The Insurance Council of Nz Incorporated v Christchurch City Council v University of Canterbury v Body Corporate 423446 (Oxford Body Corporate)

• Jurisdiction: New Zealand
• Judge: Panckhurst J
• Judgment Date: 04 February 2013
• Neutral Citation: [2013] NZHC 51
• Docket Number: CIV 2012-409-2444
• Court: High Court
• Date: 04 February 2013

Between

The Insurance Council of NZ Incorporated

Applicant

and

Christchurch City Council

Respondent

And

University of Canterbury

Second Respondent

And

Body Corporate 423446 (Oxford Body Corporate)

Third Respondent

[2013] NZHC 51

Court:

Panckhurst J

CIV 2012-409-2444

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

Application for judicial review of the respondent's Earthquake-Prone, Dangerous and Insanitary Buildings Policy 2010 on the basis it was unlawful, invalid and overreached the respondent's statutory powers under the Building Act 2004 (“BA”) — applicant claimed the policy allowed the respondent to require strengthening of earthquake — prone buildings to a level higher than that prescribed in regulations made under the BA — concerned that costs of earthquake repairs for building owners would be increased and they would claim against their insurers — whether the respondent could require building owners to carry out work on an earthquake-prone building only to the level necessary to reduce or remove the danger that rendered the building earthquake-prone under s124 BA (powers of territorial authorities in respect of earthquake — prone buildings — work can be ordered to reduce or remove the danger).

counsel:

D J Goddard QC and T A Spinka for Applicant

DJS Laing and J A Cheyne for First Respondent

T C Weston QC and A D McBeath for Second Respondent

C A McVeigh QC and S T Cottrell for Third Respondent

JUDGMENT OF Panckhurst J

An application for judicial review

1 The applicant, the Insurance Council of NZ Incorporated (ICNZ) seeks judicial review of a policy of the Christchurch City Council (the Council), the Earthquake–Prone, Dangerous and Insanitary Buildings Policy 2010 (the Policy). ICNZ claims that the Policy is unlawful and invalid, at least in part, because its terms overreach the Council's statutory powers under the Building Act 2004 (the Act). In particular, the applicant claims that the Policy provides that the Council can require the strengthening of earthquake-prone buildings to a level higher than that prescribed in regulations made under the Act.

2 The concern of ICNZ is that the Policy, if allowed to stand, will result in buildings damaged in the Christchurch earthquakes being strengthened beyond the level at which they are defined as earthquake-prone. This will increase the cost of earthquake repairs for building owners, who will in turn seek to claim against their insurers. The estimated increase to the repair bill of insurers may be several hundred million dollars.

3 The Council contends that the terms of the Policy reflect a proper exercise of the statutory power conferred under the Act. Despite the magnitude of the sum potentially at stake the issue for determination, one of statutory interpretation, is within a relatively narrow compass.

The Proceeding: The Parties

ICNZ

4 ICNZ is a long established industry organisation which represents insurers who write approximately 95% of New Zealand's property and casualty insurance business. Members of ICNZ have been asked to indemnify building owners holding material damage insurance policies for the cost of strengthening earthquake damaged buildings to 67% of the new building standard. The insurers consider they are only liable to indemnify up to 34% of that standard. Material damage policies commonly provide indemnity for the cost of reinstatement of a property to its pre event condition, but including the cost of repairs necessary to comply with any law. Hence, whether as a matter of law seismic strengthening must be to 67% of the new building standard, or only to 34%, is of vital concern to both the insured and the insurer.

5 An affidavit sworn by John Lucas in support of ICNZ's case records that an impasse has developed concerning the level of seismic strengthening that may be legally required by the Council. As a result repairs to some earthquake damaged buildings in Christchurch are on hold. Building owners are reliant upon indemnity from their insurers, but the extent of insurance cover is in doubt. ICNZ further anticipates that if seismic strengthening to 67% is required the cost of reinsurance will increase and the willingness of reinsurers to invest in the New Zealand insurance market may be compromised.

The Council

6 Three affidavits were filed on behalf of the Council; from Christian van den Bosch (the Engineering Services Manager), Stephen McCarthy (the Resource Consents and Building Policy Manager) and John Hare (an earthquake engineer). These outline the history of the Policy and explain the Council's approach to its implementation.

7 A Policy was adopted by the Council in May 2006. Section 132 of the Act required that the initial policy be reviewed within 5 years and this was in train at the time of the first Christchurch earthquake on 4 September 2010. On 10 September 2010 the new Policy was adopted, at an extraordinary meeting of the Council. I shall refer to the aspects of the Policy which are challenged shortly.

8 Applications for a consent to effect building repairs must be accompanied by plans and specifications. If the building is earthquake-prone the Council also requires the applicant to provide an engineering assessment. Although the Policy identifies 67% of the new building standard as the preferred level of seismic strengthening, this is an aim of the Council not a fixed requirement. Invariably, a process of negotiation follows. The extent of the damage, the level of danger posed by the building, the cost of repairs and the use to which the building is to be put all influence the Council's assessment of the strengthening required in an individual case. The capacity of a building, expressed as a percentage of the new building standard, is but one part of the exercise. Many buildings, particularly older ones, are a danger to occupants, pedestrians and others on account of the danger posed by specific parts of the building – facades and chimneys for example – as opposed to their structural strength.

9 The negotiation process enables a compromise to be achieved between risk reduction and affordability. The primary concern of Council staff in assessing a strengthening proposal is whether the particular risks associated with the building have been assessed and addressed, not whether the proposal attains the 67% standard, although this remains the preferred outcome.

10 In practice owners want their buildings strengthened to the 67% threshold or more. Strengthening to this level is perceived as good practice, better addresses risk and is therefore commercially advantageous. To date the Council has not issued any notices under s 124 of the Act requiring work to be carried out on an earthquake-prone building. Any issues in relation to the necessary level of strengthening have arisen in the context of negotiations between the Council and building owners.

11 In June 2012 ICNZ wrote to the Council with regard to the content of the Policy, and of a supporting protocol and guidance material provided to building owners. These contained a focus upon strengthening to a level of 67% as the Council's preference and aim. ICNZ said that the Council's approach impacted in relation to the dealings between insurers and building owners concerning the extent of insurance cover under individual policies. ICNZ questioned whether strengthening above 34% could be insisted upon. An exchange of correspondence followed involving solicitors in the latter stages. The Council maintained that s 124 of the Act was susceptible of “different interpretations”.

12 In early November 2012 this application for judicial review was filed. Helpfully, the parties have co-operated to ensure that the application could be heard promptly, given the need for certainty concerning the extent of the Council's powers as the Christchurch rebuild gathers momentum.

The University and Oxford

13 The University of Canterbury and Body Corporate 342446 (Oxford Body Corporate) were added as second and third respondents subject to the understanding that they will not receive or be liable for costs. The University and Oxford have filed affidavit evidence that details engineering aspects and highlights the practical significance of the dispute from their individual perspectives.

14 Jeffrey Field (the Registrar) described the impacts upon the University “of the 34/67% issue”. The University campus contains about 240 buildings, all of which suffered some degree of earthquake damage. Some buildings have been demolished, others are in the course of repair. The University Council is committed to repairing buildings to a minimum of 67% of the new building standard, provided this is technically and economically feasible. It considers that a rebuild to this standard is necessary if the University is to recoup student numbers following a 13% decline in 2011, including an even larger reduction in full fee paying international students. The University has comprehensive insurance cover and anticipates making claims of the order of $500 million, but is also budgeting upon expenditure of a similar sum from its own money. It is estimated that the differential between insurance cover to 34% strengthening, as opposed to 67%, is about $140 million.

15 Oxford provided affidavit evidence from Robin Hughes (a member of the body corporate), David Harris (a registered valuer) and Dr Grant Wilby (an engineer). The Oxford is a 10 residential apartment building in the central city area, built in 2005. It was damaged in September 2010 and suffered further damage in the February 2011 earthquake. The apartments have not been occupied since that time. Dr Wilby considers that the building is earthquake–prone as defined in s 122 of the Act. He thinks that not only does the building require strengthening to 67% of the new building standard, or higher, but that there is also a need for design modifications to provide...