New Zealand: Judgment summary - CERA v Fowler Developments Ltd and Quake Outcasts

[2013] NZHC 2173, [2014] 2 NZLR 54, (2013) 7 NZ ConvC 96-005

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

The genesis of the proceedings was the making of offers by the chief executive of the Canterbury Earthquake Recovery Authority (CERA) to purchase either vacant land, or uninsured residential properties, for 50% of the 2007 rating value of the land.

During the hearing the declarations sought were reformulated. The relief sought was:

  1. " A declaration that "neither the declaration of the red zone, nor the subsequent offers made by the Crown in those zones affect the existing rights at law of residential occupation of property owners in those zones.
  2. The decision(s) of the respondents to offer to purchase the properties of the Quake Outcasts are set aside, and the matter is remitted to the Ministers and chief executive who made the decisions to make new decisions to offer to purchase the properties in accordance with law, requiring them under s 4(5)(b) of the Judicature Amendment Act 1972 to make such decisions in accordance with the following directions. The decisions should:
    1. be in accordance with the purposes of the CER Act, particularly the need to ensure that affected communities recover from the impacts of the earthquakes; and
    2. have regard to:
      1. recognition that a market for the properties as residential properties no longer exists;
      2. the previous use of the 2007 RV as a basis for acquisition;
      3. the cost of acquiring an equivalent replacement property;
      4. the individual circumstances of the property owners; and
      5. the reasons for the Court's judgment."

Justice Panckhurst considered that there were three main issues to consider:

  1. Does the creation of the red zone and the making of buy-out offers to property owners within the zone affect the property rights of the applicants?
  2. Should the decision(s) which resulted in the chief executive making 50% offers to property owners in the red zone be set aside?
  3. If so, what form of relief is appropriate, if any?

Are the property rights of owners within the red zone adversely affected?

Justice Panckhurst acknowledged the decision of Asher J in O'Loughlin v Tower Insurance Limited [2013] NZHC 670, which noted that the red zone did not stop people from continuing to live in the red zone, and did not prohibit the building or repairing of homes in the red zone, and said that he did "not disagree with these observations as far as they go", but noted that they were made in a very different context.

He said that:

"The decisions must, I think, be viewed as a package. There were four elements: the zones, the purchase offers, the announcement and the clearance strategy – although this last element was revealed post-announcement, and only gradually. In combination the package was essentially destructive of the residential zoning designations of the red zone land. In reality the decisions meant that over time the red zone would cease to be residential, and would become open space. In the meantime, the residential zones under the district plan subsisted, but in reality were no longer operative."

Justice Panckhurst then decided that:

"The use and enjoyment of one's home is a fundamental human right. In my view the creation of the red zone comprised an interference with that right. Whether that interference was arbitrary and unlawful depends on whether the red zone decision had to be made pursuant to the Act, a question to which I now turn."

Prerogative powers

It has long been established that prerogative powers can be displaced by the enactment of statutory powers in favour of the Crown. In Attorney-General v De Keyser's Royal Hotel Limited [1920] AC 508, Lord Dunedin said:

"... it is equally certain that if the whole ground of something which could be done by the prerogative is covered by the statute, it is the statute that rules. On this point I think the observation of the learned Master of the Rolls is unanswerable. He says: "What use would there be in imposing limitations, if the Crown could at its pleasure disregard them and fall back on prerogative?"

The decision to implement the red zone and to make offers to purchase the properties in the red zone was made by Cabinet, on the advice of an ad hoc group of Ministers including the Prime Minister and the Minister for Canterbury Earthquake Recovery.

However, prior to the decision being made, the Canterbury Earthquake Recovery Act 2011 (the CER Act) was already in effect. The CER Act included (at section 11) the requirement for the development of a Recovery Strategy, which was to be "an overarching, long-term strategy for the reconstruction, rebuilding, and recovery of greater Christchurch" which should address, among other things, "areas where rebuilding or other redevelopment may or may not occur, and the possible sequencing of rebuilding or other redevelopment". Section 27 of the CER Act allowed the Minister to suspend, amend or revoke a range of controls, including resource management and local government controls. Section 53 allows the Chief Executive to purchase property in the name of the Crown, and section 54 allows the Minister to compulsorily acquire property. Section 10 requires that the Minister and the Chief Executive exercise their powers in accordance with the purpose of the CER Act.

Justice Panckhurst decided that the De Keyser test is met in this case. He said:

"I doubt that there could be a clearer case of express statutory powers conferred on the Crown in a well defined field than this. It follows in my view that the Minister was obliged to invoke section 27 in order to define and create the red zone."

The red zone decision therefore should have been made pursuant to the CER Act, and not as a decision of Cabinet.

Should the red zone decisions be set aside?

Neither of the applicants any longer sought to have the red zone decisions set aside. Justice Panckhurst 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 property owner applicants in the proceeding CIV-2013-409-000843 (the 'Outcasts')."

This declaration is limited to the members of Quake Outcasts.

Should the uninsured and vacant land offers be set aside?

Justice Panckhurst said that:

"The finding, and reasoning, relating to the creation of a red zone is of equal application to the September 2012 decision to make 50 percent offers to the applicants. Following the Committee meeting the Minister made a public announcement and then the chief executive invoked s 53 to make purchase offers, but there was no deliberative process as required under s 10 and the Act generally. Both simply proceeded to implement a decision made in Committee. In my view, it inevitably follows that the essential decision was made outside of, and without regard for, the statutory regime and was not made according to law."

The main arguments raised in relation to the 50% offer were that they were de facto compulsory acquisition offers, the "moral dilemma" argument (that to provide compensation for the uninsured would encourage people not to insure), and the lack of even-handedness with those who received 100% offers.

Justice Panckhurst said that the compulsory acquisition argument was "not particularly helpful". Previous cases had determined that "compulsory taking occurs only when a land owner is compelled to transfer rights under protest and with no choice" (Waitakere City Council v The Estate Homes Limited [2007] 2 NZLR 149 (SC)).

The moral dilemma argument was accepted by Panckhurst J as seeming like "a legitimate factor to take into account", but "it was a blunt instrument because no distinction was drawn between those who made a deliberate election to be uninsured and those who were uninsured through no fault of their own, including because insurance cover was unobtainable".

Justice Panckhurst did consider that the lack of even-handedness argument had "considerable merit":

"Clearly, the main impetus for the June 2011 decision to make 100 percent offers to insured property owners was the need to provide certainty and create the confidence necessary to enable people to move on with their lives, given that "many people have their life savings tied up in their homes", to borrow the Prime Minister's phrase.

...

Yet it is apparent that payments of 50 percent of the land rating value will not enable many property owners to make a fresh start... I am satisfied that the plight of this relatively small group has not been adequately considered in light of the purposes of the Act."

He therefore decided to make a direction to reconsider the 50% offers made to the applicants, and to make a fresh determination in accordance with the CER Act. The formal orders made were:

"A declaration that the decision to offer to purchase the properties of the applicants on the terms announced by the Minister on 13 September 2012 was not made according to law and is set aside, as are the offers subsequently made to the applicants by the chief executive.

A direction that the Minister and the chief executive reconsider and reach a new decision to purchase the applicants' properties, such decision to be made in accordance with law

  1. as required by the purposes and principles of the Canterbury Earthquake Recovery Act 2011, and
  2. with regard paid to the reasons contained in this judgment."

What now?

The Government is currently considering whether to appeal this decision. An alternative that they have raised is that they could simply withdraw the offers for uninsured or vacant land, leaving the home-owners to deal with their land as they choose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Stephanie Grieve
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