RICHMOND HILL HOLDINGS LTD v IAG NEW ZEALAND LTD [2019] NZHC 380

RICHMOND HILL HOLDINGS LTD v IAG NEW ZEALAND LTD [2019] NZHC 380 [8 March 2019]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2018-409-738[2019] NZHC 380BETWEEN RICHMOND HILL HOLDINGS LIMITEDPlaintiffAND IAG NEW ZEALAND LIMITEDDefendantCIV-2018-409-739BETWEEN ALICE NOELLE SHANNON and ERIKCARLTON ELLISPlaintiffsAND IAG NEW ZEALAND LIMITEDDefendantHearing: 1 March 2019Appearances: P Woods and T Grimwood for PlaintiffB Cuff and C Henley for DefendantJudgment: 8 March 2019JUDGMENT OF ASSOCIATE JUDGE LESTERIntroduction[1] This is an application for summary judgment by Richmond HillHoldings Ltd ("Richmond") and Alice Shannon and Erik Ellis against IAGNew Zealand Ltd ("IAG"). The two claims are brought in separate proceedings whichwere heard together. In substance, both claims raised the same issues so that in thehearing the parties referred to the Richmond claim throughout on the basis that theirsubmissions applied to both proceedings. In this judgment I will refer to the"Richmond claim" throughout on the same basis, that is that the judgment appliesto both claims. I will also refer to the "Tuawera property" being the property subjectto the claim by Ms Shannon and Mr Ellis when relevant.[2] The Richmond claim relates to a property owned by the plaintiff at69 Richmond Hill Rd, Redcliffs, Christchurch ("the Property") which was damagedin the Canterbury earthquakes on 4 September 2010, 22 February 2011 and13 June 2011. It is not in dispute that the Property was damaged by the Canterburyearthquakes or that the State Insurance Policy (State being part of the IAG Group)under a Landlord Comprehensive Policy ("the Policy") should respond to the damageor that the Property is a rebuild rather than a repair.[3] The Tuawera property is at 36 Tuawera Terrace, Redcliffs, Christchurch. It isa two-storey split level weatherboard house with a detached double garage. The siteis steep and sloping with multiple significant rock retaining walls. The Tuaweraproperty was also deemed to be a rebuild by IAG.[4] At issue between the parties is the meaning and effect of IAG's offer to cashsettle both claims if the plaintiffs decided to accept a cash settlement.[5] IAG accepts it represented that a cash payment would be available but says itdid not irrevocably commit to making a cash payment based on the full cost ofa rebuild of the dwelling along with all associated work including any retaining walls,demolition costs, professional fees et cetera. It says that its internal policy is to excludesuch items from its cash settlement offers.Summary judgment principles[6] There was no dispute between counsel as to the applicable summary judgmentprinciples. The plaintiffs need to satisfy the Court there is no arguable defence andthe Court must be left without any real doubt or uncertainty in relation to the plaintiffs'claim. The Court will not endeavour to resolve genuine conflicts of evidence or toassess the credibility of the deponents. A defendant needs to provide a properfoundation for a defence by its affidavit evidence or through its legal submissions.[7] In weighing up the evidence, the Court must take a robust approach, eventhough there may be differences in certain factual matters, if the lack of a tenabledefence is clear on the material before the Court. If, however, the defendant raisesquestions of fact that cannot confidently be resolved on the affidavit evidence thensummary judgment is usually inappropriate.Background[8] The Property was built in about 1910 and is a three-storey split-levelweatherboard house with a detached double garage, sleep-out and wired spa pool. Thehouse is described as having "significant character features".[9] The site is steep and rocky with walk-on access only. All of these issuescontribute to a significant rebuild cost in particular in relation to retaining walls.[10] Following the earthquakes, Richmond submitted various claims to theEarthquake Commission ("EQC"), which accepted that cost of attending tothe damage to the property exceeded the limit of EQC cover and made paymentswhich need not be detailed here.[11] The plaintiffs claimed under their policies with IAG, which confirmed that thepolicies would respond.[12] In August 2013, IAG informed Richmond that the Property was a rebuild andthat remains the position as confirmed by Mr Cuff for IAG during the hearing.[13] Following the advice that the Property was a rebuild, Ms Gapper, who was thenthe Claims Technician Manager at IAG dealing with the claim, sent an email toRichmond. The email of 8 August 2013 included:As suggested, both the dwellings are rebuilds.What I need you to consider are your options Do you want to rebuild them both with State's involvement?Do you want to cash settle on both?Do you want to cash settle on 1 and rebuild the other with State'sinvolvement?Other?Have a think about it – if you have any more questions I am only a phone callor email away. (emphasis to 'dwellings' added)[14] On 17 September 2013, Ms Shannon sent IAG an email which included thefollowing:Our only queries relates to point 4, being that we understand that thevaluations were based on the property values as at 3/9/10 not the presentvalue?Also we understood (from Teresa) that if we do end up accepting a final cashsettlement as opposed to having State manage the re-builds then this figureswould be based on the actual rebuild costs not the 'present value'?[15] Ms Gapper replied within 30 minutes with the relevant part of her emailstating:If you do decide to cash settle then yes it will be on rebuild costs and notpresent value. These rebuild figures will be established based on informationwe get from Davis Langdon QS.[16] Richmond then says it received a document called "IAG Cash Settlement FactSheet" ("the Fact Sheet"), which set out five steps to cash settlement in brief terms.[17] Step 2 is under the heading "Agreeing the Settlement Amount". It says:Once your assessment is complete and you're happy that all details have beencaptured, we will cost the project and your Cash Settlement Specialist willpresent you with a settlement amount.The settlement amount is the cost to reinstate your house less:• any EQC payments you have received and• any excesses you need to pay.(emphasis added)[18] Richmond's claim therefore is that IAG irrevocably committed to Richmondhaving:(a) the option to cash settle its claim; and(b) that if it elected to cash settle, the amount it would receive would bebased on actual rebuild cost.[19] As will be discussed further in relation to unconscionability, IAG does notdispute that it irrevocably committed to giving Richmond an option to cash settle. Theissue is in relation to what IAG is obliged to include in its cash offer. Richmond'sposition is that the emails mean that it would receive a one-off lump sum cash paymentrepresenting the rebuild costs for the properties on a full and final basis. IAG'sposition is that it would cash settle the value of the dwellings and that is why I haveemphasised the reference to 'dwellings" in the email of 8 August 2013 referred to atpara [13]. IAG would then pay for what were called either "excluded items" or "the"non-cash items" as and when the costs of those items were incurred. I will refer tothem as the "excluded items". It is common ground that the excluded items are asfollows:(a) retaining walls;(b) contingency;(c) future increased costs;(d) demolition; and(e) professional fees.Cause of action[20] Richmond's cause of action is in estoppel.[21] Richmond says that the representations contained in the emails of Ms Gapperreinforced by the Fact Sheet were unequivocal representations as to the basis uponwhich a cash settlement offer would be calculated.[22] The statement of claim pleads reliance, and that given in particular the passageof time since the statements were made and the nature of the reliance, it isunconscionable for IAG to depart from the representations.Events post September 2013[23] Approximately five years after the communications referred to above,a settlement offer was made by IAG to cash settle Richmond's claim but with thatoffer excluding the value of items listed at para [19] above.[24] In the intervening years, the parties went about trying to assemble rebuildcostings. Richmond's evidence recounts its co-operation in making time available toshow various contractors through the Property to assist with obtaining costings.Ms Shannon was responsible for managing much of the administration of the claim.Ms Shannon is the partner of Dr Ellis who is the shareholder and director ofRichmond. Ms Shannon's affidavit recounts that during this period she was diagnosedwith cancer and undergoing surgery and cancer treatment.[25] In her affidavit, Ms Shannon explains seeking and compiling information inrespect of various elements of the rebuild of the Property to ensure that the costs wouldbe as accurate as possible.[26] The process of collating costings continued into 2016 with Ms Shannonrecounting that she considered that the information upon which the quantity surveyorwas commissioned to base their reports was not sufficient. She says that noengineering analysis or design had been done to give any idea what would be requiredfor the rebuild, nor had issues such as asbestos been addressed.[27] In August 2017, IAG instructed engineers to provide structural design for therebuild of the dwellings, outbuildings and retaining walls.[28] A price from a building company was also commissioned, with it beingcommon ground that the parties agreed that Richmond would engage a builder to quotethe price of the costing of demolition and rebuild of the garage and dwelling and thata landscaper would cost the price of demolition and the rebuild of site works.[29] Matters progressed with various costings being obtained by Richmond andforwarded to IAG through the first half of 2018.[30] On 25 June 2018, Richmond received an email from IAG saying that the costswere being reviewed and wanting to visit the Property. Mr Beatson, a SettlementSpecialist for IAG, visited the Property on 28 June 2018.[31] Ms Shannon emailed IAG on 2 July 2018 saying:Finally in the interest of clear communication and to save unnecessary stressor waste of time for all parties. As discussed with you during your visit, Erik'sand my expectations as per the agreement we originally made with IAG is weare working towards full and final cash settlements based on the costingsprovided for all aspects of our properties and as such we have taken extensiveadvise on all matters.[32] IAG did not respond to the reference to the agreement referred to in the email.[33] Ultimately, as already noted, an offer was presented which deducted theexcluded items from the total cost of rebuilding. The parties were unable to reachagreement and these proceedings followed.Elements of the estoppel cause of action[34] The availability of estoppel as a cause of action is discussed in detail by theCourt of Appeal in Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd.1 In brief,it must be shown that:2(a) a belief or expectation by Richmond was created or encouraged bywords or conduct by IAG;(b) to the extent an express representation is relied on, it is clearly andunequivocally expressed;(c) Richmond reasonably relied to its detriment on the representation; and1 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567.2 At [44].(d) it would be unconscionable for IAG to depart from the belief orexpectation.[35] In Wilson Parking, the Court with reference to the decision of Katz J in theHigh Court, set out the approach to be adopted when considering whethera representation was clear and unequivocal. The Court referred to Her Honour'sfinding that the meaning must be assessed objectively by the standard of a reasonableperson in the position of the representee. It was also necessary to examine thecircumstances in which the representation was made as well as the actual languageused.3[36] The statements fall to be considered in the context of their surroundingcircumstances.A representation, but of what?[37] The relevant statements are the IAG email of 8 August 2013, the emailexchange of 17 September 2013 and the Fact Sheet received on or around20 September 2013. Mr Cuff for IAG submitted that the reference in the email of8 August 2013 to the dwellings meant that the subsequent reference to a cashsettlement should be construed as meaning the cash settlement only related to thedwellings and did not include the excluded items.[38] Mr Cuff also noted that the first part of the 17 September 2013 emailreproduced at [14] above was in the context of the parties discussing an indemnitypayment as an interim settlement. An earlier email in the sequence relating to theindemnity payment provided a valuation of the dwellings only as it was the dwellingswhich were subject to the indemnity payment.[39] Mr Cuff submitted that against that background, the reference to "rebuildcosts" in Ms Gapper's 17 September 2013 reply would be read as relating only to thedwelling rebuild costs as the first part of the email related to dwelling values.3 At [47].[40] For convenience, I set out the reply again:If you do decide to cash settle then yes it will be on rebuild costs and notpresent value. These rebuild figures will be established based on informationwe get from Davis Langdon QS.[41] This email is not referred to again in any subsequent correspondence fromIAG.[42] The notice of opposition to the summary judgment asserts:There was no clear and unequivocal representation from the Defendant that itwould offer a cash settlement to the Plaintiff on the basis of full replacementcosts for all aspects of the property owned by the Plaintiff. Anycommunications from the Defendant about cash settlement as an option forthe Plaintiff were clearly conditional on the receipt and review of rebuild coststo be provided by an independent expert.[43] Mr Cuff accepted that the emails contained a statement by IAG that it wouldmake a cash settlement but not a payment that included the excluded items.[44] Mr Cuff said in effect that IAG remained ready, willing and able to give effectto the representations as it understood it to mean, that is cash for the dwelling togetherwith further cash for the excluded items when those costs were incurred.[45] I am unable to find in the email reply set out at [40] above, or any othercontemporary email, any statement or suggestion that the statement that a cashsettlement figure would be based on rebuild costs would include only on some aspectsof the dwelling rebuild costs being paid upfront with the balance paid when incurred.[46] The IAG email of 17 September 2013 is in my opinion unequivocal that ifRichmond decides to cash settle, the figure would be based on the rebuild cost. Thereis no basis for reading in that the rebuild cost would be subject to certain exclusionsto be paid subsequently.[47] The sentence in the IAG email of 17 September 2013, "These rebuild figureswill be established based on information we get from Davis Langdon QS", does notconfer on IAG the ability to exclude items that are part of the cost of rebuilding. Thatthe value of each component of the rebuild will be based on expert advice is not areservation by IAG of the right to exclude from the cash settlement option certaincomponents which are a necessary part of a rebuild.[48] To rebuild the dwelling, design and demolition costs will need to be incurredand some or all of the retaining wall work done before work commences on thedwelling. Reliance on the reference to dwelling in the email of 8 August 2013 andthen to rebuild costs would not naturally lead a reasonable recipient of the email toconclude what was being offered in the cash settlement was in effect carpentry andother trades relating to the rebuild of the dwelling alone. As the excluded items are anatural aspect of a rebuild a reference to a payment based on "rebuild costs" would beread as including those items.[49] IAG has filed an affidavit from its General Manager of Disaster Recovery,Ms Purvis, setting out IAG's approach to settlements after the Canterbury earthquakesequence. Ms Purvis gives evidence of IAG's dealings with its reinsurers and how itobtained approval to make cash offers. She also sets out IAG's approach tosite-specific works (which cover the excluded items) and says that:IAG's policy has been that retaining walls and other site specific works aregenerally not cash settled above the EQC payment.[50] The short point is, Ms Purvis' evidence in relation to IAG's internal policiesand processes is just that. In the absence of these qualifications or guiding principlesaround cash settlement being made known to Richmond, the internal policy is notcapable of qualifying what is contained in the direct communications.[51] The Fact Sheet received by Richmond only a few days after the17 September 2013 exchange, in my opinion, reinforces what could reasonably beunderstood from IAG's 17 September 2013 email.[52] Caroline Emile replaced Ms Gapper as the Claim Manager in November 2013.While Ms Emile in her affidavit on behalf of IAG says that IAG has no record of theFact Sheet being personally sent to Ms Shannon, she acknowledges that IAG did sendit to its customers as part of an information pack setting out the cash settlementprocess. Ms Shannon's email to IAG of 23 September 2013 concludes with thankingIAG for sending the "Rebuild" booklet. Given Ms Shannon's sworn evidence that shereceived the Fact Sheet and her contemporary reference to receiving the booklet ofwhich the Fact Sheet was a part, I accept Ms Shannon's evidence on that issue.Ms Emile says the booklet was designed to assist customers with making their cashsettlement decision.[53] The Fact Sheet was part of a larger information pack which Ms Emileproduces. While in relatively fine print at the bottom of page 2, it is recorded that:This information sheet is a general guide only and is not necessarily complete.We reserve the right to change, update or correct any information from timeto time without notice. For a complete description of your cover, refer to yourpolicy wording, policy schedule or any other relevant policy documentation.You can also contact your claims case manager for detailed information inrelation to your claim.[54] There was no communication from IAG to Richmond "changing, updating orcorrecting" the contents of the 17 September 2013 email or the Fact Sheet untila meeting on 24 July 2018 when it was stated by IAG that its cash offer could excludesome items when an offer was made. Richmond's point is that advice came too lategiven their claimed reliance.[55] Accordingly, I consider that there was a clear and unequivocal representationby IAG that:(i) Richmond would have the option of cash settlement;(ii) if Richmond did opt for a cash settlement, the amount that it would beoffered would be based on rebuild costs including the value of theexcluded items; and(iii) the rebuild costs would be established based on information fromDavis Langdon QS (with the named quantity surveyor subsequentlybeing amended by agreement).Reliance must be reasonable[56] I have no difficulty concluding that the plaintiffs' reliance was reasonable. Aninsured presented with an email stating that a cash settlement would be based onrebuild costs is entitled to rely on that. The email of 8 August 2013 was reinforcedby the email of 17 September 2013 and the Fact Sheet.[57] Mr Cuff for IAG does not argue that the emails did not make representationsto the plaintiffs. It is implicit in his client's position that had the insured construed theemails as IAG would have them read, then it would have been reasonable forthe plaintiffs to have relied on the emails. In short, IAG's position in respect ofreliance being unreasonable is tied to their position as to what the emails mean.[58] However, in my opinion, when an insured asks a specific question about thebasis of a cash settlement and receives what I consider to be an unequivocal answer,it is entitled to rely on that answer. IAG presented a consistent position to the plaintiffsfrom the email of 8 August 2013 through to the Fact Sheet. That a formal printedbooklet, including the Fact Sheet, was sent out of itself conveys that the statements init could be relied on.Reliance[59] Richmond's submissions asserted the following incidences of reliance:(a) Richmond did not elect to have IAG manage the rebuild of theRichmond House or elect to rebuild it themselves, both of which couldhave been completed years ago;(b) Richmond expected to be able to decide how and when to rebuild theRichmond House once they had received the cash settlement withoutneeding to deal with IAG in anyway;(c) Richmond forwent the opportunity to earn rental income from theRichmond Property between the time that IAG would have completedthe rebuild to now; and(d) Richmond, through the efforts of Alice Shannon, spent considerabletime in facilitating accurate costings for the Quantity Surveyors reportso that IAG could provide Richmond with an accurate rebuild cashsettlement offer. The emails in TBOP at pages 200, 206, 207, 209,210, 213-225 provide a small example of the voluminouscorrespondence between the Richmond/Tuawera Plaintiffs, variouscontractors and IAG.[60] The notice of opposition asserts that even if a:Personal, clear and unequivocal representation can be established by thePlaintiff (which is denied) the Plaintiff did not rely on the representation totheir detriment.[61] The issue of reliance is more problematic. Items (a) and (c) above, relate tothe effects of the rebuild being delayed. The plaintiffs say that if they had been told acash offer would have the exclusions in issue in this case, they would have had IAGmanage the rebuild or elect to rebuild themselves with IAG meeting the costs asincurred. They say that either approach would have meant the houses would havebeen rebuilt years ago.[62] The Property was rented to tenants before the earthquakes. Ms Shannon andDr Ellis and their family had moved to the Tuawera property prior to the earthquakesas it offered easier access. Post earthquake they moved to the Property because of thedamage to the Tuawera property and because their accommodation cover had run out.They say that had they made the decision to rebuild in late 1993, either managedthemselves or through IAG, the properties would both now be completed and theProperty would have been available to generate rental income. At this timethe Tuawera property remains unoccupied because of its damaged state.[63] Mr Cuff says that whatever option was pursued – a cash settlement asunderstood by the plaintiffs, an IAG-managed rebuild or a plaintiffs-managed rebuild,delays would have occurred. This is because final costings were required for eitheroption.[64] Why the costings for the rebuild were not collated until mid-2018 cannot bedetermined on the strength of the affidavit evidence. There is the suggestion that delayhas occurred with some of the consultants engaged, through the specifications thatconsultants were asked to cost not being sufficiently accurate or comprehensive, andthrough Ms Shannon's illness. A detailed timeline identifying where time was lost andwho (if anyone) was responsible cannot be established in this application.[65] However, given the view I have taken of unconscionability, it is not necessaryto come to any concluded view on this point.Unconscionability[66] Unconscionability and reliance are interrelated.[67] As to unconscionability, the notice of opposition says:It is not unconscionable for the Defendant to depart from the Plaintiff's allegedbelief in circumstances where the Defendant has offered cash settlements tothe Plaintiff on the basis of rebuild costs provided by independent builders,which were rejected by the Plaintiff.[68] In her affidavit, Ms Emile says:On 7 August 2018, IAG then sent the Insureds a without prejudice offer basedon the costs to rebuild the dwelling, outbuilding/s and non-EQC external itemsat the Property, as per the parties' intentions ever since the earthquakesequence. As per IAG's standard position the offer did not include allowancesfor retaining walls, contingency, future increased costs, demolition orprofessional fees or other policy benefits. However, IAG informed theInsureds that these costs would be paid as they were incurred.[69] This is an acceptance that it was the common intention of the parties that therewould be a cash settlement, but as a result of IAG's standard practice the offer did notinclude the excluded items.[70] IAG's position was developed and clarified during the hearing. Mr Cuffclarified that IAG accepted that it did represent to the plaintiffs that it would allowthem to cash settle, but his argument was that the scope of what was covered by thecash settlement was restricted upon a proper construction of emails. It was implicit inMr Cuff's position that it should have been known to the plaintiffs that in addition tothe cash settlement of the dwelling, the balance of the costs associated with the rebuild(the excluded items) would be paid in accordance with the Policy terms, that is asincurred and upon IAG accepting prior to them being incurred that they werereasonable. In this way the cash offer, while agreed to be a departure from the termsof the Policy, was limited in its nature.[71] As I have noted above, I do not accept this submission.[72] IAG accepts that it is bound by the August/September 2013 emails to allow theplaintiffs to cash settle. On its own interpretation of its obligation, it has met or isprepared to meet that obligation through making the payment for the dwelling andthen meeting the further costs.[73] For the avoidance of doubt, Mr Cuff accepted that:(i) IAG had offered a cash settlement option and will stand by that option.That acknowledgment was given on the basis that the meaning of thecash settlement was as per Mr Cuff's submissions set out above; and(ii) if the plaintiffs opt to cash settle, IAG will make a cash payment tothem based on the cost of rebuilding the dwelling and will pay theexcluded items when they are incurred.[74] Having agreed that IAG committed to hold the cash settlement option open,Mr Cuff confirmed that IAG's position in that regard was not a settlement position thatcould be withdrawn but represented IAG's position as to how it would meet the cashsettlement option.[75] Accordingly, Mr Cuff says if the Court concludes that the emails have thewider meaning contended for by the plaintiffs then while IAG does not accept thatposition, it stands ready and willing to provide what it says in substance meets theexpectations of the plaintiffs.[76] Mr Cuff makes that submission because the plaintiffs' stated position is thatthey intend to rebuild both properties and that was confirmed by their counselMr Woods. Thus, Mr Cuff makes the submission that the only way that paying theexcluded items as and when they are incurred can cause a detriment to the plaintiffs isif they do not in fact intend to reinstate.[77] Mr Woods meets this argument by saying that the cash settlement positionadvanced by IAG requires the plaintiffs to continue to liaise with IAG over thereasonableness of the costs for the excluded items. Mr Woods foreshadows difficultiesand potential disputes over the reasonableness of the amounts sought to be incurredfor the excluded.[78] Mr Woods said that the advantage of a clean cash settlement which includedthe excluded items would be that the plaintiffs would have complete independence asto the design of the new dwelling(s) they want to build. He anticipated the possibilityof disputes with IAG if a significant change in design had flow-on effects, for example,to the need of additional retaining walls or extra architectural/engineering costs.[79] I do not accept that the possibility of disagreement over the cost of the excludeditems is a compelling point that makes the issue of unconscionability unarguable in asummary judgment context. The original email of 17 September 2013 from IAG madeit clear that QS costings would be required. There are references in subsequent IAGemails to IAG reviewing the costings that the plaintiffs were obtaining, one examplebeing the reference to IAG reviewing the costings of Chris Beer, a builder. Even ifthere was a significant change in design of the reconstructed house, it would only beif that change caused a cost increase over and above that which would have beenincurred if the original dwelling had been rebuilt that IAG could say that it had beenprejudiced through the change in design. The plaintiffs could not expect an opencheque book approach from IAG in respect of the excluded items, nor did they arguefor that.[80] I accept that there is the potential for dispute in respect of costings fordemolition and engineering et cetera, but that was always a risk of the cash settlementprocess contended for by the plaintiffs.[81] Mr Woods says that the rebuild cost that has been calculated by IAG at themoment and which are before the Court are known and certain figures. While that iscorrect, it is implicit through the plaintiffs confirming that they were not seekingsummary judgment for an amount represented by those figures, that they accept thatthe figures are not beyond dispute.[82] Accordingly, the plaintiffs have not established that the defendant has noarguable defence in relation to the issue of unconscionability and there remain issuesas to relevance. It follows the application for summary judgment is dismissed. Costsare reserved.___________________________Associate Judge LesterSolicitors:Anthony Harper, ChristchurchDLA Piper, Auckland