Given its treatment52 Tower Insurance Limited v Skyward Aviation 2008 Limited, above n 9.of replacement value policies I invited submissions from the parties on its significance, if any, to this matter. I also invited clarification of the approach the parties wanted to take to the issue of quantum. The last of these submissions was received on 19 December 2014. I have taken those submissions into account and my response to the matters raised should be evident at [27] and in relation to quantum at [116] and [117].Outcome[119] I resolve that:(a) There is no requirement that cost must be actually incurred or about to be incurred before MAS is liable to pay the replacement value.(b) I find on the balance of probabilities that a specific engineeringsolution is necessary in order to restore the house to a "substantially the same as new" condition in accordance with Building Code requirements.(c) I reserve my position on quantum, including in relation to the effect, if any, of the Building Act processes to be followed in terms of the restoration of the house as discussed at [116]-[117].Costs[120] It would seem sensible to reserve costs pending the resolution of the issue of quantum. In any event the parties may file memoranda on costs within 15 working days, no more than five pages in length.Solicitors:Rhodes & Co, ChristchurchMinter Ellison Rudd Watts,APPENDIX 1APPENDIX 2