University of Canterbury v The Insurance Council of New Zealand Incorporated

JurisdictionNew Zealand
CourtSupreme Court
JudgeO'Regan J,Arnold J
Judgment Date22 December 2014
Neutral Citation[2014] NZSC 193
Docket NumberSC 120/2013
Date22 December 2014

[2014] NZSC 193

IN THE SUPREME COURT OF NEW ZEALAND

Court:

McGrath, Glazebrook, Arnold, O'Regan and Blanchard JJ

SC 120/2013

BETWEEN
University of Canterbury
Appellant
and
The Insurance Council of New Zealand Incorporated
First Respondent
Christchurch City Council
Second Respondent
Body Corporate 423446 (Oxford Body Corporate)
Third Respondent
Counsel:

T C Weston QC and D A Webb for Appellant

D J Goddard QC and G J Jones for First Respondent

No appearances for Second and Third Respondents

Appeal from a Court of Appeal (“CA”) decision which held that where a building was an earthquake-prone building in terms of s122(1) Building Act 2004 (“BA”) (meaning of earthquake-prone building), a council was not entitled under s124(1)(c)(i) BA (earthquake-prone buildings: powers of territorial authority) to require the building to be strengthened to an extent greater than necessary to ensure that the building would not have its ultimate capacity exceeded in a moderate earthquake, as defined in reg 7 Building (Specified Systems, Change the Use and Earthquake-prone Buildings) Regulations 2005 — what was the meaning of the two limbs of s122 BA (s122(1)(a) will have its ultimate capacity exceeded in a moderate earthquake and s122(1)(b) would be likely to collapse) — what was the definition of “reduce or remove the danger” in s124(2)(c)(i), BA in relation to an earthquake-prone building.

The issues were: what was the meaning of the two limbs of the s122 BA (s122(1) (a) will have its ultimate capacity exceeded in a moderate earthquake and s122(1)(b) would be likely to collapse); and what was the definition of “reduce or remove the danger” in s124(2)(c)(i), BA in relation to an earthquake-prone building.

Held: The definition of the phrase “earthquake-prone building” in s122(1) BA had two limbs. A building would not be earthquake-prone in terms of the section unless both limbs applied to it. The first limb described the capacity of the building, (below the 34 per cent of NBS benchmark). It was important to note that s 122(1)(a) referred specifically to capacity “in a moderate earthquake”. That, in turn, led the reader to the definition of that term in the Regulations.

With regards to the second limb (likely to collapse), the interpretation favoured by the Courts below treated the second component as a consequence of the first: the building was likely to collapse because it did not meet the 34 per cent of NBS benchmark. The purpose of the provision was to limit the ambit of the definition, by excluding buildings that, despite failing to meet the 34 per cent of NBS threshold, were not likely to collapse. This recognised the possibility that not every building that failed to meet the 34 per cent of NBS benchmark would be likely to collapse. That interpretation necessarily treated the likelihood of collapse as arising in a moderate earthquake, because it built on the first limb of the definition.

It was unlikely that Parliament would have enacted s122(1)(b) without any reference at all to an earthquake if that had been its intention. A much more obvious interpretation was that s122(1) BA was to be read as if it were one sentence, with both of the components addressing the situation that would result if a moderate earthquake were to occur.

If Parliament had intended that the likelihood of collapse referred to in s122(1)(b) BA 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 s122(1)(b) BA. It was more logical that s122(1) BA should be interpreted as one complete sentence, which had been divided into components for ease of reading. When read on that basis, it was clear that the standard set by s122(1) BA was whether the building met the 34 per cent of NBS benchmark in a moderate earthquake and whether it was likely to collapse in a moderate earthquake. The fact that this standard was not a standard that met all safety objectives did not count against that interpretation. Rather, it demonstrated that Parliament had provided that the power given to a territorial authority under s124 BA was limited in its application to buildings that failed to meet the minimum standard set out in s122(1) BA and was exercisable only to the extent necessary to bring a building up to that minimum standard.

It was unlikely that Parliament would have intended to choose a threshold of 34 per cent of NBS (and likely to collapse) but then provided that the remedial power of a territorial authority could require a very significant upgrading of the building to a level up to 67 per cent of NBS.

The Court was divided on the meaning of the reference to “the danger” in s124(2)(c)(i) BA. The majority considered that the danger referred to in s124(2)(c)(i) BA was the characteristics of the building that made it an earthquake-prone building as defined in s122(1) BA. The minority considered that the “danger” in s124(2)(c)(i) BA was the fulfilment of requirement (b) of the definition, namely, the likelihood of collapse causing injury to people or damage to property. That was the danger, and it was that to which the remedial work had to be directed, which explained why s124(2)(c) BA did not refer specifically to earthquake proneness. The remedial work required by the territorial authority had to 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 were such that it was 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 was entitled to require the owner to carry out that work.

Appeal dismissed.

JUDGMENT OF THE COURT
  • A The appeal is dismissed.

  • B The appellant must pay the first respondent costs of $25,000 and reasonable disbursements (to be fixed by the Registrar if necessary).

REASONS

Para No.

McGrath, O'Regan and Blanchard JJ

[1]

Glazebrook and Arnold JJ

[67]

MCGRATH, O'REGAN AND BLANCHARD JJ

(Given by O'Regan J)

Table of Contents

Para No

Introduction

[1]

Factual context

[4]

Statutory and policy context

[8]

The Building Act

[8]

The City Council Policy

[22]

NZSEE Recommendations

[24]

Engineering evidence

[26]

Department of Building and Housing policy guidance

[30]

The broader statutory framework

[33]

The High Court decision

[37]

The Court of Appeal decision

[39]

Two stages

[41]

Section 122 of the Building Act

[42]

Section 124 of the Building Act

[50]

The “danger”

[52]

Another approach

[59]

Conclusion

[64]

Result

[65]

Costs

[66]

Introduction
1

This appeal raises an issue of interpretation of certain provisions of the Building Act 2004 relating to earthquake-prone buildings. Leave to appeal was granted on the following question: 1

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)?

2

In broad terms, the Insurance Council of New Zealand Inc says that the answer to the question is “No”. Its position found favour with the High Court, 2 the

of Appeal 3 and the Canterbury Earthquakes Royal Commission. 4 The University of Canterbury argues that a territorial authority is entitled to require that buildings be strengthened to a greater extent than that specified in the question. It accepts that the interpretation that has found favour in the Courts below and with the Royal Commission is an available interpretation, but argues that its proposed interpretation better reflects the statutory context and, in particular, the focus on safety in the Building Act and the instruments that give effect to that Act.
3

We propose to approach the question by first providing the factual context, then setting out the statutory provisions in issue and finally addressing the competing interpretations and the reasons advanced in favour of each of them.

Factual context
4

The present proceedings started as an application for judicial review by the Insurance Council of aspects of the Earthquake-prone, Dangerous and Insanitary Buildings Policy 2010 of the Christchurch City Council. We will refer to this as the City Council Policy. The University and Oxford Body Corporate 5 were added as parties as both owned substantial properties in Christchurch that were damaged in the Christchurch earthquakes and had a significant economic interest in the outcome. The High Court Judge recorded that for the University the differential between insurance cover to the level of strengthening advocated for by the Insurance Council and that provided for in the City Council Policy was about $140 million. 6 The Insurance Council's interest arises because of the implications of the City Council Policy for its members that have insured buildings that were damaged in the Christchurch earthquakes. The Insurance Council says the City Council Policy would affect the costs to insurers and building owners of repairing or reinstating

damaged buildings, the level of cover available under material damage insurance policies, and the willingness of reinsurers to invest in the New Zealand market.
5

The Insurance Council was successful in the High Court. Certain parts of the City Council Policy were set aside and the following declaration was issued: 7

The Court grants a declaration that in issuing a notice in respect of an earthquake prone building...

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