New Zealand: Judgment summary - earthquake damage - University of Canterbury v The Insurance Council of New Zealand Incorporated and others

[2014] NZSC 193

This appeal concerned the extent to which the Christchurch City Council was entitled, under the Building Act 2004, to require the strengthening of earthquake-prone buildings (being a building under 34% of code, or new building standard).

The case began in the High Court with a judicial review of the Christchurch City Council's Earthquake–Prone, Dangerous and Insanitary Buildings Policy 2010, which required earthquake-prone buildings to be strengthened to 67% of code, rather than the alternative 34% of code argued by insurers.

High Court decision

In the High Court, Justice Panckhurst found that the Council cannot issue a policy which requires buildings to be brought up to 67% of code. However, they can require buildings to be brought up to 34% of code, and require any other specific work to reduce or remove specific vulnerabilities of a building.

The declarations made were:

"The Court grants a declaration that in issuing a notice in respect of an earthquake prone building under s 124 of the Building Act 2004 the Christchurch City Council cannot require a building owner to take steps to increase the seismic strength of the building to a greater extent than is necessary to ensure that the building will not have its ultimate capacity exceeded in a moderate earthquake as defined in clause 7 of the Building (Specified Systems Change the Use, and Earthquake-prone Buildings) Regulations 2005."
and
"The Christchurch City Council in issuing a notice in respect of an earthquake-prone building under section 124 of the Building Act 2004 can require a building owner to carry out work on a building to reduce or remove specific vulnerabilities capable of causing injury, death or property damage that arises in or from the building."

The University of Canterbury appealed that decision, and the Insurance Council cross-appealed in relation to the second declaration.

Court of Appeal decision

The Court of Appeal described the issue to be considered as follows:

"The question is whether the Act conferred on councils such as the City Council the power to require strengthening work beyond one-third and up to 67 per cent of the NBS. If it did the policy was lawful. If not it was unlawful. Panckhurst J approached the application, rightly in our view, as raising an issue of statutory interpretation. What power was conferred by the Act to require works to a particular standard? Panckhurst J concluded that the City Council in enacting a policy whereby it could require earthquake strengthening beyond 34 per cent had acted unlawfully and gone beyond the authority conferred on it by the Act."

The decision of the Court of Appeal was that:

"the standard set out in reg 7 [being the 34 per cent requirement] must be applied to any earthquake policy and a failure to meet that standard must be shown before as 124 notice requiring work on a building can issue. A building is therefore only earthquake-prone and susceptible to any such policy or notice if it will have its ultimate capacity exceeded in a moderate earthquake that is of the same duration but 34 per cent as strong as the NBS, and in addition be likely to collapse...The City Council is not given the power to require work to a higher standard than 34 per cent of the NBS."

In relation to the second declaration, the Court of Appeal said that any interpretation of that declaration as requiring work beyond the 34 per cent standard would be inconsistent with the first declaration. Instead, it simply addresses the issue of where only some parts of a building are below the 34 per cent standard.

The Court of Appeal decided that the second declaration provided relief that was beyond that sought in the original proceedings, and was on its terms confusing and added nothing to the original declaration. The Court of Appeal therefore quashed the second declaration.

The Court of Appeal therefore dismissed the University's appeal. This decision was then appealed to the Supreme Court.

Supreme Court decision

The Supreme Court granted leave to appeal on the following question:

"Where a building is an earthquake-prone building in terms of s 122(1) of the Building Act 2004, is a council entitled under s 124(1)(c)(i) of the Act to require the building to be strengthened to an extent greater than is necessary to ensure that the building will not have its ultimate capacity exceeded in a moderate earthquake (as defined in reg 7 of the Building (Specified Systems, Change the Use and Earthquake-prone Buildings) Regulations 2005)?"

In layman's terms, the question for the Supreme Court to determine is whether the council can require an earthquake-prone building to be strengthened to a standard higher than 34% of code.

The Supreme Court decided that to answer the question, they first needed to determine the meaning of the two limbs of the test for an earthquake-prone building in section 122 of the Act, and they then needed to decide what was required to "reduce or remove the danger" in relation to an earthquake-prone building.

Section 122 says:

122 Meaning of earthquake-prone building
  1. A building is earthquake prone for the purposes of this Act if, having regard to its condition and to the ground on which it is built, and because of its construction, the building:
    1. will have its ultimate capacity exceeded in a moderate earthquake (as defined in the regulations); and
    2. would be likely to collapse causing:
      1. injury or death to persons in the building or to persons on any other property; or
      2. damage to any other property.

The Supreme Court agreed with the Insurance Council's submission that section 122(1) should be "interpreted as a single (long) sentence that the drafter has broken into parts to improve its readability", and that "it is clear that s 122(1)(b) is referring to the likelihood of collapse in a moderate earthquake".

They decided that:

"In our view, if Parliament had intended that the likelihood of collapse referred to in s 122(1)(b) was a likelihood of collapse in any earthquake, including an earthquake more serious than a moderate earthquake, Parliament would have made specific reference to this in s 122(1)(b). We think it is much more logical that, as Mr Goddard put it, s 122(1) should be interpreted as one complete sentence, which has been divided into components for ease of reading. When read on that basis, it is clear that the standard set by s 122(1) is whether the building meets the 34 per cent of NBS benchmark in a moderate earthquake and whether it is likely to collapse in a moderate earthquake. The fact that this standard is not a standard that meets all safety objectives does not, in our view, count against that interpretation. Rather, it demonstrates that Parliament has provided that the power given to a territorial authority under s 124 is limited in its application to buildings that fail to meet the minimum standard set out in s 122(1) and is exercisable only to the extent necessary to bring a building up to that minimum standard."

Section 124 provides:

124 Dangerous, affected, earthquake-prone, or insanitary buildings: powers of territorial authority
  1. This section applies if a territorial authority is satisfied that a building in its district is a dangerous, affected, earthquake-prone, or insanitary building.
  2. In a case to which this section applies, the territorial authority may do any or all of the following:
    1. except in the case of an affected building, issue a notice that complies with section 125(1) requiring work to be carried out on the building to:
      1. reduce or remove the danger; or
      2. prevent the building from remaining insanitary:

The majority of the Supreme Court held that the danger to be reduced or removed are the characteristics that make the building earthquake-prone. They said:

"It is unlikely that Parliament would have intended to choose a threshold of 34 per cent of NBS (and likely to collapse) but then provide that the remedial power of a territorial authority can require a very significant upgrading of the building to a level up to 67 per cent of NBS (or, conceivably, even higher). We do not think Parliament could have intended that a territorial authority could require a building that is at 30 per cent of NBS to be upgraded to 67 per cent of NBS (or an even higher standard) while no remedial action at all could be required in relation to a building that is at 35 per cent of NBS. Mr Weston acknowledged that this could be seen as unusual, but argued that it may simply reflect an intention on the part of Parliament to target the very worst buildings for remedial action, while at the same time allowing a territorial authority to ensure that the remedial action was of sufficient scope to make buildings safe not just in a moderate earthquake but in any earthquake. We consider that to be unlikely."

The Supreme Court therefore answered the question before it as "no", resulting in a decision that the council cannot require an earthquake-prone building to be strengthened to a standard higher than 34% of code.

A dissenting opinion

Justices Glazebrook and Arnold delivered a dissenting judgment, which arrived at the same result, but for different reasons. They were of the opinion that, in relation to the danger referred to in section 124:

"the more natural meaning of the words is that the danger referred to is the likelihood of collapse in a moderate earthquake. Consequently, it is the danger posed by the likelihood of collapse to which the work ordered by the territorial authority must relate."

Their answer to the question before them was:

"The remedial work required by the territorial authority must be such as to "reduce or remove" the danger (ie the likelihood of collapse in a moderate earthquake). If the particular characteristics of a building are such that it is necessary to order work that would take the building above 34 per cent of the new building standard to reduce or remove that danger, then the relevant territorial authority is entitled to require the owner to carry out that work."

A copy of the decision is available here: http://www.westlaw.co.nz/maf/wlnz/app/blob?blobguid=I55950c40959311e480a69619c9f10308&file=Judgment_Text.pdf

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