PORT HILLS FIRE: THE MEASURE OF DAMAGES – NO ONE SIZE FITS ALL
On 31 March 2023 the Court of Appeal handed down its decision in the appeal relating to the destructive 2017 Port Hills fires in Christchurch which burned through more than 1600 hectares of land, and caused extensive property damage.
Although the original cause of the fire was thought to be arson, it later transpired that the fire spread due to inaction of the operators of the Christchurch Adventure Park (CAP). The owners of the damaged properties (backed by their insurers) sued the Adventure Park. The key allegation was that CAP’s continued running of a chairlift through an area of burning trees was both negligent and an actionable nuisance.
The Court of Appeal upheld the High Court’s findings that CAP was liable in both negligence and nuisance. Of particular interest however is the Court of Appeal’s discussion on the appropriate measure of damages.
Many of the claimants were insured and pursuant to their insurance policy they were entitled to the reasonable reinstatement costs required to restore the homes to an as new condition. An issue in the appeal was whether the measure of their loss was properly “replacement cost”, or a lesser “market value”.
Usually the basic measure for compensatory damages for physical damage to land and improvements is the amount by which its value is diminished, rather than the cost of reinstatement. It is unusual for a Court to adopt the amount paid under an insurance policy as the amount awarded in damages in a negligence claim, because this would likely put that individual in a better position than they were in before the tort was committed.
However, this is not the approach that the Court of Appeal took.
One of the plaintiffs, the Flanagans, were awarded damages in the High Court on a replacement basis despite clear evidence that they did not intend to reinstate their house. Notably that was because they had only just moved into their rebuilt home that was destroyed in the Christchurch earthquakes (they had been there for around two weeks) and couldn’t face the prospect of another reinstatement project.
CAP’s argument was that the award should have instead been on the basis of loss of value, being the difference between the value of the house in its damaged condition and its value immediately before the fire rather than the cost of reinstatement which would never be incurred. A reinstatement approach resulted in significant betterment and the Flanagans should not be entitled to that.
The claimants argued was that the overriding objective was to be fair to both sides and reflect the extent of the loss actually and reasonably suffered by the plaintiff so as to put them back, as far as money can, to the position they were in before the tort was committed. They had a brand new house before the fire and therefore should get the closest thing to a brand new house.
The Court of Appeal agreed that there was some support in case law for a “market value” approach. However, it said that the Courts were increasingly amenable to taking a flexible and pragmatic approach. The cost of reinstatement will be awarded if the plaintiff intended to restore the property and it was reasonable to do so.
Another example was the case of Mrs Grace, who had been living in her large 436m² home – which was significantly underinsured. She was only able to afford, with insurance proceeds, to reinstate a 284m² house, the difference in value being $1.32m and $895,000.
In the High Court, she was awarded the difference, around $425,000. The Court of Appeal upheld this finding, acknowledging that had it not been for the fire, she would have been living in her large home and when the time came to sell she would have received the sale proceeds.
Although the approach taken was contrary to the conventional approach that where reinstatement was carried out in a different manner any award could not exceed the costs of the work actually carried out, it was fair and just in all of the circumstances.
The Adventure Park’s appeal was dismissed in its entirety.
These findings challenge the conventional approach and demonstrates the Court’s willingness to be flexible in order to achieve a fair and just outcome in the specific circumstances of someone’s situation. There is no one size fits all rule.
If you would like to know more about the issues arising from this judgment, please get in touch.
