Leisure Investments NZ Ltd Partnership v Grace [2023] NZCA 89

Earlier this year, the Court of Appeal upheld a High Court decision finding the owners of the Christchurch Adventure Park liable for losses caused to neighbouring property owners whose homes were damaged by the spread of fire from the Park.  The case concerned the (un)reasonableness of the Park not removing burning chairs from a chairlift, amidst dangers from approaching flames.  The Court’s endorsement of the assessment of damages based on reinstatement cost for plaintiffs who would not be reinstating indicates a more flexible approach to assessment of damages than many would have expected.

Background

On 13 February 2017, an arsonist started a fire in an area of the Port Hills known as Marleys Hill.  Coincidently, a second fire had started earlier that day due to an electrical equipment failure.  Both fires were in close proximity to the Christchurch Adventure Park.  The Park boasted several mountain bike tracks, hiking trials and a zipline.  A key feature was its chairlift which operated in a wide corridor of cleared pine trees.  It carried bikers, hikers and zipliners to the top.

At around 9:30 pm on the Monday, the Marleys Hill fire was only 300 metres from the top chairlift station and by midnight it had entered the Park’s boundary.  The Park’s owner, Leisure Investments, made the decision to keep the chairlift running.  This was done in accordance with the safety and operations manual in order to protect the haul rope from heat concentration.  On Tuesday, complications developed as chairs and bike carriers began to clump together on the line and the fire drew closer to the chairlift.  Staff began to remove rails from the bike carriers to separate the clumps of chairs and carriers.

By Wednesday, both fires had combined.  Late that day an ablaze chair was seen coming down the hill.  The chairlift kept running and several more chairs caught fire.  As a result, molten plastic dripped down onto the dry pine slash, igniting spot fires.  It was common ground that, had the spot fires not started, the fire would have drifted south, clear of the respondents’ properties.

The High Court Decision

In the High Court, Leisure Investments faced a claim alleging liability under s 43 of the Forest and Rural Fires Act 1977, negligence and nuisance.  Gendall J found it liable on all three causes of action and ordered the Park to pay damages of over $10 million.  A key finding was that a reasonable operator in the position of Leisure Investments would have appreciated that the plastic on the chairs would melt and create a risk of fire spread, and would have removed the chairs.

The Court of Appeal Decision

On appeal, Leisure Investments’ case was that it had behaved responsibly.  It argued it had co-operated with the authorities, acted in accordance with industry best practice, and sought advice from the chairlift manufacturer, which it followed.  The Court was sympathetic but ultimately agreed with the High Court decision.  The Court noted that Leisure Investments was aware of the close proximity of the Marleys Hill fire.  It had previously identified that fire was the greatest risk to the Park, and knew that the chairlift corridor ran through forest plantation and adjoined urban development.  The Park was conscious of a reasonable possibility of a major crowning forest fire in the corridor, where there was a considerable quantity of dry pine slash beneath the chairlift.  The Park was aware, too, that the chairs were coated in plastic which could catch fire.

The Court concluded that on the Tuesday there was sufficient cause for concern that a reasonable operator would have started to remove the chairs from the chairlift by Tuesday afternoon at the latest, rather than leaving it until 9:30 am the following day.

The Court upheld the High Court findings of liability in negligence, nuisance and under s 43 of the Forest and Rural Fires Act 1977.  The Court found that the actions of Leisure Investments in dealing with the fire were unreasonable, judged by the standard of effort required of the Park with its knowledge and resources in a situation where it was confronted with a fire not of its own making.  Strict liability applied under the Forest and Rural Fires Act as the Court judged Leisure Investments to be responsible for transporting the fire to a new location and therefore liable for an outbreak of fire.

Damages

The proceeding was brought by the homeowners’ insurer, and the High Court largely assessed costs based on the insurance payments received by the owners plus additions for uninsured losses which were proved.  The High Court awarded damages largely based on “new for old” reinstatement costs rather than the actual value of the property lost by the owners.  The High Court took this approach even where owners had made a decision that they would not reinstate, and would therefore never incur the reinstatement costs they claimed.  The High Court rejected Leisure Investments’ argument that this measure of loss included betterment for which it should not be held liable.

On appeal, Leisure Investments challenged the High Court’s assessment of damages as contrary to the principle that a plaintiff should have an intention to reinstate in order to be awarded the cost of reinstatement as compensatory damages for physical damage to property.

The Court of Appeal held that while it is usual to require an intention to reinstate in order for damages to be assessed at cost of reinstatement, there are no absolute or rigid rules when awarding compensatory damages.  The Court’s task is to assess whether cost of reinstatement is a reasonable measure of damages.  Usually, a lack of intention to reinstate will undermine the reasonableness of a claim for reinstatement cost.  However, other compelling circumstances can make it reasonable to assess costs on this basis, and this test was found to be proven for owners who, having rebuilt after the earthquakes, could not face rebuilding a second time.  Another owner who rebuilt a smaller home due to underinsurance was compensated for the full notional cost of rebuilding a larger home on the rationale this delivered a just outcome.

The appeal was dismissed in its entirety.

Comment – Cecily Brick

A point of interest in this decision is the Court of Appeal’s endorsement of the High Court’s approach to damages, which was influenced by the actual payments received by the owners from their insurer.  Many will view it as unorthodox for the Court to award reinstatement costs to plaintiffs who will not incur those costs, resulting in what could be considered a windfall exceeding the value of the property they lost.  Assessing quantum on this basis is especially surprising given that the Park did not deliberately cause the owners’ losses, and was put in a difficult position not of its own making.  The decision seems to have been influenced by the traumatic circumstances, and it will be worth watching whether this approach gains traction in future cases.

Cecily brick is a partner at Fee Langstone