Kelly case

C & S Kelly Properties Limited v EQC & Southern Response- High Court endorses EQC’s floor relevelling strategy

In July 2017 the High Court released a judgment which accepted EQC’s floor relevelling strategy for the Kelly’s house.  The High Court rejected the foundation repair strategies proposed by the Kellys. 

A copy of the judgment can be found here.

EQC welcomes the High Court’s decision and is happy that this judgment provides certainty to the parties.

The Court’s decision in this long running case reaffirms EQC and Southern Response’s position was the earthquake damage to the foundations could be repaired within EQC’s statutory “cap”.

A joint inspection carried out in October 2015 between EQC’s, Southern Response’s, and the Kellys’ technical experts found that while the house had incurred some earthquake damage, its foundations could be repaired and did not need to be completely replaced. 

Background

The Kellys put forward two remediation strategies to relevel the floors, both of which involved separating the entire house from its foundations, inserting metal beams from under it and lifting the house into the air.  In contrast, EQC proposed to relevel the floors by replacing some of the floors and installing 20 new shallow piles designed specifically for this site.

Justice Faire found that the Kellys had failed to prove on the balance of probabilities that their repair strategies to the floor levels were appropriate, and deemed them to contain “significant flaws (at [133]).  His Honour went on to conclude that EQC’s floor relevelling strategy “sufficiently restores the functionality, aesthetic quality, and amenity value in the house” (at [145]).

The Kellys’ structural engineer, Mr Kearney, gave evidence that a replacement foundation was necessary in order to comply with NZS 3604 - a building construction requirement for new timber-framed buildings.  Kearney asserted NZS 3604 not only governed the standard of the repair required for the Kellys’ property, but imposes a legal requirement to relevel the house to within 5-10mm.  Justice Faire found that NZS 3604 was of “limited” relevance when assessing the particular repair strategies put forward for this property (at [120]).  His Honour also noted Kearney’s concession that it is difficult to impose a 2017 standard, such as NZS 3604, on an early 1900’s house, such as the Kellys’ home (at [119]).

Justice Faire also agreed with EQC’s structural engineer that in the particular circumstances of the Kellys’ property, the repair strategy should not be trying to achieve an unnecessarily tight tolerance such as a 10mm range as proposed in NZS 3604 (at [147-149]). Doing so “…will only increase cost, potentially cause consequential damage, and which is unlikely to differ the functionality of the floor” [149].

His Honour noted that “…special engineering designs, with emphasis on practicality over strict adherence to recently developed guidelines, are required to repair the house to a current “as new” standard”(at [126]).
EQC’s technical experts were challenged by the Kellys that their relevelling strategy would only restore the floors to a tolerance of 20-30mm and that this did not satisfy the “when new” standard in the EQC Act. However, Justice Faire concluded that the repair strategy proposed by EQC, namely, to relevel the floors in accordance with the strategy proposed in the joint expert report, “sufficiently restores the functionality, aesthetic quality, and amenity value in the house” [145].

Justice Faire concluded that in this case, based on the expert evidence given and the nature of the work being undertaken, it was necessary to add a ten percent contingency amount to the insurance payment to reflect the estimated cost of the work required to repair the earthquake damage.

In general, EQC does not add a separate contingency sum to the amount it pays to cash settle natural disaster damage.  This is because the amount it pays is calculated to be sufficient to cover all of the assessed repair work.  Also, unlike litigation where the Court’s decision is final, EQC’s customers are usually able to come back to EQC to ask for a top up payment where they are able to show that the insurance settlement was not enough to complete the repair work. 

The net result of Justice Faire’s judgment is that the Kelly’s claim remains under EQC’s statutory cap and is not passed onto Southern Response.  This has always been EQC and Southern Response’s position.

This decision, as with the Sadat case, further reaffirms EQC’s approach to repairing earthquake damage.

Cost Judgment

On 7 February 2018 the High Court issued a costs judgment which ordered each party to bear responsibility for their own costs and disbursements associated with the proceeding. 

A copy of this costs decision can be found here.

In the costs judgment Justice Mander was highly critical of the evidence produced by the Kelly’s structural engineer, Zoran Rakovic: “His evidence was found to be flawed, and his conduct in having put his name to the joint experts’ report only to have taken a contradictory stance when communicating with his instructing solicitor, at best was unreasonable.  That the Kellys proceeded to trial to recover over half a million dollars based upon Rakovic’s entirely inadequate opinion, against that unsatisfactory background, is a feature of this litigation [at 33]”.  

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