Sadat case Judgment decision - July 2017
In July 2017 the High Court rejected the entirety of the Sadats’ claim that a rebuild of their home was necessary as a result of damage from the September 2010 earthquake.
EQC welcomes the High Court’s decision as it reinforces EQC’s approach to assessing and determining earthquake damage.
The High Court accepted EQC’s evidence that there was no earthquake damage that EQC had not already settled and that much of the damage claimed by the homeowners pre-existed the earthquakes.
The High Court was critical of the expert evidence produced by the plaintiffs and sent a reminder that expert witnesses who give evidence in litigation claims must do so in an objective and impartial fashion.
Background
On 6 July 2017 Justice Nation issued his judgment in favour of EQC and Tower. The Sadats’ claim against EQC and Tower failed and their claim was dismissed.
The Sadats claimed that their house required rebuilding following the September 2010 earthquake. EQC and Tower maintained that the damage to the Sadats’ house pre-dated the Canterbury earthquake sequence. This position was informed by comparing pre-earthquake assessments with the damage observed by EQC’s experts following commencement of the litigation.
Tower cancelled the Sadats’ insurance policy in January 2011. As such, the property was not insured by Tower for the major earthquake in February 2011 and aftershocks. EQC’s cover only extends to the September 2010 earthquake as there was no contract of fire insurance in place from January 2011 onwards. As such, the main issue in the litigation was what, if any, damage had been caused to the Sadats’ home as a result of the September 2010 earthquake (at [213]).
The structural engineers for EQC and Tower gave evidence that what happened to the house during the September 2010 earthquake did not make any material difference to what was required to fix pre-earthquake defects with the foundations (at [166]). Justice Nation found the evidence of EQC’s structural engineer compelling (at [169]).
By contrast, the Judge did not accept a number of opinions expressed by the Sadats’ structural engineering expert, Dr Wu. His Honour was critical of Dr Wu’s emphasis on explaining why he believed a rebuild was necessary rather than assisting the Court through identifying just what damage was likely to have been caused by the September 2010 earthquake. He also found Dr Wu’s theory of apportioning damage across earthquakes based on the Richter scale was neither logical nor professionally justified (at [208]).
Justice Nation accepted the evidence of EQC and Tower’s geotechnical experts. He held the sub-ground conditions at this property were such that they were never going to be strong enough to bear the load of the house, as carried by the foundations. It is therefore likely that there was subsidence of the foundations at various points and to various degrees before the 4 September 2010 earthquake (at [105(a)]) and that there would have been significant structural damage to the foundations before that earthquake (at [105(b)]).
Justice Nation found the Sadats’ geotechnical engineering expert, Mr Thompson, made significant assumptions and judgments influenced by his wish to assist the Sadats with their claim, rather than to objectively and impartially assist the Court as an expert witness (at [104]).
The Sadats’ gave evidence that after the September 2010 earthquake the floors were uneven and there was considerable new damage both inside and outside the house. Justice Nation determined he could not, in terms of both the Sadats’ honesty and reliability, attach much weight to their evidence as to the structural state of their property when they purchased it, in the period through to September 2010 or immediately after the 4 September 2010 earthquake (at [135]). His Honour acknowledged how frightening the September 2010 earthquake must have been for the Sadats, but noted that “[t]he amount of damage cannot be measured by the level of fear they felt” (at [110]).
Justice Nation noted that “[E]ither Mrs Sadat was being deliberately evasive in refusing to acknowledge the extent of patently observable dislevelment in the floor of the house before the earthquake or she had been oblivious to it because she was happy to live with the house as it was” and considered the latter explanation to be doubtful (at [119]).
EQC and Tower are entitled to costs. Justice Nation raised the issue of whether the Sadats’ experts should have to personally make a contribution towards costs (at [317]).
Sadat costs decision
On 10 September 2018 the High Court issued a costs decision in the Sadat matter. The High Court has ordered the Sadats and their litigation funder, Claims Resolution Services Limited (CRSL), to be jointly and severally liable to pay EQC a total of $178,244.08 in costs and disbursements.
A copy of the costs decision can be found here [PDF, 315 KB]
The terms of the CRSL funding agreement with the Sadats stated that CRSL “…takes on the prosecution of the claim on a No Win No Pay basis for 10% of the Final Settlement plus all costs including, legal, quantity surveyor, independent reports and assessment costs. Costs are limited to a maximum $10,000 any costs above this amount are borne by Claims Resolution Services Ltd.” CRSL acknowledged in its submissions to the Court that it was liable for any costs awarded against the Sadats for the purposes of this particular case. As such, the High Court ordered the Sadats and CRSL jointly and severally to pay EQCs costs and disbursements.
EQC suggested that a costs award against the Sadats’ experts would be appropriate in recognition of their conduct in this proceeding. The Court’s ability to make an award of costs is discretionary and there is a high threshold to demonstrate an expert’s conduct warrants an award of costs to be made. Justice Nation continued his criticism of Dr Wu (structural engineer) and Mr Thompson (geotechnical engineer) in the costs decision, and he held that the high threshold for an award of costs against expert witnesses had been met in this case. However, in the exercise of his discretion, he decided not to award costs against either of these experts.
This decision is a timely reminder to homeowners to be careful about who they instruct as experts. It is also a reminder that a homeowner suing an insurer could still be held personally liable to pay costs to the insurer even if the homeowner has a litigation funder.