Port Hills Fire Case¹

• Market value vs replacement cost.
• Should new for old justify a deduction for betterment?

• The running of a chairlift through an area of burning trees causing the fire to spread was both negligent and an actionable nuisance.
• Replacement cost was the appropriate measure of loss when the plaintiff is intending to replace and it is reasonable to do so.
• No betterment deduction when the measure of damages is the replacement cost of houses destroyed by the fire.
• The key element for the Judge in assessing damages was what was reasonable. To a significant extent, the Court was guided by what insurers had paid out under insurance policies in determining what was recoverable in a civil liability claim.

Two major fires developed in the Port Hills area of Christchurch on 13 February 2017.  The Summit Road fire spread to the upper area of an adventure park, which ran a chairlift transporting riders and bikes to the top of the Port Hills.

The adventure park, following the recommendation in the Doppelmayr Chairlift Operation Manual, continued to run the chairlift during the fire.  This was to protect the haul rope.  The chairlift was run through sections of forest where only a narrow path had been cut for the chairlift.  As the chairlift was run through those sections of trees which were engulfed in fire, the plastic on the chairs caught fire.  As the chairs moved along the lift path molten plastic was dropped onto flammable pine/timber under the lift line creating new fires.  Those new fires spread to and engulfed numerous houses in the area, many of which were destroyed.

The homeowners sued the adventure park, both through IAG in its subrogated capacity, and for uninsured losses.  The total value of claims was around $11 million.

The first cause of action was under the now-repealed Forest and Rural Fires Act.  Essentially under s43 liability can be established where a defendant has caused a fire.  Causation in that sense refers to  “in the general run of things, a matter of ordinary occurrence” as opposed to something which was extraordinary which would not give rise to liability.  The Judge found that the adventure park caused the fire by running its flammable chairs through the Summit Road fire leading to the outbreak of further fires.  He considered that was not an extraordinary event.  Key factual findings were:

• Running the flammable plastic chairs through a crowning forest fire led to the ignition of those chairs.
• The adventure park ignored the absolute likelihood that once ignited the molten plastic chairs would drip onto exposed fuel below the lift line causing the outbreak of further fires.
• The adventure park had permitted highly flammable pine/timber to remain present under the lift line which was in breach of its own fire management plan.

In determining whether a duty of care was owed, the Judge applied the two-stage test of foreseeability/proximity and then policy matters.  He had no difficulty in finding a duty of care owed by the adventure park to the homeowners.  He went on to find that duty had been breached because the adventure park should have removed the chairs from the hauler line when continuing to run the chairlift during the fire.

Nuisance is an unreasonable interference with a person’s right to use or enjoyment of an interest in land.  Nuisance can occur where a person continues, or fails to abate, a dangerous condition.  Nuisance requires fault in the form of failure to take reasonable precautions against a foreseeable risk of harm.

The Judge found that there were three elements to the cause of action in nuisance, being:

1. The defendant must have created or continued the nuisance.
2. The defendant’s land must have been used in a way that was unreasonable.
3. Damage suffered must have been foreseeable.

The difference between nuisance and negligence is that nuisance is the unreasonable effect of a defendant’s conduct on a plaintiff’s land.  The focus of negligence is the unreasonable quality of a defendant’s conduct in the face of a foreseeable risk of harm.

The Judge found the adventure park had committed actionable nuisance by failing to remove its flammable chairs from the chairlift hauler line rope.

The Judge found there were two prerequisites to using the cost of replacement as the methodology for loss.  First, the plaintiff must be intending to reinstate and, second, it must be reasonable to do so.  In assessing whether replacement cost was justified, the Judge found that a consideration will often arise as to whether there may be reasonable alternatives to reinstating.

The Judge had considerable sympathy for the homeowners.  An example is the Flanagans.  Their home had been destroyed in the Christchurch earthquakes.  They had only been living in the rebuilt house for one week prior to it being destroyed by the chairlift fire.  The Judge adopted the amount paid out by IAG as the amount recoverable against the adventure park.  This is surprising as the amount payable under an insurance policy is frequently governed by the unique terms of that policy.  By contrast, the amount payable by a liable defendant under causes of action for negligence and nuisance is governed by common law rules which require the plaintiff to be put back in their position prior to the breach.

The Judge awarded alternative accommodation costs even though the plaintiffs did not give evidence of having to incur those costs and did not produce any supporting invoices as to costs incurred.  The Judge conceded he was taking a very flexible approach, given the particular and tragic situation faced by the homeowners.

The Judge largely accepted the homeowners’ claims for chattels and possessions.  They had been reviewed by a loss adjuster and confirmed as reasonable.  The Judge applied a discount for depreciation in relation to one claim where the homeowners had claimed new for old in relation to chattels and possessions.

The adventure park claimed betterment largely by presenting evidence of the market value of homes destroyed by fire and claiming that was the proper methodology to assess loss.  The Judge accepted that betterment can be used as a tool where a defendant’s negligence forces a plaintiff to replace property with something of greater value.  He explained that the defendant would need to compensate the plaintiff for the inconvenience of incurring a cost earlier than the plaintiff would have anticipated.  He set out a number of exceptions to betterment, including the following:

• Betterment is required to comply with imposed requirements or regulations.
• Where the plaintiffs have a need to reinstate or replace their property or items that they would not otherwise have had to replace.
• Where the plaintiffs have no choice as to the method of reinstatement.

The Judge rejected that market value was an appropriate measure of loss for all of the claim losses for buildings.  He rejected the claimed betterment in its entirety.

It is doubtful that the amount paid under insurance policies should be used as that applicable for an award for tortious actions for negligence and nuisance.  Realistically, the terms and conditions of the policy might contain entitlements which put the insured in a better position than they were in prior to the event which is contrary to the principles of loss for negligence and nuisance.

The Judge’s approach to betterment is inconsistent with other decisions in which betterment has been applied.  Betterment is clearly available where a plaintiff elects to replace old chattels and possessions with new ones.  It is less clear whether it is available where the plaintiff must rebuild a damaged building.  We understand this decision will be subject to appeal and it will be interesting to see how the higher courts approach the issue of betterment.

1. Grace v Orion [2021] NZHC 705.  Gendall J.

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