The
46 self-styled Quake Outcasts received little comfort from the Court of Appeal as
owners of uninsured property in the Christchurch “red zone” following their
challenge to offers of a government buyout of their land alone at fifty per cent below rating
valuation. The court did not rule that this
offer breached their human rights or order that the offer be increased. The Court of Appeal simply ruled that
government should review the process of making “red zone” offers to uninsured
owners and follow the proper statutory procedure.
Government response to
unprecedented earthquake damage in Christchurch’s eastern suburbs following the
2010 and 2011 earthquakes created novel legal issues about the correct procedure
to authorise payment of taxpayers’ money in respect of damage to local
authority infrastructure and privately-owned property.
A June 2011 Cabinet
meeting resolved to “red zone” those suburbs where rebuilding in the short to
medium term was not practicable because of severe infrastructure damage. The Court of Appeal ruled this decision could
not be challenged: in general any government has a residual power to do unilaterally
anything which is not otherwise prohibited by law.
It said that while a
“red zone” designation has significant practical impact on affected landowners,
this alone does not discriminate against their rights or liberties.
Evidence was given
that Cabinet decided in June 2011 to offer insured residential property owners in
the red zone a government buyout at full 2007 rating valuation. Those taking up the offer were obliged to sign
their insurance rights over to government.
It was estimated that this buyout would cost up to $1.7 billion, with a
net cost of between $485 million and $635 million after insurance
recoveries. Any decision of compensation
for uninsured property owners was deferred.
It was not until
fifteen months later, in September 2012, that Cabinet reached a decision
regarding uninsured properties, resolving they be offered fifty per cent of
rateable land value only with the right to salvage what they wanted from the
building. Evidence was given of Cabinet’s
reasons against a 100 per cent offer:
full compensation would be unfair on those red zone property owners who
had been paying insurance premiums and created a moral hazard in that there
would be a reduced incentive for people in future to insure privately if they
considered there would be a government bailout following any natural disaster.
The Canterbury
Earthquake Response and Recovery Act was passed in April 2011 providing a legal
mechanism for pushing through the Christchurch rebuild. CERA has wide powers to cut through existing
red tape in implementing a recovery plan. These shortcuts are valid, so long as the
procedure in the Act is correctly followed.
In particular, the focus must be on implementing the recovery and
rebuild.
The Court of Appeal
ruled that CERA’s 100 per cent offer based on the June 2011 Cabinet decision
was valid: it was described as being in furtherance of the recovery. But CERA’s fifty per cent offer on land value alone to uninsured
property owners was not: it was based on the September 2012 Cabinet decision
which focussed instead on issues of equity and moral hazard as between those
insured and those uninsured.
The Court ruled the
fifty per cent offer to be unlawful; not for the amount of the offer but for
the manner in which it was made. There was evidence at an earlier court hearing that market values for land in the red zone would fall by far more than fifty per cent.
The Court of Appeal also
ruled against Quake Outcasts’ claim of discrimination. The Court said government had a rational
basis for discriminating between insured and uninsured residential property
owners. With the 100 per cent offers,
government has a right of recovery against their insurers. There was no equivalent recovery when buying
out uninsured property.
CERA
v. Fowler & Quake Outcasts – Court of Appeal (3.12.13)
13.034