New Zealand: More earthquake recovery cases develop public law principles

Last Updated: 16 April 2015
Article by Nick Crang

Two recent Court decisions on earthquake recovery matters also deal with important public law issues on the third source of government power and the use of declaratory judgements.

Third source of power not a constitutional blank cheque

The Supreme Court has limited the scope of the Government's third source of power - at least in making decisions on the recovery from the Canterbury earthquakes - in its recent Quake Outcasts decision. The decision also provides helpful guidance on distinguishing between implied legal powers of the Government and unlawful coercive action.

Generally, public bodies performing functions must be justified in so doing by positive law. However, it is not always necessary for that power to be conferred explicitly and the Courts recognise that the Government has the same liberties as an ordinary person (for example, in the signing of contracts). This is often called, "the third source of power".

Previously, in the Quake Outcasts case, the Court of Appeal held that the third source of power allowed the Government to make red-zoning decisions outside of the Canterbury Earthquake Recovery Act 2011. The Court of Appeal held that the Government has a general power to act, in addition to statutory powers or the prerogative, unless its actions would contravene statute or common law.

The Supreme Court overturned the Court of Appeal's decision by a majority and held that the Government had made errors in its red-zoning decisions and in its offers to owners of insured and uninsured land in the red zone in Christchurch. For a summary of the Supreme Court decision and the earlier Court of Appeal and High Court decisions, see here .

The Supreme Court's decision is important for the affected property owners, and also for others still seeking compensation in Christchurch, particularly property owners in the Port Hills. The Government is now reconsidering its offers. The Supreme Court decision is also important for what it says about the third source of power.

The general power of the Government to act under the third source of power is not difficult to accept; it is what the Government relies upon to get on with its day to day business. The controversial aspect of the Court of Appeal's decision was that the third source of power was held to apply to a decision as significant as the zoning decision and was not displaced by the Canterbury Earthquake Recovery Act.

The Supreme Court implicitly accepted the existence of the third source of power in general, but held that the Canterbury Earthquake Recovery Act excluded the third source of power in the case of the zoning decision and, contrary to Crown submissions, the offers to property owners. Its reasons included that:

  • the title of the Act indicated it was to be for matters relating to recovery from the Canterbury Earthquake;
  • the purposes of the Act demonstrated the same focus, and were comprehensive;
  • the Act set out the powers and duties of the Minister and the Canterbury Earthquake Recovery Authority in detail, and included
  • consultation requirements and other safeguards on the exercise of those powers which indicated an intention for all decision-making to be under the Act;
  • the requirement in the Act for an overreaching Recovery Strategy indicated that the Act was intended to cover all recovery matters; and
  • the legislative history of the Act demonstrated that the Act was intended to be the vehicle, and the only vehicle, for major earthquake recovery measures.

Even in situations where the Government's actions do not outright contradict existing legislation or the prerogative, the case highlights that the third source of power could still be excluded, if there is a particular public significance to a decision and/or there is an established legislative framework governing a matter.

In its judgment, the Supreme Court said that it did not intend to comment on the existence or extent of the third source of power in other circumstances. However, the factors it examined will clearly be useful in other cases to determine whether the third source of power can be relied on as a basis for Crown action.

Earthquake Commission declaratory judgment – a secure foundation for public decisions?

When exercising statutory powers, can public bodies ever fully protect their decisions against subsequent review by the Courts? A recent High Court case provides guidance on the extent to which public bodies can insulate themselves from future legal challenges through declaratory judgments.

The decision in EQC v Insurance Council of NZ Incorporated [2014] NZHC 3138 illustrates the use of declaratory judgments for bodies that exercise statutory powers. The remedy is most often sought where the scope of legal rights is unclear. The use of declaratory judgments by statutory decision-makers is more unusual.

The background to the application by the Earthquake Commission was the phenomenon known as "Increased Flooding Vulnerability", which arose from the series of earthquakes which struck the Canterbury region in 2010 and 2011. "Increased Flooding Vulnerability" describes the changes in land levels resulting from seismic shifts, which have left many dwellings more prone to flooding than they were prior to the earthquakes.

The Earthquake Commission Act 1993 requires the Commission to provide compensation to those who can show that their property has suffered damage (and the quantum of that damage) as a result of a natural disaster. The Commission's role is to discharge the statutory scheme of insurance established by the Act, which operates in parallel to private contracts of insurance.

The Commission proposed a claims policy to assist in making decisions on claims for Increased Flooding Vulnerability. The policy included a methodology, devised by engineers and valuers, to assess whether a property had been affected by Increased Flooding Vulnerability; whether that increased vulnerability would adversely affect the land, amenities and valuation of the insured property; and to calculate the resulting lower value of the property.

Aware of the risk that determinations based on the policy could be subject to legal challenges, the Commission sought advance sanction of the policy from the High Court.

Apart from its importance for claimants under the policy, the case illustrates the usefulness of declaratory judgments for statutory decision-makers. The fundamental question at issue concerned whether the Court could properly invoke its declaratory jurisdiction to pre-approve a policy, which would subsequently be applied in individual decisions.

In spite of the Court's reasonably narrow jurisdiction to make declaratory judgments, the preconditions for making a declaration, that there was a genuine dispute and sufficient concrete facts, were met.

The Court then had to consider whether the proposed policy could validly be made, and subsequently applied, under the Earthquake Commission Act. The Court said that it could, seeing the proposed policy as setting guidelines on the factors that the Commission would consider in assessing claims under the Act for Increased Flooding Vulnerability, over which the Commission had some discretion. Given the potential for a large number of claims, the Court found that the policy could assist the Commission in fulfilling its public law obligation to treat claimants consistently, in accordance with their entitlements – for instance, through a framework which incorporates a decision tree for assessing claims.

However, the Court was concerned that approving the policy could result in those responsible for dealing with multiple claims, at an operational level, applying the policy too strictly. The Court noted, consistent with standard public law principles, that:

  • The Commission must always consider the particular circumstances in the case of each claimant – the standardised methodologies must not be applied mechanically by Commission staff.
  • The guidelines must serve only to inform a good faith determination about whether there has been such natural disaster damage and must not limit from consideration other factors that are relevant to any particular case.
  • The guidelines could assist in determining eligibility and quantum of compensation available to a claimant, but should not exclude other factors that are relevant.
  • Most importantly, the guidelines must not fetter the Commission's use of discretion in exercising its statutory powers.

In making the declaration, the Court also noted that a claimant is still entitled to challenge the Commission's decision on his or her particular claim, by way of an ordinary proceeding, judicial review or both.

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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Nick Crang
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