Following the 22 February 2011 Canterbury earthquake, the Government decided to zone Christchurch based on the level of damage and to offer to purchase properties in the worst affected areas known as the ‘red zone’. Areas were classified as “red zone” where rebuilding may not occur in the short-to-medium term because the land was damaged beyond practical and timely repair.
Owners of insured residential properties in the red zone could accept either 100% of the 2007 capital rating value, with all earthquake-related insurance claims being assigned to the Crown, or 100% of the 2007 land rating valuation, with the landowner retaining their ability to pursue their insurance claims (100% Offer). By contrast, owners of vacant land and uninsured improved properties in the red zone were offered 50% of the 2007 rating value only (50% Offer).
The respondents (who own either vacant land or uninsured improved properties in the red zone) challenged the lawfulness of the red zone and the 50% Offer. They sought the same 100% Offer that was made to owners of insured residential properties.
The respondents were initially successful in High Court, which held that:
- The red zone had not been lawfully established, because it had not been created using powers under the Canterbury Earthquake Recovery Act 2011 (CER Act).
- The decision to create the red zone did not lawfully affect the property rights of the respondents.
- The decision to make the 50% Offer was not made according to law, as it had not been made in light of the purposes of the CER Act.
On 3 December 2013 the Court of Appeal gave judgment on an appeal by the Minister for Canterbury Earthquake Recovery and the CERA Chief Executive. It unanimously held that:
- The red zone was lawfully created.
- The decision to make 50% Offer was not lawfully made because it did not properly address the purposes of the CER Act.
In particular, the red zone was lawful because it was created using the residual freedom of the executive, it did not affect the legal rights of owners and the decision was not required to be made under the CER Act. The Court described the red zone announcement as the dissemination of accurate information about areas where land damage had occurred, which did not require specific statutory authorisation.
By contrast, the 50% Offer was made by the CERA Chief Executive using his power under s53 of the CER Act. The crucial issue was whether he had properly exercised that statutory power. The Court of Appeal held that he had not done so because the decision was not made in accordance with the recovery purposes of the CER Act, and in particular the purpose of enabling people to recover from the earthquakes.
The Court of Appeal appears to have been persuaded by the plight of the respondents and others in the same position. While there must be sympathy for vacant land owners who could not insure their land, the claims of owners of uninsured improved properties to that sympathy is less clear. Those owners took a risk in not insuring their properties. That risk having eventuated, an argument can be made that they should carry the loss. It remains to be seen whether the Government will seek leave to appeal to the Supreme Court.