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The Canterbury earthquakes and their legal aftermath

22 February 2016 - By James Greenland

The devastating series of earthquakes that rocked Christchurch during the summer of 2010/11 shook up some interesting legal issues, observes Court of Appeal Justice Stephen Kós.

Delivering a speech entitled "Disaster & Resilience: The Canterbury earthquakes and their legal aftermath" (available here) at the Supreme and Federal Court Judges Conference in Brisbane in January, Justice Kós recounted the 185 lives lost, the estimated $40 billion cost of rebuilding, and the 857 days during which Christchurch's usually bustling CBD was cordoned off to the public.

Executive response

His Honour further detailed the Executive Government's response to the state of emergency, officially declared the day after February's deadly quake.

The Canterbury Earthquake Recovery Act 2011 was passed, replacing legislation drafted after earlier tremors in 2010. And the Canterbury Earthquake Recovery Authority (CERA) was established by order in council.

Land was zoned- Red, Green, Orange, White – based on degree of land damage, and cost-effectiveness of rebuilding. CERA offered to purchase properties that were red-zoned. The Executive's intention, said Justice Kós, was to "encourage people to move out of red-zoned areas and withdraw services".

"But the red zones did not actually prohibit repair or rebuilding, or continued occupation."

The Earthquake Commission (EQC) – established in 1945 as a statutory insurer – also played a pivotal role.

Several legal issues arose from ECQ's role, his honour noted.

  1. What was the meaning of "natural disaster damage"?
  2. Did the Act provide separate insurance cover for separate seismic events?
  3. How did private insurers' and ECQ's responsibilities overlap?
  4. How could EQC's decisions be challenged by homeowners (EQC contended this could only be done by judicial review)?

Judicial response

Significant litigation ensued, the volume of which was made even more difficult to manage by the lack of a safely standing and functional courthouse – the District and High Courts both having been cordoned off.

Lawyers, judges and the public made do.

Registry staff, about 100, piled into an empty commercial building described as a "battery hen situation". Hearings were held at a Racecourse, Air Force base, and nearby provincial courts. Criminal jury trials were shifted north and south to Wellington or Dunedin.

By the end of 2011, after doing whatever they could to keep the ramshackle system working, the tower block courthouse in the central city was reopened.

The Chief High Court Judge assured practitioners that earthquake-related cases would be expedited.

The following year a special List was established for such cases, initially overseen by judges from outside of Christchurch, but this year to be repatriated to local members of the judiciary.

By the end of September last year 437 cases had been filed. Eight percent were disposed of by judgment, 40% were discontinued, and 52% were still active. About 27% of active cases were set down for hearing or awaiting judgment.

"Consequences and legitimacy of Executive action"

O'Loughlin

The scope of private insurance cover was discussed in O'Loughlin v Tower Insurance Limited [2013] NZHC 670, after the O'Loughlins' property was red-zoned. They elected to sell their land to the Crown, and pursue their insurer for damage to their home.

An issue arose; did the creation of the red zone itself cause loss or damage to the property, so that the insurer had to provide full replacement cover irrespective of the extent of physical damage to the dwelling?

Asher J held, the red zone only caused economic loss, not physical loss in terms of the O'Loughlins' policy. The red zones did not prohibit building, repair, and habitation and did not require the house to be demolished, therefore the property had not been rendered valueless [at 67]. The insurer was not required to provide full replacement cover.

"Quake Outcasts"

Not all red-zoned property owners were insured. A group of uninsured owners called Quake Outcasts successfully challenged, by judicial review, the government's decision to offer them a land purchase deal that was less generous than that offered to insured property owners.

In Fowler Developments Ltd v Chief Executive of the Canterbury Earthquake Recovery Authority [2013] NZHC 2173; [2014] 2 NZLR 54 Panckhurst J held the decision creating the red zones was not lawfully made. The Minister of Canterbury Earthquake Recovery was obliged to have used his powers under the Canterbury Earthquake Recovery Act – as any prerogative powers had been displaced by the same. He had not followed the statutory procedure, and was directed to reconsider the red zone decision in accordance with the Act.

The Crown appealed, and was successful in part: Minister for Canterbury Earthquake Recovery v Fowler Developments Limited [2013] NZCA 588.

This said: the Red Zones were lawfully created under the Crown's residual freedom to do anything not legally prohibited. Resolutions of Cabinet to make offers to property owners were not reviewable.

The Chief Executive of CERA was still obliged to make decisions with respect to the purposed of the Recovery Act, which he had not done. The reasons given for offering uninsured homeowners a less generous offer than insured homeowners did not accord with the Act's purposes.

However, the Court accepted there was a rational basis for distinguishing between insured and uninsured property owners, and therefore did not consider it appropriate to provide relief against the decision to offer to purchase the uninsured properties.

Finally, the Supreme Court heard an appeal by Quake Outcasts (Quake Outcasts and Fowler v Minister for Canterbury Earthquake Recovery and others [2015] NZSC 27) which was again successful in part.

The issue was: whether it was lawful to create red zones and to distinguish between property owners on the basis of their insurance status?

A majority found the offers made to Quake Outcasts were unlawful. Procedures under the Recovery Act should have been followed in creating the red zones. Public notification and consultations would have been required, under the Act. Further, the insurance status of property owners should not have been determinative of what offer they received, because some uninsured properties had suffered little damage, while other offers to red-zoned property owners would lead to payment above the level of insurance. The Minister was directed to reconsider his offer to uninsured red-zoned property owners.

Independent Fisheries

The scope of the Crown's powers were also at issue in Canterbury Regional Council v Independent Fisheries Ltd [2012] NZCA 601.

Under section 27 of the Recovery Act, the Minister was empowered to amend or revoke any council plan by giving public notice. The Minister proceeded to set a noise contour around Christchurch Airport, and also cancelled a Proposed Plan Change and short-circuited Environment Court litigation.

The Court of Appeal eventually found against the Minister, differing from the High Court slightly in their reasons. The Minister should have considered whether it was necessary to use the section 27 power and should have taken account of alternative ways to achieve the same result. He should have issued a Recovery Strategy under the Act and initiated public consultation.

Considering the previous two cases, Justice Kós said it was "evident that a disaster on this scale requires decision making which deals efficiently with problems affecting large numbers of properties and people".

"But it must be lawful".

While the Minister had been granted extensive powers to manage the recovery, they were not unrestrained. Clear statutory processes that provided for consultation would be enforced.

His Honour noted that after the devastating Napier quake in 1931 the Executive had little difficulty enforcing its decisions. The Crown's two-man commission – a magistrate and engineer – were given extraordinary legislative powers to, broadly-speaking, "get the job done".

In his address, Justice Kós continued to discuss litigation arising in the wake of the Canterbury earthquakes [from 57].

Issues involved the difficulties encountered by and with EQC: delays, disputes about scope of cover, and the relationship between statutory and private insurance.

Difficulties relating the serial, repeating nature of earthquakes also arose. "What happens when properties are damaged, assessed, partially repaired, damaged again, and then finally destroyed?" his Honour posed [67].

Finally, he discussed issues relating to proving the extent of loss and damage [from 71].

Forthcoming reforms

The Building (Earthquake-prone Buildings) Amendment Bill responds to the Royal Commission's final report, Justice Kós said. It will revise the system for managing quake-prone buildings, requiring authorities to undertake seismic capacity assessments for a range of buildings within 5 years [at 75]. Owners of buildings found to be quake-prone will be required to strengthen their property within 15 years.

Last year the Select Committee recommended that owners of property in high seismic risk areas should have less time to do remedial work, and "priority buildings" including hospitals, schools, and the facades of unreinforced masonry buildings (which could topple onto the street, killing pedestrians and even bus passengers, as happened during Christchurch's February 2011 shake).

A discussion paper has been released by Treasury, proposing amendments to the Earthquake Commission Act 1939.

Suggested changes include: doubling the EQC cover cap to $200,000, making EQC land cover only available where rebuilding is not practicable, fixing a standard claims excess, removal of ability to make contents-claims to EQC, and introducing a scheme to review EQC premiums.

"My own experience as an Earthquake List Judge for two years, dealing with the frustrations of split cover, policy terms and assessment, suggests there is a very great deal to be said for at least the following reform: that a single policy cover the whole of the damage; that the private insurer takes responsibility for claims processing and assessment; and that the role of EQC be modified to focus on underwriting, audit, research and education," Justice Kós said [at 79].

"The bifurcation of cover and assessment has heaped needless delay and misery on an already devastated city and its people.

"The resilience of that population in the face of these events has been a remarkable event in its own right."

Last updated on the 16th September 2019