Judgment Summary - Quake Outcasts & Fowler Developments Ltd v Canterbury Earthquake Recovery Authority

Tuesday, March 17, 2015

[2015] NZSC 27

This is an appeal from the decisions of the High Court and the Court of Appeal.

This case concerns two applications for judicial review, which were heard together. The first appellant, Quake Outcasts, is a group of 46 individual or joint owners of properties in the red zone.The second appellant, Fowler Developments Limited, is a property development company that owned eleven sections at Brooklands, all of which were red-zoned after the earthquakes. They all own either vacant land or uninsured properties.

In the High Court

Fowler Developments and the Quake Outcasts sought declarations from the High Court that the red zoning of land was unlawful, and that the decision to offer to purchase either vacant land or uninsured residential properties for 50% of the 2007 rating value of the land was improperly made.

Justice Panckhurst decided that any red zoning decision should have been made using the mechanisms set out in the Canterbury Earthquake Recovery Act 2011 (CER Act) rather than using the Government’s prerogative powers, and that the red zoning of the land was therefore done improperly. However, he noted that the vast majority of the offers have been accepted, and that many people have now moved on. He said that “regardless of the decision-making process and my conclusion that the decision was not made according to law, the fact remains that the present situation is essentially a fait accompli”.

He did, however, make:

“A declaration that the decision to create the red zone announced on 23 June 2011 did not lawfully affect the property rights of [the Quake Outcasts].”

By the same reasoning, he found that the September 2012 decision to make 50 percent offers was also “made outside of, and without regard for, the statutory regime and was not made according to law.”  These offers were therefore set aside.

The Minister for Canterbury Earthquake Recovery and the Chief Executive of the Canterbury Earthquake Recovery Authority appealed the High Court’s decision, arguing that both decisions were lawful and effective.

In the Court of Appeal

The Court of Appeal, in deciding whether the decision to create the red zone should have been made under the CER Act, considered various sections of the CER Act. They decided that the information about the red zone could have been released by the Chief Executive of CERA under section 30 of the CER Act, but that there was nothing that indicated an intention to restrict Ministers from also communicating with the public. They said:

“We have no doubt that the dissemination of information and advice by Ministers is an action authorised by the residual freedom, as long as legal rights are not affected by it. That would be so even if a narrow interpretation of the scope of the residual freedom is adopted. As noted earlier, we do not consider that the red zone decision did affect legal rights. So we are satisfied that, in the circumstances of this case, the red zone decision and the dissemination of information and advice in accordance with that decision did not require specific statutory authorisation and was lawfully made under the residual freedom.”

However, the Court of Appeal decided that the decision, in September 2012, to offer to purchase either vacant land or uninsured residential properties for 50% of the 2007 rating value of the land was made under section 53 of the CER Act.  The Court of Appeal also decided that the decision to make the 50% offer did not consider the recovery purposes set out in section 3 of the CER Act, as required to do so by section 10.

“The problem with the September 2012 decision, therefore, as we see it, is that the Cabinet decision left the Chief Executive in a position where he was required to make a decision to make offers under s 53 in circumstances where there is nothing to indicate that he addressed the purposes of the CER Act set out in s 3, particularly the recovery objective in s 3(a), as he is required to do by s 10(1). We agree therefore with the High Court Judge’s conclusion that the process leading to the September 2012 decision to make the 50 per cent offer did not involve the deliberative process required under s 10 of the CER Act and the decision was therefore made outside of, and without regard for, the statutory regime and hence not made according to law.”

The Court of Appeal therefore set aside the orders of the High Court, and made a declaration that:

“the September 2012 decision by the Chief Executive to offer to purchase the properties of owners of vacant land and owners of uninsured improved properties in the red zone was not lawfully made.”

In the Supreme Court

The Supreme Court considered both whether the creation of the red zone was lawful, and whether the September 2012 offers were lawfully made.

In a split (3:2) decision, the majority of the Supreme Court decided that the CER Act “covers the field” of action that may be taken in response to the Christchurch earthquakes. The Crown therefore should not have used its prerogative powers to make decisions, but rather should have used the mechanisms in the CER Act. They noted that:

“That the Act’s role is exclusive is also shown by the safeguards in relation to the use of the powers in the Act, which are particularly important because many of the powers in the Act are highly coercive. It cannot have been intended that the safeguards in the Act could be circumvented by acting outside of the Act.”

The Supreme Court went on to say that:

“The whole scheme of the Canterbury Earthquake Recovery Act, its purposes and its legislative history support the view that decisions of the magnitude of those made in June 2011 on recovery measures should have been made under the Act and in particular through the Recovery Plan processes. They were not. That the June 2011 decisions were made outside of the Act undermined the safeguards, community participation and reviews mandated by the Act.”

However, like the High Court and the Court of Appeal, they decided that as it is now too late to require the red zoning decisions to be re-made under the CER Act, saying that “a declaration as to the unlawfulness of the June 2011 decisions would not serve any useful purpose and none is made.”

The Supreme Court then considered the lawfulness of the decision to make the September 2012 offer, being the offer to purchase the vacant land and uninsured properties at 50 percent of the land value.  This offer is challenged on the basis that:

  • it is irrational to take into account the insurance status of the properties;
  • the purposes of the CER Act, and in particular that of recovery, were not properly taken into account; and
  • even if the insurance status was relevant in June 2011, given the current situation in the red zones, it is no longer relevant.

In relation to the insurance status, the Supreme Court decided that:

“we do not consider that the insurance status of properties in the red zone should have been treated as determinative when deciding that there should be a differential and, if so, the nature and extent of that differential. We accept, however, that the insurance status of properties was not an irrelevant factor.”

The Supreme Court also noted that the “main purpose of the Canterbury Earthquake Recovery Act is to provide for the recovery of greater Christchurch communities.” They said that:

“The red zone decisions were made on a community wide basis and this suggests a whole of community approach, rather than separating out particular individuals or groups for differential treatment in a manner that does not support recovery.”

In addition, there is “no doubt that the living conditions in the red zone have severely deteriorated over the last three years”. The Supreme Court stated that:

“on the issue of delay, we consider this was a relevant factor that should have been taken into account.  The situation in the red zones had deteriorated.  Many of the June 2011 offers had been accepted and the properties vacated.  The fact that the September 2012 decisions were being taken against a totally different backdrop to that pertaining in June 2011 should have been considered.”

The Supreme Court therefore made the same decision as the Court of Appeal, and made a declaration that the decisions relating to the uninsured and uninsurable in September 2012 were not lawfully made, and that the Minister and the chief executive should be directed to reconsider the decisions in light of this judgment.

What happens now?

The Government will remake the decision regarding any offer to be made to the owners of vacant land or uninsured residential properties in the red zone.  This new decision will need to address the circumstances as they now are, and therefore may take into account the delay in making the offer, and the hardship caused by the depopulation of the red zone during that time, particularly in relation to the running down of local infrastructure and amenities.

Any new offer will need to be made under section 53 of the CER Act, and therefore will also have to take into account the purposes of the CER Act.

Hopefully the decision for an offer to the owners of vacant land or uninsured residential properties in the flat land red zone will be accompanied by, or soon after followed by, an offer to vacant land or uninsured residential properties in the Port Hills red zone, who are still yet to receive an offer.

A copy of the decision is available here: http://www.courtsofnz.govt.nz/cases/quake-outcasts-and-fowler-v-minister-for-canterbury-earthquake-recovery/at_download/fileDecision

For more information please contact:

Ayleath Foote, Partner
d: +64 3 372 6409
m: +64 21 930 744
ayleath.foote@duncancotterill.com

Richard Lang, Partner
d: +64 3 379 2430
m: +64 21 226 3041
richard.lang@duncancotterill.com

Jonathan Forsey, Special Counsel
d:+64 3 372 6454
m: +64 21 905 512
jonathan.forsey@duncancotterill.com

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose

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