It
was a dispute over repairs to only part of a small Wellington retaining wall
but the Earthquake Commission poured a lot of resources into the case to entrench
a rule that depreciated replacement cost not current replacement cost is the
measure of compensation for wall collapses.
Mr Michalik took on
the Earthquake Commission over compensation for damage following the partial
collapse of a 1.5 metre high retaining wall at his Highbury home after heavy
rain in July 2012. The wall had been
built in the 1970s from hollow triangular concrete blocks cemented in
place. It was not reinforced. There is no drainage. The wall does not comply with current
Building Act requirements.
The Commission
accepted liability as natural disaster damage.
Mr Michalik argued he was entitled to “new for old”: repair up to
current building code requirements.
Under the Earthquake
Commission Act, retaining walls within 60 metres of a home are covered for
indemnity value. The Commission assessed
the value of the land affected by the landslip at $4050 and the value of the
damaged retaining wall at $3130 – collectively $7180. Replacement cost for repair to current code
requirements was estimated at over $18,000.
The High Court ruled
that $3130 was the correct figure as compensation for damage to the wall .
It can be difficult to
establish a value for a retaining wall alone.
Where a retaining wall is a substantial feature of a building construction,
a separate value for the wall can be obtained by establishing a market value
for the property with and without a wall in place. In most cases a retaining wall is too small a
part of an overall valuation to be separately valued. In these instances, depreciated replacement
cost is the appropriate methodology, Justice Williams said.
For Mr Michalik’s
wall, determining depreciated replacement cost was a three step process. First: the cost was estimated of building a
retaining wall as close as possible to the damaged wall in materials and design
(even though such a wall would not comply with current code requirements). Secondly: depreciation was deducted. A retaining wall has an assumed life of 80
years. Mr Michalik’s wall was built in
the 1970s. Depreciation at 46% was
deducted. Thirdly: GST was added to the
depreciated value.
On the figures before
the court, it will cost Mr Michalik at least an extra $15,000 above the $3000
received from the Commission to
reinstate his damaged retaining wall.
Michalik
v. Earthquake Commission – High Court (17.09.14)
14.043