Red zone uninsured payouts 'unlawful'

The Government must now reconsider its 50 per cent offer to owners of uninsured Christchurch red zone properties after the Court has deemed the payout unlawful.

In an partial overturn of the High Court’s ruling, the Court of Appeal found the creation of Christchurch’s quake-hit red zone was legal, but maintains the Government’s 50 per cent offer for uninsured property was not.

Following the devastating Christchurch earthquake in February 2011, the Government identified areas “damaged beyond practical and timely repair” and established a red zone in these worst-affected areas.

In August, Fowlers Developments and 46 uninsured red zone property owners, calling themselves the Quake Outcasts, won a judicial review of the Government's establishment of the red zone and its offer to buy uninsured properties and empty sections at 50 per cent of the land valuation.

The Quake Outcasts said the “systematic” shutdown of residential areas was a breach of human rights, and that a 50 per cent payout for uninsured properties should be increased to 100 per cent, to match the offer for insured properties.

Cabinet did not think it was authorising legislation in creating the red zone, and argued that the offer of half the land valuation was generous, as land was likely to be worth just 10 per cent of its rateable value after the quake.

But the High Court found the Government wrong on both counts, after Justice Graham Panckhurst ruled the 50 per cent offer was unlawful and should be revised, and deemed the red zoning itself unlawful.

Earthquake Recovery Minister Gerry Brownlee immediately announced plans to appeal.

In a judgment released today, the Court of Appeal backed Justice Panckhurst's ruling on the 50 per cent offers, but disagreed the creation of the red zone was unlawful, saying that it was simply a “dissemination of accurate information about areas where land damage had occurred”, and not a breach of property owners’ legal rights.

In June 2011, the Crown offered to pay owners of insured red-zoned properties either 100 per cent of the properties’ 2007 capital rating valuation, with all earthquake insurance claims being assigned to the Crown, or, 100 per cent of the 2007 land rating valuation, with the landowner retaining their insurance claims.

The Cabinet Business Committee then resolved to make offers to owners of vacant land in the red zone (which could not be insured) and uninsured residential properties. In November 2012, it offered a 50 per cent payout of the 2007 land rating valuation only.

Many of the Quake Outcasts and Fowlers owned empty sections, meaning they did not have the option of insuring their properties.

Stephen Rennie, lawyer for Fowlers Developments, said the Government should have offered 100 per cent of the rateable value of vacant land, as it did for insured properties, because the owners did not have the option of insurance.

"[Vacant land] is uninsurable, not uninsured," he said.

Fifty per cent was an "arbitrary" figure, a "stab", and did not achieve the purpose for which it was offered – that is, to enable people to "move on", Rennie said.

Prime Minister John Key has previously said revising the offer could set a precedent for other disasters.

"What do we do when there is an uninsured landslip later in the year because of a flood somewhere? Those landowners will say, 'But you paid out in Christchurch'," Key said.

"It's not easy for the Government."

The Appeal Court judgement found:

- The red zone was lawfully created

- The decision to make offers to purchase the properties of owners of vacant land and owners of uninsured improved properties was not lawfully made, “because it did not properly address the purposes of the Canterbury Earthquake Recovery Act 2011” - that is, to “engage with the purpose of enabling people to recover from the earthquakes”.

Fairfax Media