Costs payable by EQC

Insurance Update

By:

The Court of Appeal recently upheld three High Court decisions which held that the Earthquake Commission (EQC) was liable to pay 50% of the costs of three homeowners who discontinued their claims against EQC after it agreed to pay the maximum statutory cap1.

Background 

The three plaintiffs owned homes damaged by the Canterbury earthquakes in 2010 and 2011. They lodged claims with EQC and their private insurers (the latter claims do not feature in this judgment). EQC accepted the claims but offered less than the statutory cap of $100,000 plus GST. The homeowners disputed that assessment and each of them sued. 

The proceedings caused EQC to revisit the claims and, in each case, accept that the plaintiffs were entitled to the statutory cap. EQC paid what was due and the plaintiffs discontinued their proceedings. 

Following this, the plaintiffs sought costs against EQC on the basis that EQC's initial refusal to pay the statutory cap necessitated their proceedings. 

EQC argued that it should not have to pay costs as: 

(1) the presumption was that the plaintiff pays costs on a discontinuance - the plaintiffs had not rebutted this presumption

(2) it was not in breach of its obligations under the Earthquake Commission Act 1993, as it had not yet 'determined' the amount payable

(3) given the number of claims it had to assess, it could not be said to be in breach of the requirement to make a determination 'as soon as reasonably practicable', and 

(4) although it had agreed to pay the statutory cap, it was not inevitable the plaintiffs would have been awarded it at trial. 

In each of the High Court decisions, the High Court ordered EQC to pay 50% of the plaintiffs' costs to that point. The award was limited to 50% on the basis that the plaintiffs still had claims against their private insurers. 

Outcome 

The Court of Appeal rejected EQC's submissions and found that the High Court correctly exercised its discretion in finding that the default position that the plaintiff should pay costs should not apply. 

The Court of Appeal noted that it is appropriate to exercise the discretion where it is 'just and equitable to do so', such as where a defendant's acts or omissions have caused the litigation and then rendered it unnecessary. Relevant considerations include the parties' conduct in the matter, and the reasonableness of the parties' respective stances, such as the reasons for the issuing of and opposition to proceedings. 

The Court of Appeal found that the homeowners' decision to issue proceedings against EQC, and their subsequent decision, on the basis of EQC's change of position, to discontinue those proceedings, was justified. The homeowners had achieved the result they sought. 

The Court of Appeal was unpersuaded by EQC's arguments. It was open to the High Court judges to find that EQC had not made the requisite determination as to the amounts of damage as soon as reasonably practicable. It was telling here that EQC had not sought to strike out any of the claims on this ground. 

The Court of Appeal found that the High Court had taken proper account of the EQC workload and, given EQC's decision to pay the statutory cap, that the plaintiffs had been justified in bringing and then discontinuing their claims. 

Comment 

The outcome of this appeal is not surprising, given the change in position by EQC - seemingly as a consequence of the litigation. To have denied the plaintiffs costs would have been a harsh outcome. 

Private insurers can take comfort from the knowledge that they will not face the entire costs award where a plaintiff has discontinued its claim against EQC. 

Southern Response Earthquake Services Ltd v Avonside Holdings Ltd 

The Supreme Court has granted leave for Southern Response to appeal against the Court of Appeal's decision in Avonside Holdings Ltd v Southern Response

The question before the Supreme Court is whether the Court of Appeal was correct to find that the insured, Avonside, was entitled to claim allowances for contingencies and professional fees under its insurance policy, despite electing to purchase a replacement property. 

We will provide an update on this decision when it is released. 

If you have any questions or require further information regarding any aspect of this update, please contact us. 

1 Earthquake Commission v Whiting, Earthquake Commission v van Limburg and Earthquake Commission v Ryde

Related people